The Great Reflation: How Investors Can Profit from the New World of Money

Chapter 12. Commodities

Nearly every time I strayed from the herd, I've made a lot of money. Wandering away from the action is the way to find the new action.

—Jim Rogers^[76]

After the crash, it didn't take long for commodities to get back into play again. The gains from the lows have been quite spectacular. By late 2009, gold, silver, copper, and oil were up by between 60 percent and 150 percent, and the broader indexes were up by between 40 percent and 45 percent. Once again the media are beating the drum and many investors are contemplating what role, if any, commodities should play in their portfolio decisions. Jim Rogers is unquestionably an investment genius and a commodities guru. His recommendation, to avoid the popular investment themes of the day and look for the undiscovered, is universally sage advice.

Do commodities as an investment class, given all the recent attention, hype, and speculation, still meet the requirement of being away from the herd? Undoubtedly, they did in 2001. The main commodity indexes then were much lower than they were in 1980, as can be seen in Figure 12.1. Rallies over the following 20 years were brief and mild and the underlying trend was down. After 2001, it was a different story, and a forceful case for commodities could be made based on 20 years of underinvestment by producers and poor returns for investors. All the major commodity indexes exploded upward after 2001, gaining around 250 percent by the peak in mid-2008. Fortunes were made and ...