Gold Is Sweet But Sugar Is Sweeter

I remember the 1970s. Now that doesn’t make me as old as you might guess; it means I started young as a market watcher. I started very young indeed. I bought my first gold share when I was about 7, it was called Metramar Minerals and would obligingly go from 7p to 14p about every year and as a small child I would buy at about 8p and sell at 14p for a tidy profit. Today its mining prospect, “Blue speck,” is still listed on the Australian ASX market through Calidus Resources. I chided the CEO for trying to sell me the same “prospect” I’d owned 50 years ago but he was sparky enough to inform me they were picking over the tailing of what was once super rich ore when I was indeed in short trousers.

What was more interesting at the time was the inflation driven commodity boom that spun out of the oil shock and the out-of-control money printing of those years of Cold War and socialist governance. The 70s were typified as inflationary but the post-war years were hugely reflationary, especially for assets, and it took a long period of economic rebuilding to reach a stage where the newly printed money started to overflow the system and rush into inflationary price spirals. When fiat hit the fan in the 1970s, up went commodities.

People remember gold because it had been artificially held low by the U.S. and it was hard to come by. In those days of capital controls, so many of the financial tools we take for granted now were not only unavailable but were downright illegal. You could not take your money out of your country for a start. We think tax is high today but back then, in the U.K., tax was 98% if you had the gall to have unearned income on top of your other earnings. Passive income was a social evil in 1970s.

So finally, the market caught up with the central planners and bang gold went from $20 an ounce to hundreds. Then off went oil, jumping 400%. Then one after another the commodities followed, each in their turn booming and crashing as broken economies fell into various states of recession and economies began to restructure. In Europe people forget that the government owned pretty much everything, from your phone service, to the steel mills, to the electricity company, to the banks, to the airlines and some are old enough to remember how crummy and moribund the services they provided were.

The overarching state created no room for balance or change and economic gravity ensured that slowly but surely these non-optimum systems crumbled and fell apart just as the Soviet system was to be shattered by the same process just over a decade later.

Commodities prices were the foundation that cracked first and brought about the painful but necessary reorganization of the early 1980s.

This is all opinion, of course, but what we see today is something similar to the 1970s again and the question is how to profit from it. We are in a new commodity/inflation zoom/boom/doom loop again.

Here is a nice long gold chart:

The lines are what a bull will see, though many gold fans will see bitcoin-style appreciation that would dwarf my projections. I am not such an ultra-bull but the trajectory of gold above looks fine to me. It is good to note the time axis. A major rise could take a long time.

Meanwhile it is the other commodities we should be watching. Which is the next food stuff to lose its base and go vertical? Wheat has already done it, so which one is next?

As a child I remember sugar. It went vertically from £60 a tonne to £300 and of course fell back again. But the rise was stupendous. Sugar is calories and as basic a need as flour. So when I see this I buy:

That is one sweet break out. But the chart below it sweeter still:

I believe these charts are extremely self-explanatory, so I won’t patronize my readers by spelling out the obvious. So I now have quite a lot of the Teucrium Sugar ETF (AMEX:CANE) and a pile of Calls.

Commodity bubbles are here to stay and it is only a matter of catching them as they come. Meanwhile gold is just going to grind along, because commodities and anything physical are not going up in value, it’s just that the value of money is going down…. way down.