Matthew Boesler writes that Jeffrey Currie, Goldman Sachs Head of Commodity Research, in his investment outlook for 2013, says commodity prices may be done going up, but that doesn’t mean investors can’t still make money.
Currie’s explanation is this: sustained high prices over the past decade have caused producers to invest in new technologies that help them to harvest more commodities, because they can sell them in the current market for high prices. However, those new technologies have the effect of relieving long-term supply constraints, because the world will be able to use them to access previously unaccessable energy resources, shale oil being just one example.
If Currie is right, returns will be “generated more by the backwardation in the term structure and less by price appreciation”. That means that investors can profit from rolling current contracts into consecutively cheaper future contracts. But it also means a bear market in resources stocks as commodity prices fall.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.