Which commodity soars next?

The list of assets to do a Duke of York is immense. From iron ore to coffee, we saw prices get marched to the top of a hill…and then marched back down again.

Lately, gold and silver caught people’s attention. Copper is soaring too. But even commodities as boring as lumber managed to surge hundreds of percent. Before tanking, of course.

What’s behind the spikes and plunges?

At first we blamed the commodity chaos on supply chain disruptions. Remember that? It made sense during the pandemic. I could see the backlog of ships going to Brisbane from my dad’s dining table.

As the supply chain disruption ended, we blamed unusually greedy egg farmers instead. Or foreign conspirators. Or tariffs. Or mine accidents. Or climate change. Or dodgy African governments shutting down mines.

Students of history found this scramble for explanations incredibly amusing. It’s like there’s a chest of excuses buried somewhere. Each time money printing becomes fashionable again, the chest gets dug up. And the same centuries old excuses get dusted off and recycled into the media.

They aren’t just familiar. They are the same.

The truth is that all eras featuring monetary instability experience commodity price chaos. Both booms and busts. It’s par for course. Once you know which course you’re playing on, you expect it. And then profit from it.

This is just what inflationary
periods look like

True inflation doesn’t look like your high school teacher described.

And the differences between theory and reality are something we can profit from. So, let’s take a brief look…

Most economists will tell you about the “neutrality of money.” Meaning that inflation isn’t really a problem because all prices just go up evenly.

If we added a zero to every price, bank note and everyone’s bank account, that would be a tenfold increase in inflation. But it wouldn’t actually matter to anyone.

Some countries occasionally slice a few zeros off their money. I wish Japan would. But the point is, this needn’t have an uneven effect.

Money is just an illusion. Inflation doesn’t make a difference.

This is all theoretically true. Which is why academics believe it.

But it isn’t true of inflation in practice…

Cantillon effects

For hundreds of years, economists like Cantillon, Bastiat and Mises have tried to show people why inflation is actually rather problematic.

Even John Maynard Keynes understood this. And he claims Vladimir Lenin did too:

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of Society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

But why?

Why are modern economists wrong about the neutrality of money?

What’s wrong with inflation?

Inflation has many redistributive effects in the economy. We call these Cantillon Effects, named after the man who discovered them.

Cantillon grew so rich profiting from Cantillon Effects that he had to fake his own death in a house fire to escape the aristocrats who owed him too much money.

Cantillon Effects reveal that…

Money isn’t neutral

Commodity prices during inflationary booms don’t rise in a steady and evenly distributed manner. They don’t go up in line with the consumer price index. They spike and crash.

Only a long-term chart will show the overall uptrend.

This is why so many people living through inflationary periods don’t quite cotton on to what’s happening. They see the price of things like gold spike and crash without realising the underlying trend. They experience general instability, not the neutrality of money type inflation that economists describe.

When politicians blame speculators, supply chain constraints and foreigners for the instability, this appears to make sense. Because inflation is supposed to be the devaluation of money, not prices spiking and crashing.

It’s only with the benefit of hindsight that people realise it was an inflationary period they lived through.

The gold price crashed badly many times during the Weimar hyperinflation, for example. But that’s an extreme case to highlight the point.

And the point is that you can profit from the instability in commodity markets during inflationary periods.

Which commodity to consider next

We don’t know which commodity will soar next. But we do know there are several obvious candidates that are overdue…

Uranium is high on the list. The world is pivoting back towards nuclear power. Even the Germans have admitted they shouldn’t have closed their nuclear power plants.

While uranium is traded in long-term contracts, the potential for a speculative mania in the spot market through ETFs is high.

Oil is the noticeable laggard in the commodity space. It is top of my own list, if only for its potential to catch up to other commodities in coming months. If a catch-up begins, it may develop into a mania too.

But for the best opportunity right now, click here.

Just don’t forget that crashes are part of the story.