Before crypto was a thing, the hottest game in town was commodities. You could lever up to the moon and you still can, and those commodities could spike in a way that these days you can expect from a meme coin.
That was always the case with commodities famous for wild swings and wild market behavior caused by everything from the Four Horseman of the Apocalypse to market manipulation. The 1970s was a special time for commodities and that wild period was kicked off by the quadrupling of oil by OPEC, triggered by the “classic” commodity driver “war in the Middle East.” The oil shock roiled the world economy and derailed it, exploding inflation that had already been running hot under the surface of a post- war economic recovery that had run since the 1950s.
It is understood that inflation was runaway in the 1970s but what is not often highlighted was the boom in asset prices from the post-war late 1940s when all the money in the world had ended up in the U.S. Money was right after the war still linked to precious metals and by the end of the war the U.S. had bagged the lot and ended up issuing credit via the Marshall plan to the bankrupt nations lying in rubble that were only a few decades ago the economic superpowers. If you pull auction catalogues from the end of the 1940s and look at similar items selling at the end of the 1960s the prices are often 100x. No one had any money in 1947, but by 1970 the printing presses of the world had been running hot for years and the “oil shock” delivered a comeuppance.
So here we are two generations later and what do you know, commodities are acting like it’s 1974. Sugar was around 5 cents a pound in 1970 but in 1973 it took off and peaked at 65 cents. From the point when OPEC quadrupled oil till the end of the commodity boom pretty much every commodity had its moment of vertical price action, markets the crypto kiddies would call “moons” with their “god candles” of frenetic highs. Up like a rocket and down like a rock was not invented by crypto or the dotcom, and while it’s a market pattern that goes back to tulips and the south sea bubble, it has its traces far back in time to even before the first charting in the rice market of Japan.
So here we are again. Up goes cocoa, copper goes wild. It feels like Watergate and the Godfather II is in the air:
By the time you read this, cocoa has crashed from a peak of $12,000 to around $7,000 a tonne. Classic commodities action.
For the high risk brigade, it’s an invitation to sit and watch all the commodities and wait for them to serially go on the rampage. Inflation will reprice all the commodities and it is likely that this won’t be a smooth transition and rather than an orderly transit to higher basis prices will see a sequence of commodity price manias, with the same old pattern of vertically up followed by a bone crunching crash down followed by periods of aftershocks. Traders need only wait for the starting pistol on any commodity rally and jump on and off as they see fit to try and capture gains from this epoch of volatility. While this may be fun, it is strictly for traders and likely borderline gambling, but facing facts, this is what a decent part of the audience wants. To them I say, don’t forget to get out on the way up and watch that leverage. Commodities are the land of the margin call.
At the other end of the spectrum, the gold stackers can take further comfort from the fact that gold has broken out and is in new territory where $2,600 an ounce is no great stretch and $3,000 an ounce is certainly possible. A more aggressive prediction is to note that gold was the final hurrah of the 1970s commodities boom/debacle with a high of $800. Before Nixon unpegged the dollar from gold it was $35 an ounce. Roosevelt repriced gold from $20 an ounce to $35 but that was nothing like the repricing that followed the Nixon unpegging and ended with gold at $800-plus, a rise that the crypto bros would relate to.
So the idea is that this cycle could well end with a big gold rally, and while that might be 5 to 10 years away, gold stackers are used to waiting. The key to focus on with commodities is up like a rocket and down like a rock. Gold bottomed at $250 an ounce after the commodities cycle died, so if you ride any commodity rocket up remember you have to bail if you hope to keep your winnings, be that in sugar, oil or gold or whatever commodity goes on its inevitable rally.
Read the full article here
