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Soaring precious metals

Gold has been garnering a lot of attention as gold prices have soared to new all-time highs again this week to $12. Gold is a traditional store of wealth, and
has long been held as an inflation hedge against future inflation. With gold
soaring to new highs, lots of commentators are taking note and worrying about
what that means to the future of the US economy. Many worry about inflation in
the next few years, but currently the inflation rate is almost negligent for the
US economy. So investors have been pouring money into gold as a store of
wealth, especially since the US dollar (once considered the store of wealth) is
declining in value recently.

But gold is not the only precious metal that has been soaring in price in 2009.
While gold prices are up a huge 37% in 2009 thus far, many other precious metals
are up even more for the year. Silver, for example, has rallied 71% in price
from the beginning of this year, making silver a better investment thus far in
2009 than gold. Platinum is up 60.9%, also up more than gold prices.

Copper prices are up the most, gaining 132% into Wednesday's trade, a huge gain
for copper in 2009 as prices have more than doubled since the start of the year.
Palladium is up 105%, another strong gain and another metal that has gained
enough to more than double for the year. One can see that not only are
investors interested in storing wealth in gold, but in other precious metals as
well. So far, that bet on precious metals as a good storage source of wealth
has been a good one, as these commodities have all been excellent investments in
2009 (better than the stock market, and that has been good as well in 2009).

The gains for metals are some awfully strong gains for the year for the precious
metal group as a whole. These are up much more than grains, which are
struggling more this year after the 2006-2007 gains that were so significant.
For comparison purposes, corn prices are down 4% in 2009, wheat prices down 9%,
and soybean prices up 6% for the year. These are very little change relative to
the precious metals. In fact, one could argue that grains have not kept pace
with the other commodities in 2009, a year when most commodities increased in
value. A potential reason might be that 2009 wheat, corn, and soybean yields
were all above 'average' trend yields. The better than average crop sizes might
be keeping grains from keeping up to the other commodities.

Compare that to the energy class of commodities. Crude oil has been up 72% for
the year 2009 thus far, while heating oil is up 45%, ethanol up 32%, and
gasoline up 98%. So for the year, the energy markets for the most part have
been up sharply, but the quantity of the price rise varies a lot from one type
of energy contract to another. Why did energies rise so much??? We could argue
that to decline from $147 in mid-2008 to near $40 crude oil by the end of 2008
was a drastic change indeed. Maybe energy markets started the year at already
well depressed levels?

What is the 'average' rate of price increase for commodities in 2009? The CRB
index (the average of all commodities used in industrial countries) rose about
21% so far for 2009 so that is the 'average' amount of price rise for
commodities. Some people argue that commodities all rise and fall in relative
unison, but we know that isn't necessarily the case for 2009, as there is quite
a difference between the grains, energy complex, and the precious metals.
Grains have risen less than the average, while both precious metals and the
energy contracts have all risen at higher than the average pace of commodities
price rise.

This summary of 2009 numbers shows that categories of commodities tend to rise
and fall together, but not necessarily always true! Its good to know why these
vary by commodity class, and what that might mean for the future.

The information contained, while not guaranteed as to accuracy or
completeness, has been obtained from sources we believe to be
reliable. The opinions and recommendations contained are based on
our judgment and do not guarantee that profits will be achieved
or that losses will not be incurred. Recommendations should not
be construed as an offer to buy or sell commodities. There is
substantial risk of loss in trading futures and options on
futures.

If you have questions about this column, call Progressive Ag at 1-800-450-1404,
or email ray at rlg@progressiveag.com.

Gold has been garnering a lot of attention as gold prices have soared to new all-time highs again this week to $12. Gold is a traditional store of wealth, and has long been held as an inflation hedge against future inflation. With gold soaring to new highs, lots of commentators are taking note and worrying about what that means to the future of the US economy. Many worry about inflation in the next few years, but currently the inflation rate is almost negligent for the US economy. So investors have been pouring money into gold as a store of wealth, especially since the US dollar (once considered the store of wealth) is declining in value recently.

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