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A Money Shift Into Commodities Ahead?
The stock market has been in a nine-year uptrend, with stock prices accelerating in 2017 on anticipation of a friendlier business environment.
If the old “buy the rumor, sell the fact” saying has any validity, the stock market may be the perfect example. As stock prices continue to move higher and investors see gains, confidence and a bullish attitude grow. One look at this year’s gains in the stock market suggests unbridled enthusiasm. At some point, a top will be in.
An upward acceleration could be great for returns one day, and spell a top and a recipe for disappointment or a disaster, should stock prices plunge. Stock buyers beware.
On the flip side, commodities have been trending in a sideways market for a couple years, and have lost significant value since peaking in 2012. Ample supplies of many commodities, both domestic and worldwide, suggest there’s no urgency for investors to shift dollars into commodity ownership – at least not now. That could change.
One scenario that could develop is that money moves from the stock market into commodities in the next year. Four years of low prices has spurred significant demand, which continues to grow. The old saying is “low prices cure low prices.” Demand may be viewed as a ship which, once sailing, does not turn around unless prices increase.
What can drive prices higher? It will take a shortfall of supply, increased demand, or both. Many commodities, such as corn, are priced at or below the cost of production. End users are able to buy at bargain prices. Should the stock market peak and investors seek new investments, commodity markets are poised to be the recipient.
While it may not be fashionable for money managers to buy oversupplied commodities now, growing demand has set the stage for higher commodity prices. Markets move on perception, momentum, and attitude. As these variables change and align in the commodity markets, money will seek opportunity. Wishful thinking? Maybe, yet history would suggest otherwise. Prepare yourself for any scenarios.
If you have questions or comments contact Top Farmer at 1-800-TOPFARM, ext. 129.
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