Making Sense of Nonsense

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While there's little doubt that yet another guru will call the gold bullion price to above $1,000 an ounce within the next week, how can that be turned to use? Commodity forecasts are notoriously short lived in terms of investor memory; relying more on the "big picture" can be far more rewarding.

Hardly a day goes by without an expert voice lending weight to the debate over the status and future of the commodities supercycle - if indeed there is one. The number of experts in the field has increased exponentially since early 2002, when the commodities bull market dug its hooves deep into the dirt, and faced the world.

Just take two examples from this week. First, Goldman Sachs, the most active investment bank in global energy markets, raises its forecast for oil prices in the second half of 2008 to an average of $141 a barrel - and oil promptly moves to new records above $135 a barrel. Next, Citigroup analyst Heath Jansen says that the rally in commodities - including metals - is only "half way through". Next, Edward Morse from Lehman Bros calls investments in commodities "a potential asset bubble"...

Like weather forecasters, the duty of commodity professionals is not to get the facts right like a supernatural time traveler who has been into the future and come back, but to provide useful information, hopefully some of it in the future tense. The challenge today is that the noise around commodities has reached a deafening pitch. This week, oil moved back to the forefront of media - and investor - concerns.

Yet at least one seasoned group of professionals will tell you that this is not time to sell oil (the commodity), even if it is indeed overbought. There are a number of reasons for this; too many to mention here; suffice to say that while oil expenditure as a percentage of global gross domestic product (GDP) has doubled in the past four years (to nearly 6%), there are still no serious signs that a "choke point" has been reached...

While there's little doubt that yet another guru will call the gold bullion price to above $1,000 an ounce within the next week, how can that be turned to use? Commodity forecasts are notoriously short lived in terms of investor memory; relying more on the "big picture" can be far more rewarding.

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