Forum Post: What happens to commodities in a bond crisis?
Posted 13 years ago on Oct. 26, 2011, 10:32 p.m. EST by thoreau42
(595)
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I've been hearing about how Greece and this Euro debacle can trigger a bond crisis here in the States. What happens to the price of commodities in a bond crisis? I'm assuming this means a mass sell-off? Anyone with some knowledge of the economics, drop it on me!
If you want a simple answer, which I assume you are looking for, commodities go up. This isn't always true because there are a lot of factors along the way. Like in Europe, they outlawed short-selling to decrease volatility in the market and silver was one commodity that was stabilized by this. Another example is the Comex can increase gold reserve requirements to suppress gold prices from increasing, which they have done several times this year. So I guess if we had no government, no monopolies manipulating markets and everyone perfectly rational, commodities should go up as bonds tank. This is overly simplistic, but I hope that's what you were looking for.
Good post
Good answer, Thanks! Intervention makes things so much harder to predict. What a racket!
http://www.counterpunch.org/2013/12/27/us-treasuries-cross-into-danger-zon/
No one wants to bail out Greece with there tax money so the Greeks can just sit on the beach and drink ouzo.
Help! I all of a sudden can't respond to any messages when they pop up on the main forum page. Did I get blocked?
It's happening to everyone, I think. 403 error
Which commodities are you particularly interested in?
Silver in particular, but I would also be interested to know views about what commodities are generally the strongest.
silver is used in solar panels - solar is one of the few power sources that does not require water - we are running out of water!
Precious metals futures, such as gold and silver, will generally go up whenever there is any sort of major economic crisis because they are regarded as ultimate safe havens for storing value.
But there are a number of variables at play. To put it simply, all commodities are traded in USD so there is an inherent negative correlation between the two. Additionally, bonds, and more precisely, US treasury bonds are the typical safe havens when a recession hits and equities fall. This boat has already sailed in 2008 - 2009.
Precious metals futures have had a very strong bull market since the beginning of the financial crisis. Despite being used only meagerly in industry, unlike oil or gas, they benefited from their perceived storer of value characteristic. If the EU does edge closer to collapse, expect more money moving into silver and gold, as well as, US treasuries. But when the global economy does finally stabilize and even start to expand again, expect that assets in silver and gold will be sold in order to purchase better performing equities.
In my opinion, unless you have a lot of time to follow these markets and are experienced with hedging your downside risks, trading in commodities today is akin to playing with fire. Gold and silver are just rocks with very little intrinsic industrial value. It is a market waiting to pop. If you think you can play the timing game, good luck not getting burned.
Great post, thanks. Yeah, seems like bonds are in for a rough ride. The timing is the real trick. I am definitely not experienced, and not investing with a lot of money, but doing the best I can to make a little here and there. Even with a couple bad timed moves, I'm up 30% on the year. One of the reasons I like silver is because of slightly more industrial use, which (in theory) keeps the demand stronger. Thanks again, appreciate it.
Boom! Help!?
Surely there's some peeps out there who know how this works?
I would think that some would do pretty well, especially precious metals. You have to remember, people don't like to sit on cash. If you sit on cash, you loose money because you aren't even keeping up with inflation. Therefore if there is a bond sell-off, that money has to go somewhere else. Commodities are probably the safer bet over stocks.
A lot of non-precious metal commodities, like food, have a fairly constant demand since people are still going to eat in a bond sell off. That represents a safe bet in a time of crisis. Also, the emerging economies are growing so fast they are putting a constant strain on a lot of commodities.
In full disclosure (like on CNBC haha), I have been buying some commodities when the prices dip over the last few months. I like them over the next 2 years or so.
Thanks. Full Disclosure, I am invested in SLW. Silver has been taking it to the bank recently, and by all accounts, should continue, but a slouch in commodities obviously means a slouch in the stock. Trying to see if the coming wave is ride-able or if it's going to do some destruction.
Go to Google Finance or Yahoo and plot out SLW vs the S&P or a bond fund over 5 years.
Kind of surprisingly, you'll see that SLW fell even more than the market.at the lows. Then it bounced around for a little while before starting the long climb after the bail-outs and debt increase. I think that probably reflects the reduction in the real value of the dollar more than anything else.
Since the first of the year it's been up and down kind of looking like it's just reacting to events and waiting for something to emerge to drive it either way. Like I said above, your guess is probably as good as any as far as which way and to what extent.
As a silver streamer, their prices are heavily influenced by the price of silver. As the prices go up, their profits have increased exponentially. They have long term contracts with miners for (as an example) 4$ an oz. The raw commodity dictates profits.
Thanks for the heads up. I'm getting the feeling that stocks might not be a good investment by the end of next month altogether. I should learn how to trade commodities and futures, seems to be a better market for those in a downward market..
All of this is assuming our currency isn't destroyed in the near term, obviously.
I'm sitting mostly in cash until things settle down. Capital preservation has served me well in recent years. If I'm in, then I'm not in for long. It's just too hard right now to guess what event might happen on any given day and there's too much down-side risk.
I agree, I'm trying to figure out better ways to make money as the economy continues the inevitable downward spiral. I've been debating getting some physical silver.
I'm surprised how little general knowledge there is about economics and finance. I just started teaching myself a year and a half ago. Most peeps don't know squat.
The problem with physical metals beyond just the usual pricing and when to buy is that once you do it's kind of dead money. I have silver and gold coins as kind of a SHTF investment. Good to have, but on that basis I can't really sell the damn things even when the price is up. lol
I'm not sure when I ever would. Don't want to do it when the price is up since that's likely to mean that the paper money I'd be getting isn't looking real great. Don't want to do it when the price is low obviously. So it just sits there doing nothing for me. Even though it may be worth more on paper, practically it's not really. Short of a zombie Apocalypse anyway...
Nobody knows?
Yo, help a brother out!
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Depends on how you want to view it. Some will say that they'll rise as reservoirs of true value. Some will say that they'll fall as indicators of likely slower economic activity due to general disruption in markets and related affects on business and consumers. Some will say that they'll sell off as people need to cover or otherwise want to pull back to cash. Your guess is as good as any. I think that you'll find if you look back to the Lehman days, they bounced around some and then were generally down or didn't move as much as you might expect, even precious metals.
Thanks!