Gold must still lose about 65% of its current value before we hit the bottom of this latest commodity cycle, around 2020 or 2023 and when the markets unravel, as they must, gold will tumble, just like it did in 2008. It’s NOT a safe haven in a deflationary environment…After this cycle has wrapped up and we head into the upward swing of the next one, then gold will soar, along with several other very specific commodities.
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The next iteration of this cycle just ahead should prove to be the biggest boom in commodities yet. There’s a trick to this though. The general commodity index (CRB) has one of the most clockwork-like cycles I’ve ever seen. It’s a full cycle of 30 years but:
- the commodities within that index don’t cycle as smoothly…The tops we saw in 1920, 1949 to 1951, 1980, and 2008 to 2011 are very consistent, right at that 30-year mark, give or take a year. The bottoms are more variable.
- After the 1920 top, commodities bottomed in 1933, trending down for 13 years.
- However, after the 1951 top, the index only bottomed again in 1968 – 17 years later –
- and after the 1980 peak, commodities took 21 years to bottom out, although most of the losses occurred into 1986. The first six years of that downward leg of the cycle were brutal before prices wafted more sideways and a bit farther down until 2001.
Despite all of that, the commodities cycle is one of the most reliable in my arsenal. It really doesn’t get better than this on its longer-term cycle for peaks. See for yourself:
The dual 2008/2011 peaks led this commodity bubble burst around the world and looks close to a bottom in the years ahead.
- The first peak in mid-2008 was driven mostly by energy, industrial metals, and agriculture.
- The second peak in early 2011 was thanks mostly to precious metals and some industrial metals like iron ore or copper.
While gold has not yet hit my next target of near $700 an ounce (range of $650 to $750) – and mark my words, it will – I do believe we’re reaching the end of the commodities downturn, which will wrap up likely by early 2020 and by 2023 at the latest. The biggest clue is the 80% crash in crude oil and iron ore.
2023 is the most natural bottom from a 2008 peak, forming a 15-year down cycle but we may see some signs of new life earlier because this downturn has been so extreme thus far… and because the demographic force of emerging countries will directly impact commodities. They will likely turn up sooner than major developed countries like the U.S.
Regardless, a major commodity boom is set to start between 2020 and 2023, and will run into 2038 to 2040 and, from all indications, it’ll be a major boom. I’m talking as much as 4.8 times, which is bigger even than the largest bubble since the late 1800s into 1980, that clocked in at 3.15 times.
Gold bugs are right. We may well see $5,000 per troy ounce, but only during the next commodity boom. First gold has some excess weight to shed.
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