Tags: Rogers | commodity | China | gold

Jim Rogers: Commodities Boom Is Not Over

Friday, 04 Oct 2013 11:48 AM

By Michael Kling

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Contrary to popular belief, the Chinese-driven commodity boom is not over, Jim Rogers tells Fortune magazine.

Time and again, Rogers has seen long-running bull markets falter, and people incorrectly predict their end. Instead of ending, the bull markets turned into a "mania" that ended in a bubble.

"I haven't seen a mania yet," says Rogers, who correctly predicted Chinese-driven a commodities boom.

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"I've been around markets long enough to know that when everybody's on one side of the boat, it's probably not the right side to be on.

"I don't see enough supply having come on stream in most commodities to end the bull market," Rogers tells Fortune. "Agriculture inventories are near historical lows because the world has consumed more than it grows for a decade now. Many minerals companies have canceled capital spending programs because they, too, have heard from Wall Street that the boom is over."

Rogers likes sugar and natural gas because their prices are depressed.

While sugar has been up the past few years, "it's still down 75 percent from its all-time high."

Regarding natural gas, he notes, "Many drillers have had to reduce their reserve estimates, and we're finding that production declines very quickly in those shale wells. When I see a company like Shell taking a $2 billion write-down on its shale assets, I take that seriously."

Rogers believes "we're going to have huge problems with agriculture and food in the next decade." One way to take advantage of this problem would be to invest in farmland, agricultural commodity indexes and stocks of seed and fertilizer companies.

Expecting the bull market in commodities to last, Rogers is working in Singapore in order to be closer to China.

"China has been trying to slow its economy for quite some time now. They've had an inflation problem. They've had a real estate bubble. But I know . . . that something positive is going on in China and has been for a while. They are growing, they have a high savings rate, they have a high rate of investment, and they have huge international reserves," he explains.

"The last time I bought Chinese stocks in a big way was November of 2008. If and when there's a panic, I hope I'm smart enough to buy again. My Chinese shares are not for sale. That does not apply to anything else I invest in," Rogers notes.

China has been key to supporting commodity prices, especially gold, reports the Financial Times.

Chinese demand for the precious metal has prevented gold prices from plummeting. Its gold imports have almost doubled this year, and the country is on track to become the largest importer and consumer of gold, overtaking India as the top consumer.

"I don't think we fully understand the size and the appetite of the Chinese market and its implications for the global price," Jeremy East, global head of metals trading at Standard Chartered said at the London Bullion Market Association's conference in Rome, according to the Financial Times.

"Where would the gold price be if China hadn't come in and mopped up? I wouldn't have been surprised to have seen gold testing its big support level at $1,050."

Still, there are signs of slowing demand. Investors may reduce gold holdings if the Federal Reserve shrinks its economic stimulus effort. If and when that happens, Chinese demand may not be able to support gold prices.

"The problem is much of the demand [from China] is related to the fall in the price. Like central bank purchases it has helped establish a higher floor but it won't on its own drive gold back up on a sustained basis," said Philip Klapwijk, managing director of Precious Metals Insight, at the gold market conference, reports the Financial Times.

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Related Stories:

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Slower World Growth Frightens Commodity Investors

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