WSJ’s Denning: ‘This Generation’s Golden Age of Commodities Is Over’

Friday, 26 Apr 2013 08:05 AM

By Dan Weil

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The 15-year bull market for commodities has run its course, according to Wall Street Journal columnist Liam Denning.

“This generation's golden age of commodities is over,” he writes.

The two main causes of the long rally in industrial commodities are no longer present, Denning says.

Editor's Note:
 
'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

“First, low prices discouraged investment in new oil fields and mines through most of the 1980s and 1990s. Second, demand in emerging markets, especially China, jumped. Neither factor will hold this decade in the way they did during the last.”

Rising prices led to investment to increase supply. “The most obvious example is the rebound in U.S. oil-and-gas production,” he explains.

Consulting firm IHS Herold forecasts that global spending on oil and gas resources will total approximately $700 billion this year, more than four times the total of 10 years ago.

And while supply surges, demand is sagging, Denning notes.

“For oil bulls, China is the great offset to this. In the decade ended in 2007, it accounted for 29 percent of oil-demand growth,” he writes.

But Chinese oil consumption won’t be able to keep up its torrid pace of the last decade, Denning predicts, as the country’s economic growth is slowing.

“Metals demand could fare even worse [if China’s economic growth shifts toward more consumption], given how closely it is tied to China's construction binge,” Denning states.

“There is still money to be made in commodities,” he adds. “But this will require active management, market knowledge and timing. That is more suited to the skills of specialized traders than the buy-and-hold index investing that took off over the past decade or so.”

MarketWatch columnist Matthew Lynn disagrees with Denning when it comes to gold. The precious metal “is still in a long-term bull market,” he writes.

Lynn sees three major economic factors that will drive it higher: the euro’s weakness, Europe’s economic woes and the global debt crisis.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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