Chris Martenson: Commodities Look Set to Rocket Higher

chrismartenson.com

I’ve been asked to comment on the work of a few noted deflationists who are calling for a top in commodity prices here. Their argument is pretty clear cut: Because inflation is a function of available money plus credit (their definition), and because credit has fallen, deflation is what comes next. When looking about for things to deflate in price, commodities are an obvious candidate for attention because they have risen so much over the past decade.

In this view, three things have to be true:

1. Demand for commodities has to fall below supply. After all, as long as demand exceeds supply, prices will typically rise.

2. Money, including credit that would normally be used to buy commodities, has to shrink. That's the definition of deflation that we're analyzing here.

3. People's preference for money has to be greater than their preference for 'things,' with commodities being very obvious 'things.' That is, faith in money has to be there or people will prefer to store their wealth elsewhere.

These are all just versions of the old supply/demand argument for commodity prices, except that our consideration also includes the important element of the Austrian economic view of demand for money.

There are several reasons why I think there are serious holes in each of these conditions. Enough to warrant a healthy degree of caution in one's certainty about what 'must' happen next to commodity prices. 

Full disclosure: I continue to have 75% of my total net worth locked up in gold and silver, so I am decidedly in the camp that does not believe the commodity surge has yet run its course.

The article is quite technical so I have not attempted to reproduce it.

For the article GO HERE