MacroVoices #401 Leigh Goehring: The Role of Monetary Policy in Commodity Investing
Nov 9, 2023
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Leigh Goehring, Co-Founder of Goehring & Rozencwaj, discusses the relationship between monetary policy and commodities investing. Topics include gold-backed digital currencies, the impact of monetary policy on commodity prices, predictions for gold and oil prices, and the role of commodity-related equities in investing.
Understanding the relationship between interest rates, monetary policy, and commodity prices is crucial for investors.
Gold and oil are expected to be the main leaders in a potential bull market in commodities, with gold potentially reaching $15,000 by 2035.
The impending transition in the oil market from a structural surplus to a structural deficit will have significant implications and change the perception of oil.
Deep dives
Implications of Commodity Prices & Monetary Policy
Commodity prices are currently at historically low levels relative to financial assets, such as the stock market. This has only occurred a few times in the past, which suggests a potential shift in the monetary policy regime. In previous instances, periods of low commodity prices coincided with loose monetary policy, leading to intense financial speculation. Understanding the relationship between interest rates, monetary policy, and commodity prices is crucial for investors. This assessment highlights the importance of interest rates in commodities investing and the potential for a significant change in the monetary policy regime.
The 1970's Commodity Bull Market as a Reference
The current market conditions and the depressed state of commodity prices resemble the environment of the 1970s, which experienced a significant bull market in commodities, particularly gold and oil. Historical patterns suggest that this decade may also witness a similar bull market in commodities. Gold and oil are expected to be the main leaders in this bull market due to their fundamental factors and undervalued positions. The potential for gold to reach $15,000 by 2035 is highlighted, reflecting a historical relationship between the size of the Federal Reserve's balance sheet and the amount of gold in circulation.
Market Analysis: Recent Oil Price Decline & Future Outlook
The oil market has seen a significant decline in prices, breaking through key technical levels and experiencing a bearish trend. Factors contributing to this decline include the washout of bullish positions, geopolitical events, and changing market sentiment. The current market dynamics suggest that there is a need for increased spare capacity to accommodate potential disruptions in supply due to geopolitical risks. Although there is a possibility of OPEC+ intervention to support prices, the market still faces more downside risk. The ongoing geopolitical situation and potential future events will continue to impact the oil market's direction and volatility. Overall, caution is advised in trading oil due to the complex interplay of geopolitical factors and market sentiment.
Oil Market Transitioning from Surplus to Deficit
The podcast discusses the impending transition in the oil market from a structural surplus to a structural deficit. With the expected decline in oil supply growth, there is a shift in the market dynamics that will have significant implications and change the perception of oil. Contrary to popular belief, oil demand is not rolling over and is, in fact, strengthening, with projected increases in consumption. While the future price of oil remains uncertain, it is expected that the market will rebalance as supply and demand align.
Potential Monetary Regime Change and the Role of Gold
The podcast explores the possibility of a monetary regime change, particularly the potential for the US dollar to lose its reserve currency status to a surprise competitor. There is a discussion about using software engineering to develop a centralized digital currency system backed by gold or energy, which could compete with the US dollar. The importance of having an asset class with liquidity and the ability to balance trade-related imbalances is highlighted, with gold being considered as a potential solution. The accumulation of gold by countries like China and Brazil is seen as an indication that they may be preparing for such a scenario. The future of global currency systems and the role of gold in them is uncertain, but it is an area of interest that should be closely watched.
MacroVoices Erik Townsend and Patrick Ceresna, welcome back Goehring & Rozencwaj Co-Founder Leigh Goehring as this weeks guest. Erik and Leigh will discuss the relationship between monetary policy and commodities investing, gold-backed digital currencies and much more. https://bit.ly/468MiA2
