Oil and Gold Continue To Make People Rich and Spook Others

Oil and Gold have both hit new highs. Like I commented before, I see no real fundamental reason why oil continues to climb, other then the strong bullish trending that seems to creating a huge reluctance for anyone to sell or short. Commodity markets are not like stock markets. Commodities rise in price out of fear, stocks fall in price for the same reason. A weird inverse effect in sentiment seems to occur in both the stock market and commodity markets. General investor pessimism/optimism seems to teeter between the two markets like a seesaw, largely because commodities are seen as a hedge against economic problems.

Interestingly enough, this rarely applies to the price of both markets. Even with the grand amounts of stock market worries and concerns last year, it still finished the year in the black (as did commodities). It seems volatility, not price, is the key link between the two markets. This relationship makes commodities an excellent hedge; but not against a fall in the stock market. It’s a hedge against turbulent periods of time. Many are quick to jump on the ‘commodity and emerging markets’ portfolio as a way of continuing positive gains. The problem is, once stability returns to the US markets and long term funds become more comfortable with slowly acquiring positions, the volatility will shift from the US to elsewhere.

For the savvy investor, this is fine, as they possess a deep belief in their well researched fundamentals. For your investment bandwagon-er, the guy who merely takes ideas he here’s and applies it without understanding the logic it entails, this fellow may end up very disappointed with the performance of his portfolio.