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How Big of a Commodities Bull Market Has Emerged?

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Using an index comprised of 555 resource stocks (primarily silver and gold focused mining and exploration companies), we calculated that the AVERAGE realized gain since Jan. 2000* was 439.2% as of 6/23/06.

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Here is a complete list of resource stocks with performance data since Jan 2000.

*Or nearest date with available data

As shown in the above spreadsheet, the top performer thus far was Silvercorp Metals (SVM - Toronto) with gains in excess of 34,000% during this 6-year period. But as far as we are concerned, there are plenty of fireworks still to come. The prices of many commodities remain near inflation adjusted historical averages/lows even with the recent 100%-300%+ increase in prices experienced over these past 5-6 years... and the fundamentals continue to strengthen.

What Fundamentals?

• The Middle-East is unstable (1970s parallel – one of the greatest and most well-known commodities bull market took place during this decade)

• The U.S. is at war (1970s parallel)

• The U.S. President's ratings are extremely low (1970s parallel)

• The U.S. deficit is growing very rapidly (1970s parallel)

• Oil prices are rising to all-time highs (1970s parallel)

• Interest rates are rising quickly (1970s parallel)

• Inflation is out of control –see below - (1970s parallel)

• The World's population is larger than ever before, with the net addition of about 75 million souls every year – a very important inflationary stressor.

• As a result, there are more stock traders, investors, and speculators than ever before – a secondary inflationary stressor.

• There is more money in existence than ever before and this amount is increasing rapidly in order to pay for ever mounting debts (China's foreign currency reserves alone are approaching $1 Trillion) – another obvious inflationary stressor.

• The largest population groups (Asians) in the world have the fastest growing economies – an inflationary stressor.

• The fastest growing economies are in the build-up stage where massive amounts of raw materials are consumed at a frenetic pace – still another inflationary stressor.

• Inventory stockpiles of copper, zinc, nickel, and others continue their fall down to dangerously low levels.

• Even as the supply/demand imbalances continue to widen for many metals such as zinc, few major discoveries are being made that could sufficiently fill the supply/demand gap and cap the price. This is the result of a 20 year bear market which discouraged exploratory investment. Of the few large deposits that have been found, they are almost all 2-5 years away from development. If Asian demand continues to charge ahead, even these may not be enough.

Wrapping It All Up

If history is any guide, this inflationary cycle will last at least another 5-10 years. Only at the end of this secular cycle will it be time to buy equities in general once again, but for now, one should specifically consider maintaining adequate exposure to the commodities/resource market through the purchase of its underlying securities.

Cyclic investing has worked quite well in the past, and we at Resource Fortunes believe it will work quite well yet again now and in the future.

Indeed, even if the worst befalls us all, a 'Greater Depression' of some kind let's call it, one's investment in commodities should still perform well above average, once again using history as our guide. For as history clearly shows, commodities and/or their underlying stocks super-spiked during the U.S. Civil War, during WWI, during the Great Depression of the 1930s, and then again during the inflationary recession of the 1970s. Don't let inflation eat away the value of your portfolio; let it fight for you.

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