Short-Term Memory Nerves

The commodity & natural resource markets are partying like it’s 2007, led by oil & gold…

WHAT A MONTH May was for commodities, writes Dan Denning in the Daily Reckoning Australia.

Natural resources are the Lazarus of finance, come back from the dead to tell us all that the world will not stop turning if there is a financial crisis in the West. Or something like that.

If we were using numbers instead of metaphors, we’d say the CRB Reuters/Jeffries Index of the top 16 traded commodities just had its biggest monthly rally in 34 years…up 14% on the month in the best performance since July of 1974.

A monthly performance like that can only mean one thing. We’re just not sure what one thing it is. It could mean commodities have rebounded from being oversold, as they were in late 2008. It could mean that markets are less pessimistic about the global economy than we are at the Old Hat Factory (though we doubt that would mean much).

It could also mean that investors increasingly prefer tangible assets as a long-term growth strategy over paper assets. Even after $1.465 trillion has been taken in realised losses by global banks and finane institutions, there are trillions more to come. Commercial real estate…the option-ARM recast period in the US housing market…European banks…any or all of these things could conspire to lead to more losses and more capital raisings in the financial sector.

Perhaps that is what explains crude oil’s biggest monthly gain in a decade. July crude futures traded at $66.52 in Friday’s New York action. The US Dollar price of Gold meantime powered to $981.20, before sliding back a bit $975.

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