Jim Rogers Cites Four Key Forces Fueling The Current Gold Sell-Off
Garrett Baldwin: In October, legendary Quantum Fund manager Jim Rogers made a prediction about gold prices that left many gold bugs shaking their head.
Although Rogers admitted he wasn’t going to be selling his hard assets, he predicted further consolidation and a near-term correction in the metals markets.
Predicting this short-term downturn, Rogers cautioned that gold had been on the rise for twelve consecutive years, a streak that was unparalleled. That was then.
This week, his prediction rang true as gold and silver prices took another huge hit. In the aftermath, gold prices are now down approximately 30% since reaching an all-time high in August 2011.
According to Rogers gold prices have even further to fall.
“I have repeatedly babbled about $1200-1300/oz., but that is just because that would be a 30-35% correction which is normal in markets,” he told Business Insider this week. “But I am a hopeless market timer/trader.”
Rogers cites four key forces fueling the current gold sell-off:
- India raised its gold import tax from 4% to 6%, which has limited the demand for gold in the world’s largest market for the metal.
- Technical analysts and chartists have been arguing that prices would fall.
- The collapse of the Bitcoin over the past two weeks coincides with many of the digital currency’s owners also owning gold.
- Finally, Rogers believes Germany’s demand that Cyprus sell part of its holdings in gold to alleviate debt concerns added to the sell-off.
Naturally, Rogers can bask in the moment. His gold call was right on the money.
But it’s the second part of his October recommendation that deserves attention as well. Although it didn’t receive as much fanfare as his gold call, Rogers nailed another one that day.
At the same time, he was warning on hard commodities like gold and silver, he also said there was a huge opportunity in agriculture and soft commodities.
Now for anyone who has been paying attention, the agriculture sector remains a prime area for growth in a world where glaring fundamentals point to serious problems on the horizon in keeping people fed.
A State of Concern for Global Agriculture Markets
In fact, Rogers has been on a one-man crusade to raise alarm bells about the deteriorating state of the agriculture industry and has issued a call-to-arms for more individuals around the United States to study agribusiness.
Although grain prices did slip this week during the sharp commodity sell-off, agricultural commodities remain far better positioned to recover in the near term. Aside from the obvious observation that investors can’t “eat gold”, grain prices are supported by far greater economic forces than hard metals. All of them point toward rising prices.
Rogers’ basic thesis has been quite simple: Demand is far outpacing food supply, farmers continue to retire around the world, and global inventories and feed stocks are now hovering at historic lows.
Add in lingering concerns about last season’s crippling drought and potential food shortages in the future, and it’s easy to understand why corn was a top performing asset in the second half of 2012 and will likely remain so for the better part of the decade.
And it’s not just investors pointing out why food prices are likely heading north.
According to the United Nations, the world population is set to grow to nearly 9 billion by 2040, up from 7 billion today.
But the real driver of food demand stems from rising global wages and a three-billion-person expansion of the global middle-class, which points to exponential growth in demand for food.
According to U.N. estimates, the world will require a 50% increase in food production, a 45% increase in energy, and a 30% increase in water. But while these problems might scare the average person, such concerns have long been alleviated by the agricultural sector’s resilience and unrivaled ability to innovate in order to meet new challenges.
And there are more ways to make money off these trends than just buying farmland.
The Best Way to Play the Ag Boom
It’s not just grain production that offers investors an opportunity to make money off the land.
The agricultural sector is highly consolidated with specialty firms that emphasize technological innovation in order to meet the booming rise in demand for food.
One company poised for strong growth over the next decade is Archer Daniels Midland (NYSE:ADM).
A global pioneer in commodity production and value-added services, ADM’s stock is up 17.5% since the start of 2013 and currently pays a 2.36% yield. The company owns ADM Alliance Nutrition, a leading producer of livestock feed ingredients. And it’s the animal nutrition industry that’s taking center stage with meat demand on the rise.
Companies with expertise in animal nutrition will be critical players in servicing the booming Asian markets where dietary transitions and a rising middle class has led to an explosion in demand for pork and other meat products.
More than half of the world’s pigs-approximately 476 million-are in China, and pork production is now so central to the Chinese diet, that the government has created a strategic pork reserve to accompany its strategic reserves of oil and grains
But for those just looking to enter agriculture based on the knowledge and enthusiasm of Jim Rogers, look no further than the Rogers International Commodity Agriculture ETN (NYSEARCA:RJA).
The Index represents 20 agricultural commodity futures contracts, and is comprised of commodities consumed in the global economy. The index’s largest allocations are dedicated to corn, wheat, cotton, and soybeans.
The index is poised to capture growth in the coming decade, as global demand is being predicated by emerged economies like Brazil and China.
No, you can’t eat gold. But you can buy invest in a farm and capture profits as demand outpaces supply in the global agriculture markets.
If you’re one of the investors who got slammed as gold plummeted this week, don’t panic. We asked our trading expert Shah Gilani what’s next for the yellow metal in the following report:Investing in Gold: Here’s What to Do Now
Related: SPDR Gold Trust ETF (NYSEARCA:GLD).
We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the flattening of the world continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet.And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.