EC 2014: Gold Stocks Winning!

Half of 2014 is nearly behind us, and little is turning out as popularly expected. That is unless one was watching development of the past year with an unbiased view. As can be observed in the following chart, the GDX, a Gold stock ETF, has been a stellar performer thus far this year. The return on that ETF has far exceeded that widely available in most of the equity markets, and certainly far more than the NASDAQ, a market filled with Techno/Junk. Part of the reason for that stellar performance is that $Gold,  Agri-Food Prices, and oil have all staged nice rallies based on strong demand, which was certainly not anticipated by most of the investment community.

The change in the ranking of returns being observed this year is not a chance event. Rather, these returns flow from fundamental changes taking place. Gold has risen this year as the dollar, measure by an unbiased index of foreign currencies, peaked in January. Foreign exchange markets have correctly assessed the dismal outlook for both the U.S. economy and stock market.

Agri-Food prices have risen on continued strong demand. The Federal Reserve may be able to create high-powered money, but it cannot produce a calf. A popular media report this past week has been “Price Index for Meats, Poultry, Fish & Eggs Rockets to All-Time High” by Ali Meyer of, 17 June. Per this report,

“ The seasonally-adjusted price index for meats, poultry, fish, and eggs hit an all-time high in May, according to data from the Bureau of Labor Statistics (BLS). In January 1967, when the BLS started tracking this measure, the index for meats, poultry, fish, and eggs was 38.1. As of last May, it was 234.572. By this January, it hit 240.006. By April, it hit 249.362. And, in May, it climbed to a record 252.832.”

The movement higher in Agri-Food prices is not a transitory event, but rather is the consequence of rising demand around the world. Prices for U.S. feeder steers are at all time highs, suggesting that the end to the rising price of beef is not likely till next year. Steaks are not produced in a factory.  Corn and soybeans have recently been selling in the U.S. at prices that will likely be lifetime lows. The food in your freezer has outperformed most equity portfolios thus far in 2014, and will likely continue to do so.

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Disclosure: No positions and no intention of positions at this time.

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