Weekend Edition | Sunday, November 14, 2010

Let me ask you this: Is gold a bargain at $1,400 an ounce? Is crude oil a screaming deal at $85 a barrel?

Absolutely!

In fact, I think the prices of many commodities such as gold, crude oil, wheat, soybeans, copper and silver will continue to climb over the next year ... and will be much higher just 18 months from now.

Today, I'll tell you why that is. And why, even if you're only starting to invest in commodities right now, you could make a heck of a lot of money going forward.

After All, A New Commodities Supercycle Is Here!

There are distinct cycles in the commodity markets, and the last big bull market started a decade ago with gold.

But don't worry, you haven't missed the boat. Commodity bull markets typically last 18 to 21 years!

Moreover, I don't think this is an average commodity bull market. I think it's a "commodity supercycle" — a much longer period in which commodity prices absolutely soar.

This is a rare and powerful event, indeed. In fact, there have been only two supercycles in the last 150 years:

• Commodities Supercycle #1 saw the Industrial Revolution create powerful and sustainable demand for raw materials for 33 years between 1885 and 1918.
  
  
• Commodities Supercycle #2 started after World War II and ran for 29 years between 1946 and 1975 as the reconstruction of Europe and Japan helped set off a global commodity price explosion.

So what's fueling Commodities Supercycle #3?

Ravenous demand from emerging markets around the world for copper, aluminum, steel, coal and more is ramping up. China, Russia, the Middle East, India, Brazil and others are devouring raw materials as they build up their economies.

In fact, Merrill Lynch forecasts that more than $6 trillion will be spent on infrastructure improvements over the next three years — with 80 percent being invested in the BRIC countries (Brazil, Russia, India, China).

South Africa will spend $115 billion; Mexico, $140 billion; Brazil, $517 billion. In Russia and the Middle East, expect $500 billion and $586 billion, respectively. China, meanwhile, will spend more than all of the others combined — $3.8 trillion — mostly on water, environment, transportation and energy.

Plus, there are two more forces at work here:

Force #1: A flood of money from central banks desperate to keep their tottering economies afloat is lifting the boats of all hard assets.

Why?

Because while printing presses can manufacture money, they can't create more hard assets. That's why we call gold, silver, oil and other commodities "real wealth."

Force #2: The easy-to-access deposits of many basic commodities have already been discovered and used up.

Yes, we can find more oil, for example. But to get it out of the ground, we have to come up with new, cutting-edge technologies — such as in the Bakken oil shale or such as drilling offshore wells as deep as Mt. Everest is high.

So we can find more resources, but it's not cheap. And the further and further we have to stretch to get new deposits, the higher and higher the costs — and prices we'll pay.

You can see why a new commodities supercycle is here.

And while prices have already doubled, there's no reason they can't triple or quadruple!

Keep in mind that the last two supercycles pushed commodity prices higher for an average of 31 years.

Increasing Demand from Overseas Consumers
Will Only Stoke the Supercycle Fires Further ...

Only a generation ago, most people in China were riding bicycles. Now, China is the biggest auto market in the world. And the Chinese are hopping into their cars to go buy air conditioners, refrigerators and Western food.

They want to eat, drive and live like Americans. In fact, everybody does!

Asia boasts fully HALF of the world's population. And they are all traveling on a similar path — from austerity and rice bowls to prosperity and all-you-can eat buffets.

The restaurants are air-conditioned, and the consumer electronics are state-of-the-art. To me, that means their road to the future is paved with steel and aluminum, oil and coal, silver and copper.

Not long ago, some scientists figured out that if everyone in the world wanted to live like Americans, we'd need to find three more Earths to supply all the raw materials. That means commodity prices are headed higher, higher and HIGHER!

Just take a look at what's happening in individual commodities markets right now ...

Silver: As of Thursday, November 4, the U.S. Mint had sold more American Silver Eagle bullion coins in 2010 than in any other year of the coin's history. October sales combined with the 255,000 already sold in November lifted 2010 Silver Eagle bullion coin sales to 28,885,500.

What's more, every pullback in silver brings in new buying. On Wednesday, when silver dropped $2 an ounce, sales of Eagles soared to 675,000 on a single day.

My new target for silver: $50 an ounce!

Gold: Gold eagle sales are soaring as well, and worries over European sovereign debt are keeping the fires lit under the yellow metal. Demand for gold is rising among investors large and small, as well as central banks.

I now expect gold to go to $2,500 an ounce.

Copper: The red metal just hit a new record high because copper exports from Chile are under pressure, even as demand for copper in China ramps up enormously.

Result: The industrial metal, which is used in plumbing, heating, electrical and telecommunications wiring, has rocketed by around 50 percent since June to a new peak.

Oil: Global demand is rising, U.S. supplies are falling as our economy improves, and Chinese demand is insatiable. Is that bullish for oil prices? Heck, yeah!

In fact, I think crude oil is going to $105 a barrel in the next six months!

And agricultural commodities like soybeans and cotton are exploding higher, too!

Look, the math of the commodity bull market is simple:

You add the massive new demand in Asia with rapidly dwindling supplies, then multiply it by the rapidly growing amount of paper money in the world.

What you're left with is the potential for this supercycle to drive prices to all-time highs ... then, to all-time inflation-adjusted highs ... and ultimately, beyond.

What's important here is that big bull markets like this one usually don't provide "perfect" entry points. Those who are waiting for the "ideal" place to enter the commodity supercycle may have a long and frustrating wait..

You can sit on your hands and watch the parade of profits pass you by. Or you can join in. The choice is yours.

Yours for trading profits,

Sean