Why Gold and Platinum Are Buys
In a slow economy, commodities are particularly sensitive to supply. And what's happening in South African mines could mean short supplies of gold and platinum, writes MoneyShow's Jim Jubak, also of Jubak's Picks.
When the global economy is booming, all that investors in commodity stocks seem to pay attention to is news about rising demand.
China increases its imports of iron ore, and shares of Vale (VALE), BHP Billiton (BHP), and Rio Tinto (RIO) climb. Housing sales rise in the United States, and the shares of copper miners such as Freeport McMoRan Copper & Gold (FCX) and timber producers such as Weyerhaeuser (WY) go up with them.
Of course, there are doubts about growth even during a boom, but investors don't do much listening to the pessimists.
When global economic growth falters, as it has now, stories about demand have a harder time winning investor mindshare. When it comes to moving stocks, stories about excess or tight supply carry more weight.
Want an example from our supply-conscious times? On September 18, crude prices and oil stocks fell on a surge in inventories as crude-oil stockpiles rose by 8.5 million barrels to 367.6 million. That blew through analyst projections of a 500,000-barrel increase.
On the day, the price of a barrel of US benchmark West Texas Intermediate fell 3.47% to $91.98.