Copper benefited from the strength in crude and the shakiness of the dollar, most of which had to do with the amped-up strife in the Middle East. Analysts generally believe any rally will be short-lived as demand destruction continues apace.

Supporting the pessimistic view were stockpiles that show no signs of slackening in their buildup. Copper inventories monitored by the LME gained another 5,250 metric tons yesterday, to 336,700 tons. Stocks have now risen 70% on the year, and are at their highest levels since February 2004.

The amount of copper now in LME and Shanghai warehouses is equivalent to 7.4 days of global demand. In contrast, the average was for 2007 was 4.9 days.

There was also sector-wide commodity strength, as the Reuters/Jefferies CRB Index of 19 raw materials climbed as much as 1.3%, led by energy and metals.

And aluminum got some support from stockpiles which have finally begun to ease a bit. November inventories were 1.4% lower than in October, according to a report from the International Aluminium Institute.

While stocks declined to 1.6 million metric tons from almost 1.63 million tons in October, the IAI said, they are still well above year-ago levels, which were 1.47 million tons in November 2007.

Source: Base metals modestly higher - Copper inventories higher, but aluminum stocks drop

The Reuters/Jefferies CRB Index of 19 commodities has fallen more than 54% from its July peak and is now at its lowest level in six years. Oil spearheaded the decline, with light, sweet crude for January delivery dropping $2.36, or 5.4%, to settle at $41.31 a barrel on the New York Mercantile Exchange Friday. Black gold has tumbled 71% since peaking at a record high of $147 a barrel in July.

Actual gold is down 27% from its record high of $1,032 an ounce, reached in March. Prices for other commodities such as copper, zinc, platinum and corn have shared in the decline as well.

“Everybody is just trying to get out of the markets,” Michael Aronstein, president of Marketfield Asset Management, told Bloomberg. “People are exiting as fast as they can.” Everybody except Jim Rogers, that is.

“Commodities will be the place to be if and when we come out of” the recession, Rogers said an interview with Bloomberg. “The only thing where fundamentals are unimpaired are commodities.”

Rogers reasons that underinvestment will lead to a supply crunch in commodities that will send prices soaring.

“Farmers cannot get loans for fertilizer now. Nobody can get a loan to open a zinc mine,” he said. “So we are going to have some serious, serious supply problems before too much longer.”

In an interview with Money Morning earlier this year, Rogers pointed to a lack of investment and production in the energy sector as a main reason for oil’s run-up in price.

“Every oil country in the world has declining reserves except Saudi Arabia,” Rogers said. “And I know that every oil company has declining reserves.  So unless somebody discovers a lot of oil very quickly in very accessible areas, the surprise is going to be how high the price stays, and how high it goes.”

Now that the global recession has stomped down crude prices, oil companies no longer have the incentive or the funding to develop new sources. Earlier this year, for instance, ConocoPhilips (COP) and Saudi Arabian Investment Co. (ARAMCO) were forced to postpone bidding on the construction of a 400,000-barrels-per-day (bpd) export refinery at the Yanbu Industrial City.

“We see and hear about energy investments being delayed… This is a major worry and could lead to a supply crunch and much higher oil prices than we’ve seen before,” Fatih Birol, the International Energy Agency’s (IEA) chief economist, told journalists in London last month.

The IEA says oil demand will rise 1.6% a year on average between 2006 and 2030. That means demand will rise from the current level of 85 million bpd to 106 million bpd.

To meet that demand, the agency estimates the world needs $26.3 trillion in supply-side investment over the next 21 years. About 7 million bpd of additional capacity needs to added to the market by 2015, the agency said.

Gold is another commodity that could make another record-breaking run.

Demand for the yellow metal actually increased by a record 45% from the second quarter to the third this year.

“I own some gold,” Rogers told Bloomberg. “And if gold goes down I’ll buy some more and if gold goes up I’ll buy some more. Gold during the course of the bull market, which has several more years to go, will go much higher.”

Investment Guru Jim Rogers Says Commodities are the ‘Place to Be’ Despite Their Decline

“October is at last ending – the worst month in commodity history,” Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt, told Bloomberg. “Investors are expecting lower growth for the longer term and that is putting prices under pressure.”

The news came one day after the revelation that the U.S. economy shrank 0.3% in the third quarter, and on the very same day that the government announced consumer spending tumbled 0.3% in September – meaning the world’s largest economy is struggling to produce and purchase.

It also continues a steady, months-long decline of commodity prices.

The past year’s inflation epidemic has waned significantly because consumer spending and demand has significantly cooled.

Prices for staple foods such as corn, soybeans and wheat have all come down from their record highs in near perfect harmony.

Corn futures are down nearly 50% from their summer high of $8 per bushel. Same story and stats for soybeans and wheat, the latter hitting a 16-month low in mid-October.

Gas prices have fallen 37.1% from their July 17 high of $4.114 a gallon.

Not coincidentally, gold has fallen 21.1% in that same time frame.

Short-term prices are likely to continue to wane or tread water, as economies around the world are hording their pennies and trying to build capital to start buying again.

“The outlook for demand remains weak while we wait for economic rescue measures to feed their way through the system,” Christopher Bellew, senior broker at Bache Commodities Ltd. in London, told Bloomberg. “Even in emerging markets the growth there is likely to be lower than was previously expected.”

Source: Commodity Prices Sinking to 52-Year Low

Nickel had a good day, falling from $10.50 in the pre-dawn hours but getting almost all the way back before closing at $10.475/lb., up 14 1/3 cents. Zinc spun its wheels, ending at $0.8612/lb., down a half-cent. Aluminum was modestly higher, adding less than a half-cent, to $1.3184/lb., while lead was pummeled, plunging to its intraday low of $0.8393/lb., down better than 3½ cents.

Though it was up for the first time this week, copper had a pretty unimpressive day, considering the action in the precious metals and energy markets, and that the Reuters/Jefferies CRB Index increased as much as 2.7%. Traders cited concerns that Chinese demand won’t be able to make up for declining US needs.

China’s imports of unwrought copper and semi-finished products fell 19.2% in May as compared with April. They were also off 9.8% in May, year over year.

Analysts expect that Chinese refined copper imports data, due at the end of the month, will show a drop of more than 6% from April to May as demand growth slows and domestic output ramps up.

Tighter monetary policies in the country are also likely to affect demand prospects. China’s central bank has raised the amount that lenders must hold in reserve by a full percentage point, suggesting authorities are anxious to hold down inflation that could develop as reconstruction work after last month’s earthquake begins.

On the supply side, inventories monitored by the LME rose 725 metric tons, to 121,275 tons, on Wednesday.

Protesters yesterday blocked roads leading into Southern Copper’s Ilo smelter and Cuajone mine in Peru, as mining companies throughout the country face escalating demands from workers and local communities.

Meanwhile, Freeport-McMoRan said output at its Peruvian copper pit Cerro Verde was as yet unaffected despite workers having gone out on strike over a contract dispute on Tuesday.

Source: Base Metals Remain Stagnant

Any sustained recession with falling employment and production can start to look like a depression. We fit that description if you look at real statistics. Some pundits think that you have to have the same scenario as the “Great Depression” to qualify as one. That’s pretty shallow. Quite obviously the one in the 1930’s forward was “greater” than other depressions. Hello.

You don’t have to see execs jumping from tall buildings or hoboes gathering in camps to have a depression. Look the word up… preferably in an older dictionary.

The central planners in charge of our economy are still in denial that we’re even in recession. You and I, living in the real world, do not have that luxury. Our present environment clearly qualifies as depression. Only the degree of it is yet to be determined. Maybe it’s a mild depression? Some might call it merely a severe recession. Whatever you want to call it… it’s anything but pretty.

Semantics aside; all want to know how to financially survive this morass. IDE reader “Mike” recently asked… “I’ve been reading up on your previous articles in the archives, yet I fully do not understand what constitutes as tangible assets. Is it possible for you to do a series of articles on tangible assets?”

Good question, Mike. I’ll be brief here. We’re looking at items that are “substantially real” or “capable of being touched”. Gold or silver, in hand, are the most obvious examples. A piece of paper that represents a claim to gold or silver in someone else’s hands does not qualify.

You can hold a $100 bill in your hand but it has zero intrinsic value. It is an I.O.U. In fact it is an I.O.U. nothing. There’s nothing behind it but misplaced confidence and government mandates. We work for them, spend them and sometimes even save them mostly out of convention.

A few ‘tangible assets’ are:

1. Bullion- gold, silver, platinum or palladium coins or bars
2. Numismatic or rare coins
3. Valuable art
4. Collectables
5. Land or Real Estate (with little to no debt)
6. Miscellaneous

This is by no means a complete list. The general idea is to own items that have historically protected citizens in times of monetary excesses. None of these items can be manufactured by a simple stroke of the keyboard. Owning barrels of oil or truck loads of zinc isn’t practical though these are also tangible items.

The Fed is futilely attempting to inflate their way out of their current predicament. The expression is “inflate or die”. A coming article will expound on this premise.

Every elitist bailout is inflation by definition. A lot of banking cronies are deep under water right now. Those that don’t understand or recognize the inflationary process put themselves in financial peril. I tried to make a joke in a recent editorial about not having “unprotected finances” (like unprotected sex). Hopefully, a couple of our thousands of readers got the joke.

I was referring to protection via owning tangible assets. I was also referring to understanding the inflationary process and the jeopardy of holding only ‘paper’ assets.

Commodities, in general, tend to benefit in times of inflation. The non-Federal non-Reserve is pulling out all stops to bring it forth.

Here are a couple of charts for those that don’t believe commodities can appreciate during times of recession or even “prolonged recession”:

From John Williams’ Shadow Government Statistics website

The blue line shows a recessionary environment (negative growth) almost exclusively throughout the 2000’s. Does that look “sustained” to you? Now let’s look at commodity prices as represented by the CRB:

Obviously, commodities can appreciate during times of economic stress. They’ve done so for the better part of the last seven years. It just wasn’t an officially recognized recession. Chuckle.

As we saw last week, both gold and silver are real money. They thrive in times of monetary crisis. Whatever you want to call the present mess, recession or depression, it is clearly an historic monetary mess.

About that ‘protection’…

Invest Resourcefully,

Rusty

P.S. To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.

Check out a chart showing the Q1 2008 action in the CRB Index, a widely tracked basket of 19 leading commodities, versus the S&P 500 from the beginning of the first quarter through Tuesday. The CRB Index is up 11% during that time frame. Meanwhile, the S&P is down over 7%. OUCH! Which would you rather invest in?

Investors are asking themselves this question and voting with their funds. According to a report just released by Citigroup, global investments in commodities rose by more than 20% in the first quarter to $400 billion, helping boost prices as investors sought protection against inflation and a weaker dollar.

The report says that investments in commodity indexes rose $40 billion in the first three months of the year to $185 billion, a larger gain than the whole of 2007.

A “tidal wave of investment flows into commodity markets has further boosted prices,” the Citigroup analysts said, quoted by Bloomberg News. “The weakening U.S. dollar has been the main macro force attracting funds to commodity markets. Other contributors are falling real interest rates and inflation worries.”

How do we square the strong rallies we’re seeing in oil, gold, grains and basic materials with forecasts some are making for a global recession? Answer: Somebody is obviously wrong. You can’t have demand and prices soaring at the same time that a global recession is taking place. Our solution is to follow the money — and bet on commodities. We think the next tidal wave of wealth pouring into commodities could be a real doozy.

Yours for trading profits,

Black Bear
The Secret Order of Jurojin

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