Commodities are massively undervalued

If gold is worth $4k+, where does that leave the entire commodity complex? Answer: they are at their most undervalued since records began!

Our byline heading this article is meant to be provocative, but nevertheless it is broadly true. Its basis is that we know that over long periods of time, a basket of commodities valued in gold is relatively constant. Individual components can vary considerably, even dropping out of a statistical basket or being added to it. The reason for this stability is the constancy of gold’s purchasing power over time.

However, we tend to value commodities in currency, usually the dollars in which they are all priced internationally. This conceals what’s happening to commodity values, because the dollar’s purchasing power has declined since it became completely detached from gold in 1971. To illustrate this point, the chart below shows how a basket of base metals has risen valued in dollars over a long period of time, while being relatively constant in gold: