No. 1 commodity pick: Wheat

Posted by Andre Julian

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Andre Julian: Wheat Will Suffer


Mike Norman: here of HardAssetsInvestor with the second part of my interview with Andre Julian, who is the senior market strategist at OpVest Wealth Management.

So the last time you were here, Andre, we had a discussion about silver. Silver has been on fire. It’s been amazing. But you were bullish on it at the time. I think it was about a year ago. But you didn’t think it was going to overtake gold in terms of its performance. Are you surprised? You should be, because that was not your outlook.

Andre Julian, senior market strategist, OpVest Wealth Management (Julian): Yes. I’m really surprised. I thought gold would be the leader. And I thought that silver was just going to kind of tag along as maybe gold’s younger brother. And it overtook it. If you look at the money that’s going into silver, it’s moved a lot faster than gold has. It’s moved 70 percent last year, and it’s still continuing to move.

Norman: To me, that looks like just a mania. Because I guess you could make an argument for gold. People talk about it as sort of a quasi-money. And they talk about the Fed and QE2. And traditionally, historically, whenever there is inflation fear, you look at gold. But this rush into silver, this recent stampede into it, don’t you think it’s a little bit overdone at this point?

Julian: They have been saying that gold has been overdone for 10 years. And it continues to climb. So I started looking at silver a little bit more closely, and I think that you have your typical answer, which is, “Hey, it’s a fight against inflation. And it’s a fight against the devaluating dollar.” And that’s kind of where the discussion ends with a lot of people.

But when you really look at it, I think, again, you have to look at what’s happening with the currencies, look at what’s happening globally, with the fiat currencies. They’re really losing their standing. The president of China came out about a month ago and said that he thinks the dollar has lost its status as the world reserve.

Norman: But meanwhile, reserve holdings of dollars have gone up in the last year. And actually, since the crisis, reserve holdings of U.S. dollars around the world, at Central Bank, have gone up. It’s a greater proportion than it was even prior to the crisis. So that might be a statement designed to be politically targeted in some way. I don’t think it holds any credence right now.

Julian: Well again, the reason I brought that up was because he comes out and says that, and you’re right, I don’t think it means a lot, because really, if you look at his currency, if you look at the RMB, what’s it backed by? Well, it’s backed by a basket of other currencies. But the U.S. currency is backed by gold. Still about 60 percent of it is backed by gold. If you look at the major …

Norman: Gold?

Julian: Yes, by gold. Not backed by it, but the holdings against currencies. Holdings against currencies are actually about 60 percent in gold.

Norman: Well, our currency is nonconvertible.

Julian: No, it’s not officially backed by gold, but our holdings in gold. Basically, our holdings in gold are in proportion to our currency, which is about 60 percent. And if you look at China, it’s about 2 percent. And that’s a huge difference. So China has a penchant for buying gold, because they want to have strength beyond just their currency, currency strength beyond just a basket of other currencies.

Norman: So you’re saying that the silver move is going to continue because it’s tied in with this whole “inflation fear, devaluation/debasement of the currency” argument?
Julian: Well I think that, typically, people buy gold when they’re nervous, and people buy copper when the world is exploding and when it’s booming. And people buy silver when they’re uncertain. I think there’s a lot of uncertainty right now.

….read more HERE


Chart Below is Wheat Monthly