HardAssetsInvestor

Mike Norman: Hi everybody. Welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. Well, what is the outlook for the commodity markets now? We’ve seen a recent setback. Here to talk about it is Matthew Grossman, chief equity market strategist for Adam Mesh Trading. Matthew, thank you very much for coming on the show; I appreciate it.

Now, I know you’re an equity strategist, but you’re also very, very active in the commodity markets. Tell us what you think here. We’ve seen another big rise in commodity prices recently. Now a pullback. Stock market’s looking a little bit shaky again. Problems in Europe, debt problems, the debt crisis. Some worries perhaps that this commodity market rally is over. What do you think?

Matthew Grossman, chief equity market strategist, Adam Mesh Trading Group (Grossman): Well, I think that you are correct, and that the commodity markets have been jittery, especially after the past few weeks. But I actually see a lot of resilience, to tell you the truth, in the commodity market. If you think about how the stock market reacted six months ago when everyone was scared about what was going on in Europe, we saw a much bigger pullback in the stock market, a much bigger pullback in commodities.

Norman: So they’ve been inoculated to a certain degree, you think, against the Europe debt contagion? That’s not a concern or at least as great a concern as it was the last time?

Grossman: I would agree with that. It’s not as great a concern. But we do need to monitor that situation, because Ireland is one thing, but Spain is another. If Spain goes the way of Ireland, that could be much worse than what we’ve seen so far.

But if you look this week at gold, gold has actually rallied when the dollar has strengthened. And for September and October, what fueled the commodity rally and the gold rally really was a weakened dollar.

Norman: Well, wait: Gold came way down from almost $1,500 an ounce to $1,350; almost a 10 percent drop.

Grossman: Correct. It went from $1,427 down under $1,350. We haven’t seen the dollar weaken as much, but we’ve seen gold rally. Gold is almost $1,390 again. So we’ve seen a lot of bullishness in the commodity sector even with the strong dollar.

Norman: Well, let’s set gold aside for a second. I’ve had people on this show that come from the commercial side of a lot of these commodity markets − people in the physical market, in the trade. And they’re preaching a different story here. They’re saying, “Look, in a lot of these commodities, we have abundant supplies. The physical demand from end-users is just not there. You’re seeing a lot of investment demand, but basically what that is are speculators just stockpiling commodities. If they ever want to sell it, you don’t have the real consumer there to take the other side of that trade.” You buy that?

Grossman: Well, I think that what you need to do there − which I tell everyone who asks me − is that you really need to classify your trades. Are we talking about short term, medium term or long term? And why I bring that up here is that in the short term, you could be right. In the next two, three, four weeks, it’s very hard to play these commodities. And you know what, we could see a pullback. But I think in the long run, in the long term, I’m a very big bull when it comes to these commodities.