Lots of pixels are being spent on a debate these days over whether the price of gold should be measured in real (after inflation) or nominal (before inflation) terms. That is, in nominal terms, gold is near a record high, but in real terms it languishes about 40 per cent below its 1980 high point.
Where you stand on the issue has a big impact not only on whether you think gold is at a record high, but whether you think it has reached unsustainable levels.
Turns out, gold isn't the only asset facing this issue. Alex Bellefleur, financial economist at Brockhouse Cooper, applied some of the same thinking to agricultural commodities. These commodities - things like cotton, wheat, soybeans and rice - have been rising on expectations that the Federal Reserve's policy of printing money to buy U.S. government bonds (known as quantitative easing) will drive down the value of the U.S. dollar. But are they expensive?
"In real terms, agricultural commodities (as measured by the IMF's Agricultural Raw Materials index) have not completely recovered from price declines experienced in the 1980s and 1990s and are now 42 per cent cheaper than they were back in 1980," Mr. Bellefleur said in a note. Cotton is an exception: It is above its 1980 high in real terms.
"We believe strong emerging market demand, combined with tight supply dynamics in many cases, will continue to support agricultural commodities," he concludes. "Agricultural commodities remains one of our favourite corners of the Basic Materials sector, on which we maintain our overweight recommendation."
David Berman