There have been times in recent months when another fat speculative bubble seemed to be inflating around certain commodities, thanks to the flood of easy money, supposedly insatiable demand in China, worries about currencies and a renewed desire among shell-shocked survivors of the global meltdown to own an asset with something higher than a zero rate of return.
Among the impressive gainers in the Great Commodity Rebound of 2009, copper shot up more 130 per cent, sugar soared more than 120 per cent and already bubbly gold rose more than 30 per cent.
Just last month, famed investor told the Davos crowd that gold had turned into an asset bubble. This was after his exchange-traded gold fund had more than doubled its holdings as the price went up late last fall.
Which brings to mind a prayer from prominent U.S. investment adviser John Mauldin: "I have lived through a number of bubbles. I have never gotten to invest in one. This time, dear God, just once please let me be at the beginning of a bubble."
Alas, despite the sharp price moves, this probably isn't one of those times, say the bubble watchers I have been canvassing. (With the possible exception of gold. As one bemused observer remarked: "People have always paid more than gold is worth.")
"You're going to have these mini-bubbles in short-term trading terms, where the markets get ahead of themselves," says veteran analyst Bill O'Neill, co-founder of New Jersey-based consulting firm LOGIC Advisors. "The rest of this year is going to be very volatile for commodities. You're going to see some very big moves in both directions."
One reason for the no-bubble verdict is that investors have been cashing out after pumping record sums into commodity funds in 2009. So far this year, more money has fled these vehicles than any of the other eight major groups on which fund-tracker EPFR Global keeps tabs.
Among the reasons for the shift in investor sentiment, analysts cite worries about central banks reining in credit, China's latest moves to cool speculative fever, a stronger U.S. dollar (in which most commodities are priced) and healthy stockpiles. But for those who can tune out what Mr. O'Neill calls the market noise, the story remains a good one for the long haul.
"There will be times when there's some weakness, as with any market. But if you look at this from a long-term perspective, the commodities have been - and continue to be - in a cyclical uptrend that is demand-led."
The current turbulence has precious little to do with real-life market conditions, including the supply and demand characteristics of most commodities, he says. "There's no question that funds [ETFs]do sometimes exaggerate commodity price movements. Ultimately, though, prices come right back down or up to where they should be."
Which is why "you have to take the long-term view, as opposed to what I call a CNBC view, which changes from one minute to the next."
We brought the is-it-a-bubble question to Mr. O'Neill because of his unquestioned expertise. He has devoted his career to monitoring the complicated world of resource trading and is known for avoiding the hyperbole of both the market boosters and the naysayers.
For investors, "the difficulty is positioning yourself in such a way that you can get through these periods," says Mr. O'Neill.
For some commodities, the wait for a recovery could be a long one. Take oil. Or better yet, don't. Inventories are high and demand isn't exactly robust. U.S. data show that refineries finished 2009 with the second-lowest capacity-use level in two decades. "There's no question supplies are certainly ample. Short term, crude could well be a little overpriced," Mr. O'Neill acknowledges.
But he's a believer in Chinese and Asian demand. And if the global economy shows signs of turning the corner, he expects "a really nice run in commodities as that unfolds."
Based on his long-term view, he likes platinum, aluminum, cotton and gold (as a play on the continuing woes of major currencies). Among the overpriced pieces on the commodity chess board, he has been telling clients to get out of sugar. What about that Canadian favourite, potash? Well, he likes the potential and owns Potash Corp. stock. "But talk about volatility!"