There was a very interesting article in the FT yesterday that suggests the "commodities boom may not be the bubble imagined." The IMF has expressed considerable concern over global inflation.

John Lipsky, IMF deputy managing director said that the surge in commodity prices "appear to be fundamental in nature." This is a point that was highlighted, with respect to gold, in Mike Kosares' excellent article Golden Gut Check from 07-Apr.

Mr. Kosares concluded the following: The fundamentals lead us to the conclusion that there has been real substance to the gold rally of the past two years -- a rally which has taken the price 75% higher. Those who have called gold's up trend the latest in a string of speculative bubbles do so from a lack of perspective and understanding. Likewise, the fundamentals hold out promise for the future in that none of the trends in place are likely to reverse anytime soon. We are left with the impression that the gold bull market is likely to stay on course in 2008, even if we experience a short-term correction or two.

Those subscribing to the 'bubble theory' are placing far too much emphasis on US demand, or the anticipated slackening of demand as the US economy slows. As we have stated on numerous occasions, any drop in US demand has been and is likely to continue to be offset by growing demand from emerging economies such as China, India, Russia and Brazil.

The fact that the dollar remains in a long-term downtrend further exacerbates the problem, making dollar priced commodities comparatively less expensive to holders of other currencies, thereby increasing demand.

Investor demand may indeed be adding some froth to the market. However, if the underlying fundamentals for a wide array of commodities remain favorable -- rising demand and tighter supplies -- it discredits the 'bubble' scenario to a large degree and lends considerable credence to the 'super-cycle' scenario.

The Russian economist Nikolai Kondratiev first put forth the theory that commodities move in 50-60 year cycles in the 1920s. He suggested that commodity prices rose during periods of increased capital investment and fell as those investments lose value. He observed that the average upswing lasted 24 years and the average downswing averaged 29 years, a complete cycle of 53 years.

Kondratiev noted three major commodity upswings: 1789 to 1814, during the French Revolution and the Napoleonic wars; 1849 to 1873, the age of European industrialization; and 1896 to 1920, when the US emerged as an economic juggernaut.

Kondratiev was killed in 1938 during Stalin's purges, but if you project forward, an approximate 29-year drop in commodities was due between 1920 and 1949. This period included the Great Depression and the Second World War.

Another 31-year upswing would have taken us through the inflationary 1970s, to the peaks for oil and gold in 1980. Another 22 years beyond that would take us to the point from which the latest upswing began in 2001. Viewed another way, 53 years from 1949 would have projected the next cycle to begin in 2002.

Not a bad piece of forecasting for a young economist that never saw his 47th birthday.

Projecting forward once again, we might expect the upswing that we're presently in to last 24 years. That would suggest that we're less than a third of the way through the present upswing. Put in that context, $200 oil and $2400 gold seem to be fairly reasonable longer-term objectives. It also makes a sub-$900 purchase seem a relative bargain.

The necessary capital investment Kondratiev spoke of now seems to be coming from the explosive growth of developing countries. In 2025-2026 might we be looking back on the current upswing as the age of the BRIC nations (Brazil, Russia, India, China)?

Another important component of a super-cycle upswing is inflation compounded by the rampant growth of money supply. The IMF has made it clear, as has the ECB and the BoE that they are supremely concerned about the accelerating pace of inflation.

As for the rampant growth of money supply -- well we've certainly seen that in spades in recent years.

When you do reflect back on the present market conditions from some point in the future, will you be looking back with a sense of satisfaction; knowing you made a sound decision to preserve your wealth with purchases of physical gold from USAGOLD - Centennial Precious Metals?

Gold Market Movers:

US trade deficit narrowed in Mar to $58.2 bln, versus $61.7 bln in Feb.

Canada trade surplus widened in Mar to C$5.5 bln.

Canadian employment for Apr +19.2k, better than expected. Unemployment rate 6.1%.

French industrial production for Mar came in weak at -0.8% m/m.

IMF warns on global inflation

Lots of froth does not mean a bubble

Call options bet on oil hitting $200