Commodities Rally "Just the Tip of the Iceberg," Tom Lydon Says

With exports rising 55% to $737 million in the first quarter, China surpassed the U.S. as the number one market for polished diamonds from Europe's diamond capital -- Antwerp, Belgium, The Wall Street Journal reports.

That, in a nutshell (or maybe a Tiffany setting) explains why we've only seen "just the tip of the iceberg" for commodities demand, according to Tom Lydon, president of Global Trends Investments and editor of

"The average citizen in China who now has an opportunity to make money - the first thing they're doing after buying a cell phone is buying a gold necklace," Lydon says. "There's that inherent demand in many of these emerging market countries as we have more and more people moving up to the middle class and having discretionary income."

For now, he recommends and is long gold mining ETFs such as the SPDR Metals & Mining (XME) and Market Vextors Gold Miners (GDS) vs. ETFs like the SPDR Gold Shares (GLD) that invest in the metal itself. "I don't think we're going to see another double in gold prices," Lydon says. "But it takes the average miner $275 to get an ounce of gold out of the ground; if it sells at $1150 per ounce that's a pretty big profit margin. The same is true for silver and copper."

Lydon also recommends non-precious and less-widely discussed metals such as platinum and palladium, for which there are relatively new ETFs trading under the symbols PPLT and PALL, respectively.

"The pure demand as far as metals and energy with growth we're seeing in emerging markets is huge," he says.

(Gold was rallying and solidly above $1150 Wednesday afternoon as the dollar slid following Ben Bernanke's testimony and Singapore's currency revaluation; copper was trading at its highest level since July 2008 while palladium was at a 2-year high, Reuters reports.)

Having said all that, Lydon acknowledges that speculation in commodities can sometimes outstrip fundamentals as we saw in the summer of 2008 when oil surged to $147 and a lot of investment dollars were summarily vaporized. With more investment managers allocating assets to commodities and more ETFs available for individuals to play the trend, this "boom and bust" cycle is likely to repeat itself in the coming years, even as the broader trends point to higher long-term prices.


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