Jim Rogers on Commodities: Heads you Win, Tails you Win

Commodities king and formerly George Soros’ partner and co-founder of the Quantum Fund, Jim Rogers, said gold, silver and other commodities prices will trade up no matter what move the Fed makes at its next FOMC policy meeting scheduled on November 2-3.

On Thursday, speaking from Singapore to Bloomberg Television’s Andrea Catherwood, Rogers said:

“If the world economy gets better, the prices of commodities will go up because there are shortages developing. We already see shortages developing. You mentioned rare earths, but there are others. If the world economy doesn’t get better, I still want to own commodities because they’re [Federal Reserve] going to print money.”

In the short term, however, Rogers said he doesn’t like buying any commodity “when prices are making new highs,” referring to gold, which has rallied nearly straight up in price from its recent low of 1,155.90 on July 28 to its intraday record high of $1,387.10 set on October 14. But Rogers likes silver and rice now, because both these commodities haven’t made new highs yet.

Since the last FOMC meeting of September 21, speculation that Fed Chairman Ben Bernanke will formally announce further “quantitative easing,” or QE2, in an effort to stimulate a noticeably weak U.S. economy has sparked a fire under all commodities across the board.

Released on October 12, minutes of the September 21 meeting contain language that troubles Rogers. Most disturbing relates to a change from a multi-decade stance of the Fed on its inflation targets, which were repeatedly held at somewhere between 1% or 2%.

The Fed will now focus “primarily on further purchases of longer-term Treasury securities and on possible steps to affect inflation expectations,” according to the September 21 FOMC meeting minutes. In other words, the Fed would like market participants to expect inflation in hopes of affecting consumer behavior toward spending now before prices rise in the future.

According to the minutes, the Fed appears to be breaking for its long-standing dual mandate of maximum employment and price stability. The Fed now is willing to intentionally cause consumer price inflation, specifically by “targeting a path for the price level rather than the rate of inflation, and targeting a path for the level of nominal GDP.”

All of this inflation talk disturbs Rogers, who for years insisted the only function of the Federal Reserve is to “print money.” And printing money has done nothing but create asset-price bubbles, with pops in real estate and stocks now paving the way for new rallies in the commodities sector, which someday will end in a bubble, too.

But for now, Rogers sees the emergence of Asia as the 800-pound gorilla affecting commodities prices in the long term, and will lift prices irrespective of Fed policy actions. If the Fed comes through with its promise to debase the U.S. dollar through another round of quantitative easing, commodities go higher more quickly in dollar terms, Rogers insists. If the Fed allows the U.S. economy to contract (it will anyway in real terms), Asia will still be buying commodities for decades to come, he said.

It is heads you win, tails you win for commodities.

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