BMO strategist Don Coxe is singing the praises of “the music of the metals markets,” whose final movement will be “the longest and loveliest performance of metals music in history.”

In his latest “Basic Points” report, BMO Commodity Portfolio Strategist Don Coxe declared “platinum is the current commodity star” as prices have soared due to South African power failures.

“Ominously, the South African government’s repeated failures to implement a program of strengthening the state-owned electricity system mean that such production cutbacks will last for years. At some point, the catalytic converter in a scrapped car could be worth more than the rest of the wreck,” Coxe asserted.

“Although gold stocks have not, as a group, performed as well as gold in recent months (largely because of perceived political risks), shares of many junior, speculative gold and/or silver companies have produced rich rewards for their backers,” he said. “It is paradoxical that the collective market value of the hundreds of gold exploration companies that trade in Canada, Britain and Australia has risen so sharply, while the value of the companies that collectively produce most of the world’s new-mined gold has increased so moderately.”

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This isn’t some unexplained phenomenon. Martians have not invaded the US Treasury. There are real, measurable reasons behind the dollars demise, and its not rocket science.

Many of you may not remember when gasoline was .25 per gallon. There was a time, if you do not remember or were to young to remember, that this was the case.

Some people think the value of gas has really gone up ten times since then, but has it really? Or is there some other, sinister power at work here?

Interestingly, when you could buy four gallons of gas for a dollar, we also had a very different type of money.

The USD once upon a time was ‘backed’ by gold and silver, which meant that you could take a ’silver or gold certificate’ (what our money used to be called) and hand it in at the US Treasury, the the Treasury was required to give you silver or gold for it.

Todays systems is very different. If you pull a dollar bill out of your pocket, and you look at the top, you will see that is says “Federal Reserve Note”. What does that mean? Well a note, in financial terms, is a promise to pay something of value at a later time. The question here is, pay what?

Today, if you took your Federal Reserve Note to the US Treasury, and asked them to give you ’something of value’ for your ‘Note’, what do you think would happen? They would probably call the police and have you carted off, is what would happen.

So back to the point of the article, why is the Dollar Collapsing in value? The answer is, that because the dollar is no longer backed by anything of value, then the government can create as much of it as it wants, as you can see by the chart below:

So what affect does this have on the Dollar’s Value? Well simply, whenever there is more of something it is worth less. One of the fundamental requirements of money is that it remains scare. If Dollars were as common as rocks lying on the ground, they wouldn’t be worth very much now would they?

We see this taking shape in the form of less demand for Dollars, all around the world. OPEC is in discussions of de-pegging from the dollar, oil producing nations are starting ask for payment in oil in currencies other than the dollar, China has indicated it intends to diversify is national reserves out of Dollars and into other assets, and you have Trillions of Dollars in newly created Sovereign Wealth Funds, whose sole purpose is to buy hard assets around the world with ’surplus’ Dollars before the Dollar becomes worthless. It has gotten so bad, in fact, that the Dollar, once honored and coveted in China, is now seen as your neighbors garbage.

It can’t be that bad, you say. Well actually, it can. The chart below shows how far the purchasing power of the Dollar has fallen since 1913 when we created the Federal Reserve System:

So if you think about it, its not that gasoline, food, real estate, vehicles, etc have actually gone up in value, perhaps its more like your dollars buy much less than they did even 4 years ago, so maybe it takes more dollars to buy the same thing?

So now that you have me really depressed you might ask, what the heck is the solution?

The solution dear reader lies in gold and silver. Gold has retained its purchasing power for thousands of years, while governments have messed with various currencies that go up and down in value. An ounce of gold thousands of years ago would clothe a man very well. Today, and ounce of gold will also clothe a man quite nicely.

If you really want to preserve your wealth, take a serious look and investigate gold.

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The chart below shows one-year price changes for 18 commodities. Its pretty obvious that gains have been huge with wheat leading the charge at 99% gain. Lead, Platinum, Soybeans and Oil follow not far behind.

While many are still predicting large corrections, that I agree may occur over the short term, commodities will continue to rise overall for the next 10+ years as demand from asia really starts to kick in.

I expect a continued rise in food products demand, as well as energy and raw materials (specifically metals, timber, etc).

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While I have to applaud Mr. Greenspan for wanting to assist the poor nations of OPEC in managing inflation, it also is a bit concerning to see that my prior predictions are indeed coming true: The Oil Producers are going to de-peg and take payment for Oil in non-Dollar currencies.

Why is this an issue? Because we have front row seats to round 5 of the death spiral of the dollar.

Depegging from the dollar and then choosing to take payment for oil in non-dollar currencies will be a one-two punch for the worlds ailing reserve currency the US Dollar. By de-pegging, it signals a lack of confidence in the good ‘ole US Dollar. And a lack of confidence not from just anyone, but one of the Dollars biggest customers. If the US Dollar were a product (which it is), and the US were a corporation, we just lost our second biggest customer. The effect? The world is not likely to ‘not notice’ this. OPEC is a massive consumer of USD, as we pay for oil in Dollars, and have for many years. As the world notices that some of the USD’s largest customers have decided to move on, so will the rest of the world. Result? Continued lack of demand for the USD, and continued devaluation.

JEDDAH/ABU DHABI (Reuters) - Former Federal Reserve Chairman Alan Greenspan said on Monday near-record Gulf Arab inflation would fall “significantly” were the oil producers to drop their dollar pegs, in contradiction to Saudi policy.

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Alex’s Notes: The long trend here for food, energy, commodities, metals is up. Why? Because China, Brazil, India, are all coming online with hundreds of millions of new consumers who all have disposable income to spend.

When 950 million new consumers enter a market, and they all want a car, a nice watch, a tv, a dvd player, a computer, a new refridgerator, washer/dryer, etc etc etc, it has more than a tiny impact on global demand for raw materials.

Another factor is when people who have had to mind their food budgets for generations have the ability to eat more, and eat well, they do.

Some feel we have seen the top of commodities, I have to disagree. Yes we will see normal corrections and consolidation, but the overall trend will be up for a good many years to come.

By STEVENSON JACOBS

NEW YORK (AP) — Wheat futures vaulted above $12 a bushel for the first time Tuesday as investors bet that a shortage of high-quality milling wheat will keep prices high for the grain used in bread, pasta and other foods.

Other commodities traded mostly higher, with crude oil surpassing $100 a barrel and silver hitting its highest level since 1980.

Wheat prices have surged 34 percent since the start of year, pushed higher by growing world demand, tight supplies and bad weather that has pummeled crops in Canada, Argentina and India. U.S. exporters are selling wheat a record pace to meet demand, rapidly depleting stockpiles. The Department of Agriculture expects U.S. wheat inventories will total 272 million bushels by the end of May — the lowest level in more than five decades.

“Everybody is coming to the realization that the shortage of wheat is not going away,” said Elaine Kub, a commodities market analyst at DTN. “There’s no relief coming from anywhere in the world until June,” when the U.S. wheat harvest begins.

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