The recent buzz around gold and other precious metals has caused many people to sell their scrap jewelry and has given rise to a host of different gold peddlers, all vying for a piece of the recently renewed gold market.  This gold bull market may well last a few more years, given that the global economic recession still hasn’t been sufficiently reversed to create many more jobs.  But according to Jeff Christian, founder of the CPM Group, energy demands will far outpace supply as soon as an economic recovery is underway.  With this in mind, savvy investors should be looking to energy stocks and related commodities as excellent potential long plays once the recovery begins to slowly make its way to the global stage.

In his presentation entitled "A Whole Lot of Gold and Not Enough Energy", Mr. Christian argues a couple of main points.  First, he shows that central banks have gone for being net sellers of gold to net buyers, all in the span of about 10 years.  This has coincided with an increased demand for gold as an investment vehicle as well as an increase in price.  Mr. Christian sees this price increase as relatively sustainable, and an indicator that we are still well into a gold bull market, but he warns that gold may consolidate back to the $700-$900 level over the next few years before it really rises again significantly.  This drop could be delayed if the recovery is delayed, or it could be exacerbated by a flight from gold to other equities if the economies of the world begin to heat up in the very near future.

His second main point is that the world’s energy supply, as it currently exists, is just sufficient to cover the current demand.  But if you factor in an economic recovery, especially in developing nations that rely primarily on coal and oil for power, the supply will not be able to cover the demand.  This could occur as soon as a modest recovery begins or it could be another decade before the whip cracks and the global supply of energy is strained against the global economic growth and demand for power.  While this may not be readily apparent to many people, the concept is relatively simple.  Given the fact that global demand for energy will be ever-increasing as the global population doubles in the next 30 years, it is hard to imagine a scenario where energy consumption will not outpace energy production.

The conclusion of Mr. Christian’s analysis is that gold and energy are still excellent plays for investors, but energy will be a huge focus going into the economic recovery.  Gold will likely remain at high levels and will likely appreciate should the global economy not recover as quickly as predicted or even during a second recession.  Oil and natural gas however, will remain the focus of the recovery and the commodities in this sector will remain the commodities de jour.  This is excellent news for gold bulls, but it is a warning that while consumption levels are not easily seen currently, once a recovery is under way, it may be very hard to provide adequate resources for the Earth’s ever-increasing population base.