Smith’s comments are pertinent given that many investors get stuck in the trend trap. Markets are generally going nowhere, and commodities have recently been among the best portfolio stories around. According to Smith, funds that carry a fixed commodity weighting, including a healthy weighting in gold and oil, will have done well over the last 12 months – until the last quarter. Their “fixed weighting” policy would be forced to change as soon as they “stop getting the cheques”.

“Ultimately, this change is just a small aspect of the overall seismic shift in the way markets are centred,” says Smith. In previous articles we have covered Smith’s view that, like the occasional earthquake caused by the movement of landmasses, we are currently witnessing seismic shifts in global financial markets.

Another nutshell view: “The US is no longer the centre of financial markets,” according to Smith and, whilst the USD as a bearing on the “new centre”, one of the short-term replacements has been the world of commodities.

Another part of the sub-plot to changing pricing drivers is the fact that the “demand surge” and last quarter collapse, did not impact on all commodities. Copper, a wellestablished member of the commodity world (for example) shows more of a lateral dance across the price page over the last quarter – maybe because it wasn’t over-priced in the first place? And maybe not.

To Smith, there is plenty of evidence that oil and gold have been over-priced in the recent past: “The oil price has been riven by a mix of the simple lack of refineries, and pure speculation,” he says.

This is not to say that the original “demand push” on price never had any substance. Like everyone else, Smith is aware that the “Chindia” (China and India) need for energy had a real substance about it. However, for Smith the world’s economic demands are now factored into the current price.

To Smith there is “an exaggeration in translation” when it comes to the current impact of India and China on their need for commodities from other places and from the markets. Two points illustrate. Firstly, whilst it is accepted that China’s consumption of livestock might have risen to around 20% of the world’s consumption (those athletes have been eating a lot), this rise should not have affected livestock prices to the extent that it has. After all, as Smith points out, “it doesn’t more that a few months to grow your own cows”, so why would China need to continue to develop an increasing demand for imported livestock? Secondly, when it comes to the hunt for new resources, say, iron ore, again the search should not be “translated” in an assumption that it should affect commodity indices and prices generally.

After all, if the Chinese (for example) wanted to secure a future stock of iron ore, they could simply go to Chile and buy the mountain. Such a move would not affect global commodity prices.

Smith’s overall point then is that “many commodity prices have risen too far, and do not reflect the value of underlying assets”. What then is the new driver? To Smith, price will be determined by the underlying value and less by speculators who would be assuming a continued demand surge.

Within that comment lies a special role for the USD. Oil and gold are of course USD-priced. With the USD in some form of a (short term?) revival, the gold and oil prices have been taking something of a hit.

“Future analysis of gold and oil prices,” says Smith, “must factor-in the strength take of the USD, and the number of investors using oil and gold as a USD hedge.”

Smith’s views might well be “welltimed”. As I take on my usual round of dinner parties and taxi rides it strikes me as odd the number of taxi drivers and other “public experts” who have taken on the view that “you can’t go wrong with gold and oil”. A warning sign. As soon as “everyone” knows what a good thing it is, it’s usually the case of what a good thing it was!!!!

Sean Kelleher is Chairman of the Financial Partners Group.