February 8, 2012
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Through the years, the commodities business has taken me all over the world. But there is only one place where commodity production truly dictates the economic conditions of that country.

From any investor’s point of view, that’s a country to watch closely.

This commodity-rich country, a place my brother has chosen to make his home, is Australia.

The country’s population is primarily concentrated on the coasts, where its largest cities are located Sydney, Melbourne, Brisbane and Adelaide on the east, and Perth on the west.

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The middle of the country is a vast stretch of “outback,” where commodities are aplenty!

Australia has boomed over the past decade and there’s a very good reason why it is mineral rich.

A Treasure Trove of Commodities

This country has the largest recoverable reserves of brown coal, lead, rutile, zircon, nickel, tantalum, uranium and zinc in the world. It also ranks second in the world for recoverable reserves of bauxite, copper, gold. ilmenite and silver.

Australia is a commodity powerhouse, a veritable treasure trove.

And while it’s a large importer of crude oil and oil products, Australia is a major exporter of coal, iron ore, gold, meat, wool, alumina and wheat, as well as numerous other commodities.

Its agricultural and mining sectors account for 10% of the country’s GDP.

And as luck would have it, Australia is also strategically located near the world’s largest consumers of commodities Asia.

In fact, China buys 25% of all of Australia’s mineral exports. And with the multi-year bull market in commodity prices still raging, Australia’s importance and influence in the world will continue to grow.

Meanwhile, on the back of this extraordinary commodity strength, the value of the Australian dollar has leaped over the past 10 years.

It’s a great success story!

When I was in Sydney in 2001, it took two Australian dollars to buy one U.S. greenback. Today, the Australian currency has more than doubled its value against the U.S. dollar and it’s now worth more.

And with such a strong correlation to commodity prices, the Australian dollar is an excellent proxy for a basket of commodities.

A Great Investment in the Future

In fact, the country is so rich in minerals, the Australian dollar trades like a commodity itself.

And higher commodity prices will push the value of the Australian currency even higher.

But the really great thing about holding the Australian dollar is that it’s currently a commodity investment that pays you to hold it. The Australian dollar yields around 4.25%, which is a homerun in the current low interest rate environment in the U.S. and elsewhere around the world.

The good news is that the long-term bull market in commodities promises to continue for years to come.

The bottom line is that governments around the world continue to print fiat currency with nothing to back it up, and the debt continues to mount up. This is exactly what’s happening in the U.S. and Western Europe.

However, Australia’s currency is backed by all of the minerals and commodities that are within its borders and in its soil and geological makeup.

As such, the Australian dollar should be a key asset in any investment portfolio, even at today’s prices.

How to Invest in Commodities Using the Australian Dollar

The multi-year bull market in commodity prices continues and there is no end in sight. The Australian dollar promises to benefit from this trend.

There are many ways to invest in commodities by owning the Australian dollar, but I have one particular favorite.

Our friends at EverBank offer an Australian dollar CD, which is expected to grow in value, given the strength of the Aussie currency. The CD is an excellent way of taking advantage of a currency that promises to appreciate and it also pays a juicy yield. (In the spirit of full disclosure, we have an advertising relationship with EverBank and may receive a fee if you choose to work with them. However, I would never recommend a product or service provider I didn’t believe in.)

Meanwhile, the U.S. dollar and the euro continue to fall against its Aussie counterpart.

The value of the U.S dollar and the euro is based only on the “full faith and credit” of governments that are running record deficits, while at the same time their credit is being downgraded.

As such, this is an environment where a currency with the implicit backing of its own commodity resources will continue to grow. Unlike the euro and the greenback, its’ worth is real.

The Australian dollar is truly a sovereign currency that will pay you an excellent yield.

Your eyes and ears in the commodity world,

Andy Hecht

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