Tag Archives: Commodities

Weekly Snapshot

By Alhambra Investment Partners

Top News Headlines

  1. Whipsaw market in full effect. Stocks stage a bounce-back, at least temporarily. The VIX Index is still at 26.
  2. Crude oil up over 10% for the week; biggest weekly gain in 6 years.
  3. Sanders, Trump ride anti-establishment wave.
  4. Fed rate cut to be delayed?
  5. Alaska’s Mount McKinley to be renamed Denali.

Random Thought Of The Week

Is China jumping the gun, giving the US economy a rate hike before the Fed even gets in the game? Even in the face of widespread concern about global growth Treasuries spent most of last week in search of a bid. We know China and the other emerging markets are selling Treasuries to try and defend their currencies. Hell, that was the plan, the entire reason for accumulating all those reserves. I do wonder if anyone thought that plan through. A slowing US economy isn’t going to make emerging markets perform any better.

Chart Of The Week

Continue reading Weekly Snapshot

Gold Manipulators Should be Fired…

By Steve Saville

Gold Manipulators Should be Fired for Poor Performance

Despite the huge differences between gold and all other commodities, gold is still a commodity and its US$ price is still affected by the overall trend in commodity prices. In particular, a major decline in commodity prices will naturally put downward pressure on the gold price and a major advance in commodity prices will naturally put upward pressure on the gold price. That’s why gold’s performance can be most clearly ‘seen’ by comparing it to the performances of other commodities. When this comparison is done it becomes apparent that gold is now very expensive or at least very highly-priced relative to historical levels.

As evidence I present the following chart of the gold/CRB ratio. This chart shows that relative to the basket of commodities represented by the CRB Index, gold has just made a new multi-decade high.

gold crb ratio

When I look at the above chart I can’t help but think it’s just as well that gold is being manipulated lower, because just imagine how expensive it would otherwise be.

It won’t surprise me if gold moves even higher relative to commodities in general over the coming month in parallel with an on-going flight from risk. Also, I expect the long-term upward trend in the gold/CRB ratio to continue. Lastly, it’s clear that the operators of the great gold-market price-suppression scheme have been doing a lousy job and deserve to be fired for poor performance.

How Far From Normal?

By Michael Ashton

How Far From Normal Are We?

As I have mentioned, I have been hard at work on my book and am approaching completion of the raw manuscript. The title of the book is What’s Wrong with Money?: The Biggest Bubble of All – and How to Invest with it in Mind, and if you would like to be on the notification list to receive an email when the book is published, simply send an email to [email protected]. Even better, you can pre-order it already, even though it’s not due out until later this year or early next year.

Yesterday, I finished up the draft of the second section, which is the “where are we now” section (there are three sections in total, and I am part-way through the “investing” section). I really enjoyed writing the following section and I think the charts are fun. So I thought I would include a snippet of Chapter 9 here for you:

——————-

If a length of steel is flexed, it is impossible to know exactly when it will fail. We can, however, figure out when that critical point is approaching, and estimate the probabilities of structural failure for a given load. These are just probabilities, and of course such an estimate depends on our knowledge of the structural properties of the piece of steel.

Continue reading How Far From Normal?

Mark Mobius on Oil/Commodities

By Biiwii

To begin with, I like Mark Mobius.  When I feel like Asia and Emerging markets are worthy of investment I use Mobius’ actively managed funds as opposed to FXI or EEM (associated bull and bear funds of which are very tradable).

On crude oil:  “at below 50 this is something that no one, ah, ever imagined…”

This is something I would take issue with.  Prechter most certainly imagined it, and stated so even at the peak of ‘Peak Oil’ hype, which is just another beautiful illustration of human hysteria in financial markets.  I do not assign prices to things unless I can chart them, and so I have long-since assigned 1.50/lb. to copper.  But during the ‘Peak Oil!’ craze I did my share of bitching and moaning about it from a contrarian perspective.

Anyway, Mobius goes on to say that he thinks the price of oil has no relationship to its supply/demand fundamentals.  He says it is all sentiment.  One thing I would mention is that Deflation is largely sentiment as well.  At some point it becomes impulsive (as leverage gets taken down, as in Q4 2008) but for now, as Prechter often states, a deflationary mindset is taking hold.  Commodities have been ground zero for the first phase of Deflation, which makes sense.

Also of note on Mobius, he thinks that some commodities (in particular the precious metals) are going to get a spike upward soon.  He then babbles about supply/demand in the precious metals, which is to be ignored.  But like many gold bugs, he may just dumb luck into a gold rally… if risk goes ‘OFF’.  That is where the PM’s would assume ‘1st mover’ status in [anticipation of] any coming inflationary operations.

Commodities Beat Down Continues

By Michael Ashton

The recent commodities sell-off has been breathtaking. This is especially true since the most-recent downturn occurred from a level where the expected future returns from commodity index investment were reasonably good – and, as a spread above expected equity or bond returns, probably around the best levels ever.

But investors have a strong tendency to use the current level, rather than some esoteric measure of value, as the level from which expected market moves are evaluated. What I mean by that is this: in theory, if some event happens in the capital markets, the reaction in the market should depend on whether that event has already been “discounted” in the current price. That is, if we are all expecting Microsoft to raise its dividend, then the price of Microsoft should reflect that change already, and when it subsequently actually happens it should have no effect on price. Indeed, if the market has overestimated the change in fundamental value, then the price of Microsoft should retrace somewhat when the news is actually announced. From that, we get the old saw that one should “buy the rumor, sell the news.”

Continue reading Commodities Beat Down Continues

Pivotal Events

By Bob Hoye

Credit Spreads: Like 1998 and 2008

pivotalevents

Gold and Silver, and…

By Biiwii

[edit] Whoa!

au.ag

This is odd, but not illogical, given the dynamics in play for the gold and silver CoT data and a possible counter-trend setup we have been watching for in the ‘inflation trade’.

au.ag

Here is the CoT chart for silver that was used in NFTRH 348.  Not so bad is it?  The extreme was set at the first set of arrows, but Silver CoT has improved greatly over the last couple of weeks.

cot.ag
Courtesy of COTbase

Silver would likely lead gold if a bounce in commodities and certain global markets were to take place.  Meanwhile, the actual bullish stuff is elsewhere as the US stock market has re-found its momentum leaders and Europe declines to the upper end of its buy range.

NFTRH 348 Out Now

By Biiwii

A good report, as usual.  That may sound smug but #348 is another report helped me personally because as usual I don’t go into these things so much trying to put what I think down on virtual paper.  I go into them seeking answers or at least, clarity.  Check.

nftrh348

Pivotal Events

By Bob Hoye

Bond Bear Threatens Central Bank Reserves

pivotal.events

Anti-USD & Euro QE ‘Me Too!’ Trades Updated

By Biiwii

Hey, I know I always seem to need to give these things nicknames (Armageddon ’08, Fiscal Cliff Kabuki Dance, etc.).  Maybe that is a reflection of how non-seriously I take modern finance on a fundamental level.  What we have here are policy and media driven hysterias, both to the positive side and the negative, swaying an emotional collection of players to and fro.  It is more of a game than a science or well heeled, buttoned down profession.

So currently, on an interim basis we are working the ‘Anti-USD inflation trade’ (a bounce in inflation expectations and associated ‘hard’ assets) and the Euro QE ‘Me Too!’ trade, with its template being the US QE that has worked to hyper boost (stock) asset prices.

It appears that the mealy mouthed Fed, still refusing to bail out any savers that are left (both of them), has kicked another leg out from under the US dollar, which had for some reason been discounting a Fed that would begin raising the Funds Rate by now like a normal entity in a normal post-crash bailout environment would have done upon achievement of its objectives.

‘But no, we just need to tweak a few more positive data points out of it or wait until we see the white’s of inflation’s eyes’ implies the Fed.  Whatever, the dollar is down this morning and the anti-USD inflation trade should get a bounce in its step, in line with one of our main themes.  If the May low is violated, Uncle Buck could take a pretty deep correction.

Continue reading Anti-USD & Euro QE ‘Me Too!’ Trades Updated

Gold’s Ratio Signals

By NFTRH.com

A brief snapshot of counter-cyclical gold’s macro signals vs. other metals (and broad commodities) that are more positively correlated to economies, using weekly charts…

Each week NFTRH updates many charts of nominal US and global stock markets, commodities, precious metals and currencies over multiple time frames.  But we also cover economic data and indicators, with the first macro chart below (Palladium vs. Gold) still barely holding its economic ‘UP’ signal from January, 2013.  At that time a coming economic up phase did not seem likely, but PALL-Gold and fundamental information gleaned from a personal source in the Semiconductor Equipment sector gave us a good risk vs. reward on that stance.

While it can be argued that using an indicator like Palladium (positive economic correlation) to Gold (counter cyclical) is subject to the discrete supply/demand fundamentals of the two assets, it has worked to signal up and down economic phases, with the most recent shown in Q1 2013 (green arrow).  This indicator has been whipsawing since topping out a year ago and the moving averages are near a trigger point.

pall.gold

A related indicator is Gold vs. Commodities.  Gold-CRB made an impulsive rise in late 2014 as the global deflationary phase topped out.  As policy makers (ECB, BoJ, China Central Planning and US with ongoing ZIRP) continue to promote inflation 24/7, 365 Gold-CRB has dropped as it should when inflation is starting to ‘work’ and inflation expectations start to take hold.  But a problem for hopeful inflationists is that so far at least, counter-cyclical Gold-CRB appears to be in a bullish consolidation.

gold.crb

If cyclical PALL-Gold were to break down and counter-cyclical Gold-CRB to hold support and resume its uptrend the indication for the global economy would be negative.

Another chart worth considering is Gold vs. Copper, the traditionally cyclical red industrial metal.  A series of higher highs and higher lows began in late 2013 and is still in play.

gold.copper

To put perspective on this, behold how bearish nominal Copper is and has been by viewing this monthly chart similar to those we have reviewed in NFTRH for years now to maintain a big picture bearish outlook on this metal.  We have allowed for the current bounce/rally/bear flag, but until $3/lb. is exceeded and held, this is a very bearish picture.

copper

Finally, let’s review Gold vs. its primary running mate, Silver.  Actually, flipping Gold vs. Silver over to the Silver-Gold ratio works best visually at this time.

We are allowing for a bounce in Silver vs. Gold.  This could come about if the Fed rolls over again today and plays nice with its language.  Or it could just come about simply because it is due.  This would go hand in hand with a resumption of the mini inflation bounce implied in TIPs vs. regular Treasury bonds and in nominal Treasury bond yields.  The message of Silver-Gold however, is similar to the charts above on the bigger picture because it is locked below very strong resistance.

sgr.wk

Bottom Line

I consider Gold vs. Palladium and Gold vs. Copper to be indicators on the global economy whereas Silver vs. Gold is more an early indicator on inflationary pressure.

The conclusion is that the economy is in danger of decelerating (Pd-Au, Au-CRB, Au-Cu) amidst a dis-inflationary environment (Ag-Au).  The timing could be by this fall.  First, a resumed bounce in the ‘inflation trade’ has a chance to get reanimated.  But that is not the dominant longer-term trend.