Tuesday, May 10, 2011

Commodity update -- only a mild correction

With all the recent hoopla about the big plunge in commodity prices, you would think they dropped a lot. But as these two charts—which are the two sub-components of the CRB Spot Commodity Index—show, the commodity price correction has been relatively modest.

Even the decline in copper prices, a favorite of speculators and thus subject to more volatility during selloffs, looks relatively modest when put into the proper perspective, as this chart attempts to do.

Ditto for crude oil prices.


Benjamin Cole said...

Well, the real question is, "Will commodities moderate from here?"


Copper is testing levels where new supplies come on stream, and demand falls. Ditto oil. Agriculture commodities are going to be glutted soon.

And other commodity indices already show much moderation.

BTW, I watched a fascinating science show on Korean television about a new composite wire able to carry much more electricity than copper wires. Of course, we already have fiber-optic for many applications.

Sustained high commodity prices nearly always result in new products, and gluts.

I doubt crude oil can be sustained above $100 a barrel. Maybe for a year, maybe two. Then the market will cut it down, and maybe for years.

Concerns about commodity prices are misplaced.

BTW, the DJIA is well over 12,700 (12:44 PDT). I predicted 13k on the Dow this year. We are near 12,800 now.

This is good news. I know it is just a number, and the DJIA is just one average.

Yet, for many Americans, the DJIA is a powerful iconic symbol of their portfolios and wealth. And, as Scott Grannis points out, this recovery is young and we have record profits already. Maybe 14k on the Dow in 2011 is doable.

Public Library said...

The commodity drop was engineered. Prices will continue North until the paper presses around the globe stop.

Unknown said...

What are your takes on last ECRI warning that global growth has already reached a maximum and will slowdown from here on.
If I get it right they say that this cycle might be shorter than all previous ones (on average of 4 years)?

Scott Grannis said...

I don't subscribe to the ECRI stuff, but I don't see any reason yet to think this cycle is coming to an early close.

Lori said...

When someone misses out selling the top, pulling the conspiratorial sounding "engineered" claim, you know they might be a bit loopy.

TradingStrategyLetter - Weekly Summary said...

The recklessly random and politically variable 'margin squeezes' by the CME might have killed the golden goose. For obvious reasons the 'regulators' regularily attack the inflation indicators with ruthless abandon.

Once you violently 'pull the carpet' from under the investor indiscriminantly a lot fewer will get on the 'next time!'

Benjamin Cole said...

I stumbled across proof the commodities and gold rally is over.

"Mexico has quietly purchased nearly 100 tons of gold bullion, as central banks embark on their biggest bullion buying spree in 40 years.
The purchase, reported in monthly data published by Mexico’s central bank, is the latest in a series of large gold buys by emerging market economies intent on diversifying reserves away from the faltering US dollar."

Count on Mexico. Count on Mexico to do exactly the wrong thing. The country has the nicest people and the stupidest government in the world.

It's over boys. Mexico called the top.

TradingStrategyLetter - Weekly Summary said...

You kinda got me on that one! :)

Anonymous said...

Commodity Tips services offering tips on commodity market to their customer for earning high profit on small investmentwe provide highly accurate intra-day trading tips for different commodities in the market includes: Gold, Silver etc. commodity Tips