Commodities broad consolidation underway

KEY POINTS:

• Short-term weakness in August for CRB; upward pressure back by September; 400 to 420 main support zone in consolidation
• Broad, flat trading pattern potentially building; increased caution needed over the next two to three months
• Range-bound trading continues for oil above $120 support level this month; peak price remains at $141 to $147 for 2008
• Natural gas finds support at $9.00; target back to $14 by 4th quarter
• Slow growth in global economy gives slow growth to copper; $5.00 target holds
• Gold season starts by late September; second half of the month offers good pricing opportunities on precious-metal securities

Of the four main markets – currencies, commodities, bonds and stocks – natural resources are the clear winner in this game. Much to the likely dismay of big-cap, blue-chip equity investors, tangibles are providing portfolios with welcomed profits in a bear market. And this pattern is not expected to change in the near future. With the mighty greenback steadily drifting lower (the U.S. is $9 trillion in debt, and counting) and China’s and India’s economies expanding at more than 8% gross domestic product (GDP), this secular combination of events remains very bullish for commodity-based investors over the long term.

Potential blowoff by September?

In last month’s issue, I commented about a potential blowoff by September. As we all know, nothing advances forever, and corrections are part and parcel of bull markets.

Chart 1 illustrates the dynamic advance of the Consumer Research Bureau (CRB) Index in 2008. The target zone for the rise was 480 to 485, and it nearly reached that, with 473.97, in early July. Summer is historically a weaker time for the CRB Index. For the last five years, June through to August has been marked with flat-to-down numbers, only to recover and advance once again in the fall. This is the normal seasonally pattern.

Your comments are always welcomed.

When "Peak Gold" joins Peak Oil

A very interesting posting in today's "Seeking Alpha", here

It seems to me that it's a very valid argument in favor of Gold.

Tangible things (and Gold is the ultimate tangible asset ) get more and more difficult to find and extract, whereas intangibles (money, credit and even technology) are commoditized.

The miners, the farmers and maybe even the industrial workers of the world might get some advantages after all.

In the long run, technology is going to be redirected toward real and tangible things, that used to be all important before the dot com revolution.

I remember for example that when we studied Geography (along with History) in High School, we used to examine the natural ressources of a country, along with its climate and lanscapes.

And we could how greatly it determined its economy and even history.

The little yellow god

Dec 1st 2005
From The Economist print edition

Even at $500, it's still a barbarous relic

NOTHING swells the breast so much as the thought that you have been proved right at last. After riding high at the start of the 1980s, gold bugs had a miserable couple of decades. The price declined relentlessly, mocking their credo that the security of the financial system ultimately depends upon the yellow metal. Lately, though, the faithful have enjoyed their reward. In the past five years the price of gold has doubled. This week in Asian trading it briefly surpassed $500 a troy ounce—a level last breached in 1987. You can almost feel the bugs' excitement as the message sinks in: gold is back.

This being gold, the resurgence has brought forth all manner of alarming prophecies. The price is an omen of rampant inflation; bonds are doomed; the dollar is about to fall prey to the United States' reckless deficits; the euro will shortly be revealed as a worthless creation of bureaucrats.

The world is an unpredictable place. But, with the possible exception of a fall in the dollar, not much of the above catalogue of doom looks likely; and none of it has much to do with gold's good run. The dull truth is much less bullish for gold. Investors have put money into a wide range of metals, and precious metals' prices, including gold's, have risen with the base. Meanwhile, gold remains fundamentally unattractive. It yields nothing and central banks are sitting on vaultfuls of the stuff that they want eventually to sell. Gold bugs hope that $500 is the threshold at which mainstream investors will start once again to take an interest in the metal. Caveat emptor.

The fascination of gold lies in its being not only a commodity but also a store of value and means of exchange. The glamour and the mystique lie in the latter, monetary part. This is what draws gold bugs, but their story doesn't quite add up. The unbalanced world economy still faces risks. But the most recent rises in the gold price have come against a strong dollar, which is normally a sign of weaker gold and continues to confound warnings of a collapse in the greenback. Oil prices are plainly far higher than they were, but they have come off their peaks. Moreover, there have been few signs so far that oil prices are feeding through to a 1970s-style stagflation. Nothing in either bond or stockmarkets suggests that investors see much danger of such a thing happening.

Bear on bullion
Gold's renewed shine is best explained by thinking of the metal not as money but as a commodity dug out of the ground. In the past few years the price has climbed because mining companies stopped locking in prices by selling gold in advance—in effect, withdrawing a huge source of supply. Even then, gold has captured only 40% of the gains of other metals in The Economist's metals index, which has almost doubled since the start of 2003 thanks partly to fundamental demand from emerging markets and partly to investors in search of better returns than those from other assets. Gold would have done better had Chinese demand risen as fast as some expected; in fact, figures from GFMS, a consultancy, suggest it has been flat, even falling, over the past 20 years. Chinese investors now have other places to put their money.

Gold is still cheap compared with its peak of $850 in 1980. Today, adjusting for changes in American consumer prices, it is worth only a quarter as much. Gold bugs might see that as a chance to buy; others as a reminder of gold's enduring capacity to disappoint.