EDITOR NOTE: The author of this article writes: “If resistance holds, inflation may be held in check and bonds may experience a bear market rally. But if commodity prices breakout, then inflation concerns will continue to rise and select commodities showing relative strength will continue higher.” The author has a good point, except for one thing: he’s clearly confusing “tactics'' with “strategy” and he can’t seem to tell the sky from the ground (almost hinting at charlatanism...but in reality is just bad writing). Price action follows or reflects the fundamentals of the economy; the economy doesn’t base its conditions on price action or chart patterns. With that said, yes we may be seeing a technical “breakout” across several commodity classes signaling a trend reversal toward the upside. The overall strategic play for most of our readers--that is, sound money investors--is centered on inflation as the outcome of unchecked monetary and fiscal policy. The clear and long-term forecast for gold and silver is clear: bullish.
Commodities have been the talk of the town over the past several months, with grains, energy, and metals reaching new multi-month highs over the 12 months.
And this has lead to concerns over input costs… and inflation.
That’s where today’s chart comes into play. It is a 25+ year “quarterly” chart of the Thomson Reuters Core Commodity Index.
As you can see, commodities have been in a broad downtrend channel since peaking in 2007-2008. As well, the 25-year stretch has produced an important support/resistance pivot line (marked by red & green arrows).
So why does this matter to the Commodity Index and several select commodities showing strength?
Because the current 5-quarter rally in commodities is testing this important pivot (now resistance). And at the same time, it is testing the top of its 13-year falling price channel at (1).
If resistance holds, inflation may be held in check and bonds may experience a bear market rally. But if commodities breakout, then inflation concerns will continue to rise and select commodities showing relative strength will continue higher. Stay tuned!
Original post from SeeItMarket