Inflation Premiums at Multi-Week Highs Suggest Breakout for Commodities

Today we would like to draw your attention to the state of inflation.

Look at how the ETF TIP and PRIPX are tracking against the US 10 year (UST). Does this suggest that inflation premiums are continuing their rising trends?

If past performance were any guide, we thus expect upside in commodity prices to follow shortly.

Those who doubt that bond prices tend to lead commodity prices may like to conduct some independent research. We are quite fond of inter-market analysis and John Murphy’s and Martin Pring’s work on this subject. Others will differ.

We find that at just about any point in time, any knowledgeable person can look at the fundamentals and charts and form a clear and logical argument for both bullish and bearish sentiments. Trading, speculating, if you like is about taking a position on the future. You will never know all the facts, but at some point you have to form a view about the future and trade accordingly.

We like Seeking Alpha as every so often someone comments with a view that makes us stop and think, so thanks for that.

Disclosure: Long DBC, WIP, SLV

Comments

[tripleblack:]

I would agree that in the past, bond/precious metal relationships popped up from time the time, and ran in tandem.

With all the changes we see today, I would be reassured to see old and familiar patterns reassert themselves...

I was just reading elsewhere about the mammoth short positions held by various banks in silver. 50,000 short contracts hedged by *(LOL) 17 or 18 long contracts. How does that mountain of short silver affect the trend?

Sep 24 08:18 AM

[Jeff Diercks:]

Both spread charts are very close to breakouts, but have not fully confirmed yet they will not reverse back into the trading range. The TIP:$UST spread is still at the top of the trading range and realized a reversal yesterday. We do see some bollinger band expansion which could be the start of a volatility squeeze, which would be positive for TIPS relative to treasuries.

Same analysis for the PRIPX:$UST spread, however, it has moved a little further out of its range and its bollinger bands are further expanded. It will be interesting to watch, if we are indeed starting some sort of correction, both spreads would likely fall back into the trading range.

Sep 24 08:49 AM

[Larry House:]

Yes, you are right. One must make a decision. I went long IYE and DBA today as long-term exposure to oil/gas and grains.

Sep 24 04:29 PM

[Diogenes of...:]

better rethink this.

Sep 24 07:05 PM

[HedgeFundBaby:]

Commodities is a big word, which particular ones do you think will follow bonds? Or are u suggesting to long CRB?

Sep 24 07:44 PM

[Daily Trading:]

try DBC


On Sep 24 07:44 PM HedgeFundBaby wrote:

> Commodities is a big word, which particular ones do you think will
> follow bonds? Or are u suggesting to long CRB?

Sep 24 10:14 PM

[Homer II:]

Like Larry House, I too went long today in energy and metals: Oil/Gas (COP), Silver (HL), Platinum/Palladium (SWC), Copper (TCK) and Brazil (EWZ).

Inflation is well underway, in spite of protestations to the contrary by the Fed.

Sep 25 02:05 AM

[untrusting ...:]

Ok, you probably will be OK over 5-10 years and make a little. But much better entry prices will be available over the next 1-24 months for those who are patient. The much safer and probably more profitable trades over the ST are to sell puts, collect the premiums, and wait for better put or entry prices.


On Sep 25 02:05 AM Homer II wrote:

> Like Larry House, I too went long today in energy and metals: Oil/Gas
> (seekingalpha.com/symbo...), Silver (seekingalpha.com/symbo...),
> Platinum/Palladium (seekingalpha.com/symbo...), Copper (seekingalpha.com/symbo...)
> and Brazil (seekingalpha.com/symbo...).
>
> Inflation is well underway, in spite of protestations to the contrary
> by the Fed.

Sep 26 06:42 PM

[Daily Trading:]

..er.. why?


On Sep 26 06:42 PM untrusting investor wrote:

> Ok, you probably will be OK over 5-10 years and make a little. But
> much better entry prices will be available over the next 1-24 months
> for those who are patient. The much safer and probably more profitable
> trades over the ST are to sell puts, collect the premiums, and wait
> for better put or entry prices.

Sep 27 12:15 AM

[Whitslack:]

I think "untrusting investor" must have meant "buy puts, wait for prices to decline, then sell at a profit," if indeed he/she believes that prices will fall in the next 1-24 months. I don't know why anyone would write puts in a declining market — to keep the premiums and have the options expire worthless, you'd have to write them at so far below the current stock price that you'd get next to nothing for selling them.


On Sep 26 06:42 PM untrusting investor wrote:

> Ok, you probably will be OK over 5-10 years and make a little. But
> much better entry prices will be available over the next 1-24 months
> for those who are patient. The much safer and probably more profitable
> trades over the ST are to sell puts, collect the premiums, and wait
> for better put or entry prices.

Sep 27 12:57 PM