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Simit Patel
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I'm a precious metals and energy investor as well as a currency trader who combines analysis of geopolitics, monetary economics, energy technology, and technical price patterns to develop trading and investing outlooks. I trade/invest in all timeframes -- from intraday trading in parabolic... More
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  • A Bull Market in Commodities In All Currencies 0 comments
    Nov 30, 2010 9:20 AM | about stocks: DBC, CRUD, OIL
    Commodities have been rising against all currencies since we’ve started this recent bout of Euro weakness/US dollar strength. The chart below illustrates; the blue line represents DBC, an ETF tracking a basket of commodities, while the green line is the US dollar. 

    Below are some recent news stories that shed some more light on the bull market in commodities:

    Copper, Heading for Fifth Monthly Gain, May Climb on Shortage Speculation - Bloomberg
    White Sugar Gains to Two-Week High as Stocks May Stay Limited - Bloomberg
    Hedge Funds Raise Natural Gas Wagers to Four-Month High: Energy Markets - Bloomberg

    Not all commodities are rising, though; orange juice and cotton are commodities that have pulled back a bit since the US dollar rally commenced. 

    Proposed explanations for the rise in commodities include:

    1. Market cycles; those who argue that markets move in cycles, and that 2001 marked the beginning of a new bull market in commodities, which may last for 20 years. 
    2. The opening up of China has spurred much greater demand in Asian markets for commodities, and will continue to do so. 
    3. Greater demand as an inflation hedge due to the view that global quantitative easing will result in devaluation

    The price of oil is an important indicator for the global economy and the commodities market, as it dictates the cost of survival for both businesses and people. Yesterday’s sharp break above 84 decreases the possibility of a head and shoulders pattern forming, which may have been bearish. A bottom trendline and a 38.2% Fibonacci level exist between 81 and 82; the market may find support there, if 84 does not hold. A fall below those levels may pave the way for a larger drop down to 68, keeping oil rangebound from 68 to 88. For what it’s worth, oil did rise during the first five months of 2010, when the first round of Euro devaluation/US dollar rally was under way. 

    The chart below illustrates.


    Disclosure: Long gold and silver.
    Stocks: DBC, CRUD, OIL
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