While it is widely believed that commodities are one of the few “undervalued” sectors, sustained rallies have been hard to find over the past few years. Could all that be finally beginning to change?
The key to any commodity rally is weakness in the US dollar. Most commodities trade in dollar terms so a rising dollar generally puts pressure on the sector. In contrast, a falling dollar is usually good for the sector. As you can see in the chart below, the general trend since 2015 has been a flat to falling US dollar as measures by the Dollar Index:
It could be argued that the two most globally-important commodities are copper and crude oil. Let’s start with copper where, for the past year or so, we’ve been following a growing bottom and breakout on the chart. Does this look to you like a bear market or a reversal and switch to a new bull market, instead?
And now look at WTI crude oil. Note the similar chart pattern to copper. Could a move into the $60s be construed as a breakout and renewed bull market after a three-year bottoming process?
With dynamic rallies already underway in other commodities such as zinc and palladium, the question becomes…Are we in the early stages of a renewed bull market for commodities, in general? On the chart below of the the Continuous Commodity Index, you can see the possible beginnings of a turnaround.
What might this mean for silver which, despite its long history as a monetary metal, is now currently perceived primarily as an industrial metal and considered a “commodity”? If we view Comex silver through the same five-year lens, we note a reverse head-and-shoulder bottom, similar to those seen on the charts of copper and crude. However, we also note that unlike copper and crude, silver has yet to begin a rally of any consequence.
What to make of all this? Actually, it seems rather simple. Should the commodity rally continue, it will begin to take on a life of its own, with global money managers and asset allocators recognizing the new bull market and creating a virtuous cycle of higher prices through their inflows of cash to the “undervalued” sector. In this case, copper will move higher and toward $4.00 while crude oil breaks through $60 and heads toward $80.
If this happens, we could imply a price of silver that easily reaches the mid-to-upper $20s sometime in 2018. Is this possible or would/will The Banks be able to keep their collective thumbs on the price? Your answer to that question will depend upon the size and scale of the cash flow into the sector.
So again, it may be rather simple. Resolution of this will be a function of the dollar, copper and crude. Forecast those three for 2018 and you’ll likely be able to correctly forecast the price of silver, too. – Craig Hemke
ElliottWave-Forecast: Commodities have been in an All-time correction since they peaked in 2011 and they can be showing the next good Long-term Trading or an Investing opportunity across the Market. Commodities like Silver and Gold have always represented value and we cannot expect that value to disappear all of a sudden. Silver is a very interesting instrument because together with Oil, they have shown the biggest devaluation against the US Dollar and consequently will represent the biggest opportunity. The Following chart represent the all time cycle in Silver and also the stage within the correction which is showing the extreme area and off course the Invalidation level in the Yearly cycle. As we can see the Instrument has dropped back almost to the 76.4% of the all time rally and has entered a buying area.
The whole group has declined since the peak in 2011 but what makes Silver the best opportunity is the degree and how deep the decline has been, chart below shows Gold chart from all time lows, we can see the decline in Gold has not been so deep, making Silver a better long term investment opportunity.
There are many Fundamental reasons to justify the decline but the production numbers is the simplest way to understand a deep decline. The higher the production of Silver, there will be higher stockpiles in the Market and consequently the price will drop. According to the Silver Institute the Silver Production slowed down in 2016 and consequently the Instrument is creating a base in price.
The following charts show the break down in production and the breakdown by county
The $SPX Index has reached the Blue Box which highlights an extreme area from the all time low, but many other World Indices have still not reached the same degree area. The idea is that $SPX is at levels at which Silver was in 2011 extreme and while it stays below 3196, a multi-year correction could unfold. Above 3196 would suggest the next big pull back would only correct the cycle from 2009 low before another leg higher. Even then a multi-year correction should be seen before the next leg higher in the Index.
Silver will be sideways and even when it can make a new marginal low in the Weekly chart, it has already reached the target within the pull back. The reason why the Instrument can be sideways is due to the fact that most of the World Indices have not yet ended the all time cycles and they seem to have more upside. We believe in the idea that when the World Indices end the cycle from all time lows, they will enter in a multi year correction similar to the one that happened from 2000 through 2009 and that will be the moment when Silver and all commodities will enter a multi year cycle higher which will have scope to drive Silver prices above the $60.00 level. Buying the Instrument this low represents a great long term opportunities not only to buy commodities, but also a chance to pick the top in World Indices. The following chart represents the overlay of Silver and $SPX and we can see what happened between the year 2000-2009 and how since the peak in 2011 $SPX has been trading higher and Silver lower.
Sometimes trades need to understand the Market acts as a whole and this previous chart shows a smart way to pick the top in World Indices instead of trying to sell any new high. Our advice is to trade smart and understand the concept of one Market and be able to catch the Big Short in Indices without actually selling the Indices.
Please check back for new articles and updates at Commoditytrademantra.com
For More details on Trade & High Accuracy Trading Tips and ideas - Subscribe to our Trade Advisory Plans. : Moneyline