“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Saturday, June 1, 2013

Commodity Prices Continuing Trend of Downward Movement

Following is a weekly chart of the Goldman Sachs Commodity Index or GSCI. Notice the large red line moving from left to lower right. That indicates the general overall trend of the sector which as you can clearly see has not been bullish.


What you are seeing here in graphic form is the result of money flows OUT of the sector by large speculative forces. That money is of course flowing IN to equities.

I am not sure what it will take for this trend to reverse but until it does, upside rallies in silver are going to be difficult to sustain.

One thing you might also notice is that there seems to be a decent base of support between 575-550 on this chart. My take on this is that while the overall complex is moving lower in price, certain sectors within it seem to be near values that would indicate that there is not a lot of additional downside left. Determining exactly what those sectors are takes a great deal of fundamental research and well as comparing chart action to those findings.

What this means is that while we are a long way from seeing sharp upside rallies and SUSTAINED uptrends in the complex as a whole, certain individual markets may merely grind sideways to slightly lower for the foreseeable future until something happens to arrest this general development.

 For investors with a longer term time frame (notice, I am not saying 'traders'), we might be nearing the cost of production in some commodities meaning that your downside is limited.

I would also add a caveat here; if that base at 550 were to give way for any reason, look out, because the deflationary forces would be reasserting themselves. If that were to occur, and I would be very surprised if it did, expect for the bond market to reverse course and for rates to start dropping once again.

2 comments:

  1. Hi Dan,

    Humbly sharing my charts with everybody for the sake of discussion.
    http://s7.postimg.org/lax29qi4r/slv.jpg

    22 $ had better hold on silver.
    But the bears must probably smell the blood and the accumulated stop losses under that level by now. I'd be surprised if they don't try to break through, given the small size of this market.
    Still, 22$ stubbornly held during last few days, so maybe they will, after all.

    If not, blue line shows target of flag on a daily time unit. Green, same on a weekly time unit. Don't know which one to use but they both point roughly to the 18 $ zone.
    As an investor, I'd be delighted to see prices drop there, as I'm waiting them with some cash to build my position.
    As a trader...watch out the 22 $ break, it seems coherent with your chart showing weakness on the commodities.
    Good luck and good trades all :)

    ReplyDelete

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