In today’s post, we will focus on three pretty exciting charts, courtesy of www.InvestingHaven.com. The first chart shows the CRB index, a basket of key commodities including energy, softs, metals, etc. It is a secular chart, going back to the early 80ies, so it covers at 2 secular cycles. Interestingly, the chart shows that commodities are forming a secular triple bottom pattern, as indicated with the red support area.
Do not underestimate the importance of these chart formations. In other words, this support level better holds otherwise the world will go through a deflationary bust never seen before in our lives (yes, worse than 2008). With central banks across the globe ready to fight deflation as if it were the biggest enemy of mankind, we do expect this price level to hold.
As said, central banks stand ready to fight deflation. The forecast of Goldman Sachs, as shown in the next chart, is that central bankers in Europe and Japan will go in overdrive in the coming years. So there is little doubt that the bubble will be propped up by central planners until there is some form of inflation.
Let us not think of what will happen longer term, as these market interventions will not come without consequence(s). Along the same lines, crude oil, THE most important form of energy worldwide, is close to test secular support levels as well. The next chart tells us that we should carefully monitor how the price of crude will behave around the 40 USD level. Same remark as above: the 40 USD price level better holds.
Meantime, gold is testing the lower range of its downtrend. The chart below shows the three distinct phases since peaking in 2011. First, there was a sideways trading range, and gold did not manage to pass through its all-time highs, signaling troubles ahead. Second, a trend change took place, as indicated in red, where it doesn’t make sense to try to predict anything (investors should rather let the ‘market’ do its work). Third, a downtrend started within a clear range.
Our expectation is that, if commodities would bounce from secular support levels, gold will follow as well. As said, there is a high probability of this scenario to take place. In our own words: it is bottom fishing time in the precious metals complex for smart investors!