|
THE
CASE FOR COMMODITIES
by David Shvartsman
Finance Trends Matter
July 5th, 2006
A brief rundown of
the commodity market in the wake of the recent correction. Commodity
prices have shown some strong performance in the past week. Many
individual commodities enjoyed notable gains last week, continuing the
move off their recent lows.
Some of those gains were reversed on Monday, as base metals such as
copper and zinc gave up some ground in a thin
and volatile trading session. Nickel managed to close higher, as LME
nickel inventories declined.
The Financial Times reported in their weekend edition (July 1/July 2)
that the commodity sector had one of its "best first-half
performances ever". So, is this outperformance the sign of a
bubble, as we so frequently heard before and during the latest market
correction, which hit commodities and many emerging markets worldwide?
Someone once famously remarked that we can only judge a bubble in
hindsight. Assuming, for a moment, that we buy this line of reasoning,
let us ask instead if the recent drop was a bull market-ending
correction. Let's focus strictly on price action and take a quick look
at how some of the commodities have withstood the recent market rout.
These figures are taken from the Financial Times weekend report
previously mentioned. Results of trading that followed the report (and
any resulting price changes) are unaccounted for.
IPE Brent Crude - up 26 percent year to date.
West Texas Intermediate crude - over 20 percent gain YTD.
Gold - up around 19 percent to date
this year despite the recent $100+ drop from its peak.
Silver - up 25 percent so far this
year despite correction from the $14 area.
Copper - "surged" 67
percent YTD.
Zinc - 71 percent increase in the first six months of the year.
Nickel - 58 percent gain so far this
year.
This bit of information does not cover the commodity complex as a whole,
but I think it serves as illustration of a simple fact: even the
commodities singled out as objects of speculation are holding onto their
gains in the wake of this recent market correction.
Leaving aside the larger issues of supply and demand, market psychology,
and the fact that some commodity sectors have yet to enjoy their day in
the sun, price action so far seems to indicate strength rather than
weakness. Until the price action shows that an individual commodity, or
commodities as a whole, start to weaken considerably or signal a change
in trend, it would probably be premature to call an end to a bull
market.
Of course, no commentary on the commodity bull market would be complete
without the added news of Jim Rogers' continued bullishness. As FN
Arena News reports, in a recent interview with Credit Suisse, Rogers
maintained that the current bull market has a long way to go. Judging by
the length of previous cycles, Rogers estimates that the current bull
move in tangible assets won't peak until somewhere around 2014-2022.
We'll leave it there for now. Happy Independence Day to all readers and
their families.
© 2006 David Shvartsman
Editorial Archive
CONTACT
INFORMATION
David
Shvartsman
Finance Trends Matter
Chicago, IL USA
Email
| FinanceTrends
Blogspot
The
opinions of FSU contributors do not necessarily reflect those of
Financial Sense.
|
