Commodities Shrug Off Peak Inflation

Inflation has peaked!

Or so I’ve been told… 

Rates are rolling over, undercutting their June highs from last year. High-yield debt, including emerging-market bonds, is catching a bid.

And major commodity indexes are on the verge of breaking down.

That all sounds logical to me.

But just because inflation might begin to ease doesn’t mean I’m taking a bearish stance on inflationary assets, especially commodities.

As crazy as that may seem,  these next four charts support my case…

Check out the long-term chart of gold futures overlaid with copper:

These metals are in the process of carving out decade-long bases.

Based on Friday’s intraday action, gold is trading above its prior commodity supercycle peak at approximately 1,924, while copper is holding less than 50 cents below its high of 4.6495. 

Both are on the precipice of resolving higher and launching the next structural uptrend.

I believe those new uptrends are already in motion. It’s more about confirmation at this point.

Copper isn’t the only base metal showing near-term strength. Check out tin futures:

This week, tin hit fresh 13-week highs. And it’s up more than 48% over the trailing three months.

I find it difficult to entertain a bearish thesis for commodities when copper, tin, and other base metals such as aluminum rip higher.

If we’re going to adhere to “fight the Fed,” I want to add another rule: “Don’t fight Dr. Copper.”

Let’s see if it gains traction.

Regardless, the broadening strength among base and industrial metals points to a healthy rotation between procyclical commodity groups:

While crude oil and distillates have corrected, base metals have stepped in to pick up the slack.

That’s how decade-long trends unfold.

As long as that healthy rotation remains intact – and, to be clear, there are no signs that it isn’t – major commodity indexes will continue to hang tough.

And they are.

The Bloomberg Commodity Index $BCOM failed to hold its fresh lows earlier in the month, bouncing back above a critical support level.

Meanwhile, the CRB Index and our equal-weight index continue to dig in at multi-year support.

I can’t consider a bearish take on commodities if these indexes hold above support.

If you really want to know if the potential commodity supercycle is the real deal, gold and copper will break out.

It’s that simple.

So far, participation is improving among base and industrial metals. Tin provides an excellent example.

And you know our outlook for gold. If not, check out our Gold $5K report here.

Also, the opportune strength from base metals comes as other major procyclical commodities (energy) correct lower.

It’s a healthy rotation trademark and the lifeblood of a sustainable bull market.

You’re best served focusing on these trends rather than hanging on the Fed talk du jour or whatever else the talking heads are spinning.

I know it can be difficult. But don’t worry if you lose sight of what really matters regarding commodities.

I’ll be right here to remind you.

Stay tuned. 

COT Heatmap Highlights

• Commercial hedgers added to their net-long coffee exposure, posting their highest level in three years.
• Commercials' long exposure to lean hogs also hit a new three-year extreme, as hedgers added more than 15,000 contracts this week.
• And commercial hedgers continue to unwind their gold position, dropping another 26,000 contracts.

Click here to download the All Star Charts COT Heatmap.