We’ve been talking about Commodities and a possible upcoming supercycle in this asset class.
The reason we’re inclined to this view is that we’re seeing signs of this on several different charts across the globe. Now when that happens, we’ve got to sit up and notice.
Remember when the unthinkable happened and Crude Oil traded below zero? Entertaining as it may be (to some) such extreme readings on the chart tend to act as signals for the future.
Take a look at the chart below. It is the S&P500 relative to the inverted ratio of the CRB Index (Cap-Weighted Commodity Index). The long-term chart below suggests that the extreme negative readings that we saw in Crude Oil seem to have probably sealed the top in this ratio. Can Commodities begin their outperformance going forward? It’s quite likely. The individual constituents certainly look like they’re ready for a good move!
Click on chart to enlarge view.
It is important to note here that we’re looking at commodities like base metals and precious metals. Where on the one hand base metals have been performing well, precious metals have been quite a downer. Gold has been the worst place to be in for some time now as evidenced by the chart below.
Silver on the other has had more of a shine to its name, making six-month highs as opposed to Gold’s six-month lows.
On a relative basis too, Silver has been outperforming Gold breaking out of a long-term dow-trend against the yellow metal. Let’s take a moment here to see what this means. Historically an outperformance in Silver has been extremely bullish for the Precious metals subset. Often referred to as “Gold’s crazy cousin”, Siver is a high beta precious metal, and strength in this ratio bodes well for the precious metals going forward. This is also another reason why while we’re staying away from Gold at current levels, we’re not necessarily shorting Gold. That’s an important distinction.