Whenever we want to gauge animal spirits in the precious metals space, we resort to our trusty intermarket ratios.
Two weeks ago in our Gold report, we covered the notable bounce we were witnessing in the Silver/Gold ratio, pointing to brewing risk appetite within this space. And this week, we outlined a bullish trade in the iShares Silver ETF off the back of this recent momentum.
But when we take this relationship one step further, we see a similar situation in the relationship between Silver and Gold mining stocks.
Commodities are losing ground as money flows back into stocks and bonds in hopes of a Santa Claus rally.
Yet fresh strength in equities isn’t completely leaving commodities in the dust. In fact, numerous bullish developments are underway for raw materials.
Dr. Copper is working its way higher. Crude oil is refusing to throw in the towel despite increased selling pressure. And softs such as orange juice, cocoa, and sugar are flying toward fresh decade highs.
That doesn’t sound bearish to me, especially when considering new buying opportunities in the grain markets…
Crude oil is relinquishing its leadership role. Gold and silver are catching a bid. And copper is digging in at former support.
But it’s not only base and precious metals bouncing off critical levels…
Check out our Equal-weight Commodity Index refusing to roll over:
Our commodity index, comprised of an equally weighted basket of 33 commodities, is finding support at a shelf of former highs. This is the principle of polarity at its finest – former resistance turning into support.
Everywhere you look, commodities argue a strong case for the next supercycle.
Live cattle, feeder cattle, sugar, cocoa, and orange juice are all amid historic rallies. Even gold’s resilience in an environment where it should struggle speaks to an underlying demand for raw materials.
Well, perhaps not everywhere…
While orange juice busts loose on a parabolic advance and cocoa rips toward all-time highs, copper futures barely exceed their year-to-date lows.
On the bright side, it stopped falling.
Check out copper digging in at key pivot lows from earlier this spring:
While some of these explosive rallies pause, other areas of the commodity space are forming tactical reversal patterns.
Let’s check out one of my favorites,…
Corn.
Here’s the December corn contract carving out a ten-week base:
I bought yesterday’s close above 500’0. That’s our risk level. As long as corn trades above that level, I like it long toward the July high at approximately 570’0.
However, during today's session, I was abruptly stopped out of my position.
Earlier in spring, I wrote a note highlighting wheat’s tendency to lead crude oil at key inflection points.
While this statement is mostly true, it needs clarification.
Chicago wheat does have a tendency to lead crude oil at significant market tops. But crude leads at critical troughs.
Check out the crude oil overlaid with Chicago wheat futures:
Notice crude bottomed in Q1 of 2009, 2016, and earlier this year. Chicago wheat followed roughly six to nine months later, marking critical turning points in late Q3 of 2009 and 2016.