A few short thoughts out of the commodity space into the start of 2021:
👉 Technicals: the Bloomberg Commodity Index (BCOM) is just breaking out upwards from a 10y+ faling formation (wedge). PLS SEE TITLE PICT. What does it tell us and what investment picture does this paint for next years?
Let’s try answer is shortly:
👉 BCOM weights are as follows: 𝙀𝙣𝙚𝙧𝙜𝙮: 𝟮𝟵,𝟵𝟯% WTI Crude $OIL 7,99% Nat Gas 7,96% Brent Crude $OIL 7,01% Lows Sulphur Gas $OIL 2,6% RBOB gasoline 2,26% ULS Diesel 2,11% 𝙂𝙧𝙖𝙞𝙣𝙨: 𝟮𝟮,𝟭𝟵% Corn 5,83% Soybeans 5,64% Soybean Meal 3,3% Chicago Wheat 3,04% Soybean Oil 2,9% Kansas HRW Wheat 1,46% 𝙄𝙣𝙙𝙪𝙨𝙩𝙧𝙞𝙖𝙡 𝙈𝙚𝙩𝙖𝙡𝙨: 𝟭𝟳,𝟰𝟲% COMEX Copper 6,96% LME Aluminum 4,33% LME Zinc 3,43% LME Nickel 2,75% 𝙋𝙧𝙚𝙘𝙞𝙤𝙪𝙨 𝙈𝙚𝙩𝙖𝙡𝙨: 𝟭𝟳,𝟰% $GOLD 13,62% $SILVER 3,78% 𝙎𝙤𝙛𝙩𝙨: 𝟳,𝟮𝟭% $SUGAR 3,01% Coffee 2,71% $COTTON 1,49% 𝙇𝙞𝙫𝙚𝙨𝙩𝙤𝙘𝙠: 𝟱,𝟴% Live Cattle 4,02% Lean Hogs 1,78%.
As you can see BCOM is a broadly diversified commodity price index including a wide range of commodities that have impact on our everyday existence. So the fact that the price action is breaking out of a big mutli-year trend (so say technicians; I am not really one of them as those of you who follow me know 🙂).
Now the question is: do the fundamentals and current market circumstances support a broad continued rally in commodities going forward? A few things to note here on search of an answer:
👉 The Fed has not only cut the rates the most among the biggest central banks, it has also been the absolute leader in printing (a technical term for increasing money supply via bond purchases programs like QE). I have wrote about it here quite extensively: etoro.tw/2Wuxhai
👉 The direct result of the above is a much weaker $USDOLLAR, which is now down 13% from 2020 top (-7% YoY) as measued by the Dollar Index (DXY).
👉 Weak $USDOLLAR is a natural bid-building power not only to the major commodity ($OIL), but also to many others (mostly those traded in the US currency). For instance food importing countries enjoy temporarily lower prices of consumption, dining, etc. This generally revives the economy as a whole, causing commodities prices to generally tend to go up in the mid to long run. And so it goes.
👉 Higher commodities are generally pro-inflationary.
👉 Higher inflation pust bid to precious metals like $GOLD, etc.
👉 We’re in an endless QE mode here, supported additionally by massive fiscal stimulus all around the world.
👉 Debt has mounted massively over 2020 due to the pandemic. Authorities are determined to monetize this debt, bacuase otherwise this burden would be unbearable in the forseeable future and we’d be facing a many sovereign debt crises. All the above factors are actually very supportive for commodities as an asset class in the coming years. Especially given their underperformance vs. equities ($SPX500, $NSDQ100) from recent years, the next 5-10 yrs can actually turn out to be a commodity boom, from what it looks like. To me today looks very similar to 2009-2011 period, when commodities also enjowed a massive rally post the GFC area, as QE programs were being implemented 1st in US, then in the rest of the world (Japan has been in the mode for quite a while back already of course). Difference now is the “no limit” pledge from the Central Banks.
Best Regards,
@pawelcylkowski
GlobalAlphaSearch
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