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Commodities Still Weak Except Some Base Metals

Investors should be very selective when investing in commodities in 2017 and 2018. That is what InvestingHaven’s research team concluded early this year, and this was the most important quote from that article “InvestingHaven forecasts that investing in commodities in 2017 and 2018 will give moderate results, and being selective will be a key success factor.”

After 8 months it is clear that 2017 is really not a big year for commodities. The long term chart embedded below makes that point. As an asset class commodities have gone nowhere, they continue to consolidate, close to their support area even.

As said, being selective is a success factor. Some base metals are acting strongly right now. Think of copper and zinc primarily, as well as some small (niche) metals like lithium. Those base metals are greatly outperforming all other commodities.

When it comes to copper our point of view is that the $3.00 price level is the ultimate copper price which confirms a new bull market.

Where it becomes very counterintuitive is recent strength in the U.S. dollar. A rising dollar is known to put pressure on commodities. As the dollar is bouncing from a mega support level we expect the dollar to do well in the coming weeks and months. That is another reason why we believe commodities are not a great investment, at most of them not.

So the question is: can copper continue to rise with a rising U.S. dollar?

We believe the answer is yes. And we would add to it that a rising copper price is certainly not signaling inflation. After 6 years of declining copper prices this red metal had to recover at some point. Moreover, it could well be that copper’s price rises because of strong demand, in specific places in the world (think of Asia) or because of strength in the construction sector. But there is no inflation as long as several other leading commodity prices, and certainly as long as the dollar rises.

If copper continues to rise we would see similarities with the first months of 2008 where markets were preparing a huge crash, the dollar started rising but the price of oil went to all-time highs. Though conditions are different today, it is a comparable situation.

Absent inflation, whatever happens with base metals we continue to see moderate to weak results in most commodities in the coming months.

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