We wrote a few articles on our commodities outlook for 2020: Commodities about to Turn bullish in 2020, as well as commodities in major consolidation going into 2020 and which commodities to invest in. The one message that stands out across these different pieces: our leading indicators may be signaling a major bottom and the start of a new bullish move. We expect 2020 to be pivotal in turning an 8-year commodities bear market into the start of a new bull market.
It turns out that our commodities outlook for 2020 is starting to turn bullish based on our 3 leading indicators. Let’s review them one by one, and conclude what it means for the commodities space and how to play it.
With a risk to sound like a ‘broken record’ we want to reiterate to stay away from commodities news. It will not help investors, on the contrary. This news post is too short term oriented. On the other hand in this ING analysis we see the ‘safe haven‘ appeal of gold brought forward as reason why gold might do well in 2020. Nothing is further from the truth because as explained in our gold forecast as well as silver forecast the precious metals are driven primarily by inflation expectations (only exceptionally is the safe haven characteristic a driver).
Commodities outlook indicator: inflation/deflation
The first leading indicator for our commodities outlook for 2020 is the inflation/deflation indicator by Martin Pring.
We have see a reliable pattern over and over time: a double bottom or double top which coincided with a trend change. Major turning points in commodities have always been signaled by double tops (signaling a new bear market) or double bottoms (signaling a new bull market) in this inflation/deflation indicator.
Watch this historic chart below. If history is any guide then we are about to start a new commodities bull market in 2020.
Commodities outlook indicator: inflation expectations
Our second leading indicator is inflation expectations.
While our first indicator above was about current inflationary readings, our second indicator is about the expectations.
The monthly chart shows an attempt to break above this important 118 level. If this materializes it would be a triple top breakout from a 7 year consolidation pattern. This is very powerful.
Zooming in into the weekly chart we see this current ‘cup formation’ which indicates that ‘something’ is brewing.
Commodities outlook indicator: Australian Dollar
The third leading indicator for our commodities outlook for 2020 is the Australian Dollar (Aussie).
Trends in the Aussie provide supporting evidence of trends in the commodities space.
The long term trend on the monthly chart is pretty clear: although there is a secular bear market since 2014, there is now a clear attempt to get into a tactical bull market.
The weekly chart makes the point more clear. There is some sort of W formation with the start of a breakout.
Commodities outlook for 2020, and how to play it
The charts indicate that a trend change is taking place now.
Don’t go all in right away. A new bull market starts slowly and picks up in speed over time. So gradually building up positions is what smart investors are doing. Moreover, they keep a close eye on all commodities to identify the ones that start rising first, as commodities never rise collectively.
As per the 10 Tips To Master Investing Without Emotions, particularly the best practices of top investor Stan Druckenmiller:
I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. I think diversification and all the stuff they’re teaching at business school today is probably the most misguided concept everywhere. The mistake I’d say 98% of money managers and individuals make is they feel like they got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch the basket very carefully.
That said, commodities should be given the time they need to get bullish again. This may start in 2020 or not, we don’t know for sure.
But picking out the one or two commodities per year that will do well in 2020 and beyond is what will define success. And it will require a very detailed analysis of different commodities.
Don’t get emotional because you like a certain commodity. Stay rational, and go for the outperformers starting in 2020.Our 3 leading indicators signal a major bottom in commodities. Our #commodities outlook for 2020 is mildly bullish, with a few like #gold and #silver doing well (worth #investing) and the rest moderate (not worth your time/capital)… Click To Tweet
The picture is clear, the actions are clear. We will find out the really ‘juicy’ opportunities in the commodities space as 2020 unfolds.
We are closely monitoring the commodities space to find the first segment that will do extremely well in 2020 with the idea to find a multi-bagger investing opportunity as per our MISSION 2026. If you want to follow our work you can still subscribe to the free version of this premium newsletter service.