Bespoke Investment Group

Bespoke's Commodity Snapshot

Below we provide our trading range charts of ten major commodities.  The green shading represents two standard deviations above and below the commodity's 50-day moving average, and moves above or below this range are considered overbought or oversold. 

As oil has moved to the bottom of its trading range in recent weeks, natural gas has finally moved to the top of its range.  Natural gas also just broke above its one-year downtrend line, and now traders will focus on resistance that was made at its highs earlier this year.

Metals have settled down over the past few days as the dollar has ralllied.  After trading above $1,000 for a short time, gold has moved back down to $992.  Corn and wheat remain in downtrends, while the breakfast drink commodities (orange juice and coffee) have charts that look like a heart-rate monitor with multiple spikes and falls over the past few months.

DOE US Crude Oil Inventories

In this morning's weekly energy inventory report from the Department of Energy, crude oil stockpiles are expected to show a decrease of 1,400 barrels of oil.  In the chart below, we compare the current inventory levels with the overall average since 1984.  Even though oil is up more than 60% this year, inventory levels remain well above their long-term average.  Just to get back to average, we would need to see a decline of nearly 15 million barrels.

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Gold Grabs Headlines As Silver and Platinum Shine

Gold's move above $1,000 earlier this month grabbed headlines, but its precious metal counterparts have been the real performers this year.  As shown in the chart below, gold is up 14.2% year to date, while platinum is up 42.5% and silver is up 51.3%.  For ETFs of these metals, see GLD for Gold, SLV for Silver, and PTM for platinum.

Gold Reverse Head and Shoulders

While Barrick Gold's (ABX) decision to eliminate all of its hedges on the price of gold may end up marking a short-term top in the price of the commodity, technicians would argue that the company's decision was a good one.  As shown below, the price of gold is in the late stages of a reverse head and shoulders pattern.  If this is the case, and the commodity can finally decisively break its neckline level of $1,000, this pattern would imply a price target of $1,300 for the metal.

 

Did Barrick Just Jinx Gold Again?

Long-term readers of Think B.I.G. might remember this post we did back in March 2008:

As shown in the chart below, Barrick's CEO top-ticked the gold market at $1,000/ounce with his "there's lots of room to go in the gold price" in early March 2008.  Unfortunately for gold bulls, Barrick made another huge bullish bet on gold yesterday when the company announced that it was eliminating all of its hedges on the metal.  This came just as the price ticked above $1,000/ounce for the first time since February.  Will Barrick get it right this time, or is this an ominous sign for investors who are long gold?

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Gold Breaks $1,000

While the current price of gold ($1,005) is not at an all-time intraday high, if it holds onto these gains throughout the day, it will be at an all-time closing high.  Even with the potential for a record high close, gold's current run to $1,000 has been met with a lot less fanfare than the prior two runs.  They say a watched pot never boils, but once you take your eye off of it...

 

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Gold Gaps Higher Again. Is $1,000 Next?

For the second straight day, the price of gold is trading sharply higher and is now near its highs for the year. If it breaks through its March highs of $990, $1,000 gold heading into Labor Day weekend will be a distinct possibility.

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Gold Spikes Intraday, Are Equities Next?

The price of gold is building on its opening strength this morning and has spiked in the last few minutes.  With the correlation of gold and the S&P 500 at its most positive levels in over three years (chart below), will equities follow suit?

 

 

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Oil Down, Stocks Up

Given the strong positive correlation between oil and equities, one would expect the S&P 500 to be considerably weaker today on the heels of oil's 3.5% decline.  As it stands now, however, the S&P 500 remains modestly higher.  So is today's action a sign that the positive linkage between the two assets is diminishing? 

We wouldn't be too quick to say the relationship is dead.  As shown, today is actually the eighth time this year where oil was down more than 3% and stocks were higher on the day.  So while it's not neccessarily a common occurrence, it isn't completely out of the blue either.

   

 

Oil Breaks Above Inflection Point -- Barely

Last Thursday we noted that oil was trading at a key inflection point where it would either fail at or break above resistance.  As shown below, oil has broken above this inflection point in the last two days, but it has hardly been a move worth getting excited over.  With oil and the stock market trading so closely together in recent months, the ability for oil to forcefully break out will most likely depend on which way stocks move in the next week or so. 

 

Below we provide our trading range charts of 8 other key commodities.  Moves above or below the green zone are considered overbought or oversold.  As shown, precious metals are all trading right in the middle of their trading ranges, and the ranges themselves are tightening up as the volatility contracts.

While oil has been hurting consumers' wallets in recent months, food commodities have been dropping in price.  Corn and wheat are both trending downward and have broken all levels of support.

 

 

 

 

Oil to National Gas Ratio Highest Ever

With oil rallying and natural gas continuing to plummet on a daily basis, the ratio of oil to natural gas is at its highest level since at least 1990 at 26.35.  When the line is increasing in the chart below, oil is outperforming natural gas, and as shown, it has been doing that now since the end of 2008.  The ratio is currently in uncharted territory, so who knows when we'll see some reversion to the mean.

 

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Will Oil Break Out Or Fail At Resistance?

At $72 and change, oil is currently trading at a key inflection point.  As shown below, oil recently bounced nicely off of the bottom of its uptrend channel, and it is now butting up against resistance that formed when the commodity made its highs in June and July.  If oil is able to break out above these short-term highs, there isn't much in the way of resistance until the $90 mark.  With oil tracking so closely with the stock market recently, it's highly likely that the breakout will occur if the rally in equities continues.

  

Commodity Consumption

In the chart below we have calculated the cumulative daily price change of the major food and energy commodities in the CRB index (Corn, Soy, Wheat, Cattle, Hogs, Oil and Natural Gas) since the beginning of 2008.  We then multiplied the changes by the annual per capita consumption of each item. While this method may oversimplify the actual costs, it provides a good idea of how changes in commodity prices have impacted consumers' wallets over the last 18 months.

After bottoming out earlier in the year at a daily 'windfall' of $4.99, rising prices have been steadily eating away at the benefit consumers have seen from the late 2008 crash in commodity prices.  As of today, the average daily benefit has decreased to $2.92 per person per day versus the start of '08.  This works out to just under $1,100 per year or $4,400 for a family of four.  While commodity prices are still having a net positive impact on consumers compared to where they were at the start of 2008, the benefit is considerably less now than it was in late February.

 

Bespoke's Commodity Snapshot

Below we provide our trading range charts for ten major commodities.  The green shading represents between two standard deviations above and below the commodity's 50-day moving average.  Moves at or above the green zone are considered overbought, and moves at or below the green zone are considered oversold. 

As shown, the energy and metal commodities are all currently at or above their trading ranges.  Even natural gas, which has been in a perpetual downtrend, has moved into overbought territory over the last couple of weeks.  Interestingly, gold is going up along with oil and the stock market, and the falling dollar definitely has something to do with it. 

The agricultural commodities like corn and wheat aren't spiking along with energy and metals, which is a positive for those worried about food inflation.  And finally, coffee has bounced nicely in recent weeks after falling to the bottom of its range.

 

 

 

 

 

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Gold Hits Highest Level Since June 5th. Next Stop $1,000?

While movements in gold over recent weeks have been overshadowed by the spike in equities, the commodity has quietly rallied to levels it hasn't seen in nearly two months.  As shown in the chart below, the price of gold is currently at its highest level since June 5th.  Just as the S&P 500 has little in the way of resistance between 1,005 and 1,100, from the looks of the gold chart, there aren't any roadblocks between its current price and $1,000.

 

Oil Outperforming Oil Stocks

Since bottoming at the end of 2008, oil (the commodity) has outperformed oil stocks significantly.  The chart below shows the ratio between the S&P 500 Oil & Gas index and the price of oil.  When the line is rising, oil stocks are outperforming, and when the line is falling, oil is outperforming oil stocks.  When oil tanked in late 2008, the ratio got out of whack and soared to its highest level since 2001.  Since its multi-year peak, the ratio has declined just as fast as it rose.  While oil stocks have been doing okay, the price of oil per barrel has increased from the low $30s to the $60s.  The current ratio is at the low end of the range it has been in since the start of the decade, but as we saw last year, it can go quite a bit lower.

 

Bespoke's Commodity Snapshot

Below we provide our trading range charts for ten major commodities.  The green shading represents between 2 standard deviations above and below the commodity's 50-day moving average.  Moves outside of the green zone are considered overbought or oversold. 

The only commodity currently overbought is copper.  Oil, natural gas, gold, silver, and platinum are all right in the middle of their trading ranges.  Corn and wheat have been tanking lately and are getting close to the bottom of their normal trading range.  And coffee and orange juice are finally seeing some reversion to the mean after seeing some short-term divergence a couple of weeks ago.

 

 

 

 

 

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Orange Juice Prices Spike While Coffee Drops

As shown below, orange juice futures have soared to overbought levels over the last couple of weeks while coffee futures have collapsed.  Here is a story we found that tries to explain why orange juice has taken off, but we couldn't find any other news that would cause such a move.

 

We decided to plot the ratio of coffee to orange juice going back to 1972 to see if the recent move has thrown the ratio way off track.  As shown below, while the ratio has dropped a little bit as orange juice has outperformed over the past few weeks, it's still well within normal levels. 

 

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Bespoke's Commodity Snapshot

Below we highlight our trading range charts of ten major commodities.  The green shading represents between two standard deviations above and below the commodity's 50-day moving average, and a move above or below this green shading is considered overbought or oversold.

On the energy front, oil and natural gas have declined quite a bit over the last week.  Oil remains in the center of its trading range, however, while most other commodities are now in oversold territory.  Gold, silver and platinum have all pulled back sharply since early June, while corn, wheat, and coffee have fallen off a cliff.  The one commodity that has bucked the overall downtrend is orange juice.  It was in oversold territory just a couple of weeks ago, but it has rallied nicely in recent days.

 

 

 

  

Interested in making actual precious metals a part of your portfolio?  Click here to request information on how you can purchase and take delivery on gold, silver, platinum, and palladium.

At Least Commodities Are Cooperating

In the chart below we have calculated the cumulative daily price change of the major food and energy commodities in the CRB index (Corn, Soy, Wheat, Cattle, Hogs, Oil and Natural Gas) since the beginning of 2008. We then multiplied the changes by the annual per capita consumption of each item. While this method may oversimplify the actual costs, it provides a good idea of how changes in commodity prices have impacted consumers' wallets over the last 18 months.

In July of 2008, when the price of oil and other key commodities were trading at record highs, the impact of rising prices was translating into an extra $4.77 per American per day versus the start of 2008.  When the prices of commodities crashed in late 2008, the effective tax on consumers completely reversed itself and became a rebate of nearly $5 per person per day.  Today, the rebate effect of lower commodity prices has diminished slightly from levels we saw earlier in the year, but it still works out to $3.14 per person per day.  For a family of four, this equals just under $4,600 a year.

Ultimately, the rebate effect of lower commodity prices is a positive development, and it should benefit Consumer Discretionary stocks which all sold off as oil made its run towards $70.  However, given the current attitude of investors, they are unlikely to get too excited about this unless it is accompanied by continuing signs of improvement in the economy and earnings.

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Gold Bulls Outnumber Bears

Yesterday afternoon we asked Think B.I.G. readers whether they were bullish or bearish on gold over the next six months.  After a day's worth of voting, 56% were bullish and 44% were bearish.  This is a fairly neutral reading and helps explain why the metal has been floundering between $900 and $1000 for some time now.  There were more bulls than bears, however, so if they're putting their money where their mouth is, maybe gold can break above the $1000 mark and stay there.

 

Interested in making actual precious metals a part of your portfolio?  Click here to request information on how you can purchase and take delivery on gold, silver, platinum, and palladium.

Will Gold Rush to 1,000?

 

 

Above we highlight our trading range charts of gold, silver, platinum, and palladium.  The green shading represents between 2 standard deviations above and below the commodity's 50-day moving average.  As shown, all four of these precious metals are currently trading right in the middle of their trading ranges.  We want to know what Think B.I.G. readers think is in store for gold over the next six months.  Are you bullish or bearish on gold?  Thanks for participating, and we'll report back with the results shortly.

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Interested in making actual precious metals a part of your portfolio?  Click here to request information on how you can purchase and take delivery on gold, silver, platinum, and palladium.

Bespoke's Commodity Snapshot

Even after a pullback in portions of the commodity sector over the last couple of weeks, most are still up year to date.  As shown below, copper is up the most with a gain of 63.58%, and oil is not far behind at +60.85%.  Platinum, silver, orange juice, coffee, and gold are the other commodities that are up year to date.  Corn is down 5.76%, wheat is down 11%, and natural gas is still down the most at -26.98%.

 

Below we provide trading range charts of the ten commodities listed above.  The green shading represents between two standard deviations above and below the 50-day moving average.  As shown, oil remains at the very top end of its range, while natural gas has recently moved to its top as well.  Gold, silver, platinum, and copper have pulled back into neutral territory in recent weeks, while corn, wheat, orange juice, and coffee have seen significant declines.

 

 

 

 

 

Second Lowest PPI Reading on Record

This morning's 5% decline in the year/year (y/y) Producer Price Index (PPI) was the second lowest reading in the history of the indicator (going back to 1948).  Tomorrow, we will get a read on consumer prices with the release of the CPI.  Heading into the report, economists are expecting the y/y reading to show a decline of 0.9%.  If the report comes in inline with forecasts, it will be the tenth lowest reading in the history of that index (going back to 1940). 

Given the fact that indicators of consumer and producer prices are near record lows and indicative of deflation over the last year, it is hard to imagine that most investors are worried about inflation down the road.  There is no denying that commodity prices, such as oil, have risen in the last few months, but rather than being a sign of inflation, is the rally in commodities more indicative of a market returning to some degree of normalcy? 

For example, from the bankruptcy of Lehman through the month of February, there was a widespread and growing view that the economy was on the verge of a second great depression.  As that view failed to materialize and the environment stabilized, equity and credit markets have rallied towards levels they were at prior to the Lehman collapse.  Rather than anticipating an economic boom, however, the rally has been the result of investors taking the depression trade off the table and pricing in a more 'normal' recessionary environment.  Along the same lines, even after the impressive rally in commodities, both oil and the CRB Index are still well below levels they were at prior to the Lehman bankruptcy.

 

 

Natural Gas ETF (UNG) Activity Catching Up to Oil (USO)

While you wouldn't expect it from the price of natural gas, trading in the natural gas ETF (UNG) has recently become extremely active.  For much of the last few years, investors who wanted exposure to energy related commodities bought USO.  Over the last several weeks, however, investors have been increasingly flocking to natural gas.  Over the last 50 trading days, the total dollar value of trading in UNG has risen to 77% of the dollar volume in USO, and it is up over 900% from levels we saw in March (7.6%).  For all the new buyers of UNG, if only the price of natural gas could follow suit.