InvestIdeas

"A rally so far [has been] led by energy and metals, the rallies in gold and silver are young while oil and copper have room to trend".

While he said a wider rally will depend on how agricultural commodities perform, a look at a broad index "suggests commodity markets are on the verge of signaling a secular bull trend."

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Among the recent milestones: Copper dipping below $6,000. West Texas Intermediate crude testing $68. Gold crashing through $1,220.

“Metals prices are timely, highly correlated with world economic activity and perform well at predicting short-term movements in GDP”.

“Consumption moves very closely with GDP.”

A 10 percent move in the LMEX Index of six base metals corresponded to a 7 percent move in the Stoxx Europe 600 Basic Resources sub-index in the past year -- that’s stronger than during the preceding decade.

Copper, often used as bellwether for the global economy due to its wide-ranging industrial applications, fell 18 percent.

The same picture is on display in emerging-market currencies, where 21 out of 24 tracked by Bloomberg declined. The biggest losers included nations such as South Africa, a producer of base and precious metals and coal; Brazil, which exports iron ore, agricultural and petroleum products; Chile, a major copper producer; and Russia, which relies on natural gas, metals and other commodity exports.

Hedge funds’ net position stood at a negative 51 percent in precious metals and negative 37 percent in base metals as of Tuesday.

The Bottom Line

Commodities have experienced a nice run higher for most over the past two years.

However, given the closes below key trendlines on major commodity-related ETFs, it appears as though the bears are now in control.

It seems as though the best place for the bulls is to wait on the sidelines to see if the prices are able to regain the lost ground and close back above the key levels of new-found resistance.

zinc price has been plummeting, for example, despite the fact that supplies of the metal at the London Metal Exchange (LME) are close to their lowest levels of the last two decades.

Similarly, the copper price has been tumbling since January, even though copper supplies at the LME are close to 20-year lows.

Prices of most heavy-industry products like steel and rebar, remain conspicuously strong. Presumably, prices for products like these would not be strong if the global economy were weakening.