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Energy & Commodities

Recipe Calls for a Broad Commodities Rally in 2018

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Posted by Frank Holmes - US Global Investors

on Wednesday, 17 January 2018 05:05

COMM-equities-vs-commodities-01112018

Ed Note: With US Dollar breaking to multi-year lows and the 37 Year old Bull Market in Bonds set to go bearish there is going to be dramatic changes in where money flows. Based on previous booms and busts, the S&P GSCI Total Return Index-to-S&P 500 Index ratio above is now at its lowest point since the dotcom bubble, meaning commodities and mining companies are highly undervalued relative to large-cap stocks. I think its highly likely that in the Stock Market the more glamorous sectors like Biotech, Cannabis, Cryptocurrencies and the FANGS, etc. will likely give way stocks that have significant exposure to commodities. Money Talks Ed. 

Recipe Calls for a Broad Commodities Rally in 2018

At the beginning of every year, we update what’s typically one of our most popular pages, the Periodic Table of Commodity Returns. I encourage you to explore 10 years’ worth of data on basic materials such as aluminum, zinc and everything in between. A word of warning, though—the interactive feature makes the table highly addictive. Please feel free to share it with friends and family!

COMM-periodic-table-commodity-ia-2018

 

Click For Larger Image

It was a photo finish for commodities in 2017. The group, as measured by the Bloomberg Commodity Index, barely eked out a win for the second straight year, edging up 0.7 percent. Spurred by a weaker U.S. dollar and strengthening materials demand from factories, the index headed higher thanks to a breathtaking rally late in the year that lasted a record 14 consecutive days.

The annual return might not look too impressive, but I believe the economic conditions are ripe for a broad commodities rally in 2018. I’m not alone in predicting they’ll be among the best performing asset classes by year end, perhaps even beating domestic equities as quantitative tightening threatens to put a damper on the nine-year bull run.

Analysts at Goldman Sachs, for instance, are overly bullish commodities, recommending an overweight position for the next 12 months. Bank of America Merrill Lynch is calling for a $7,700-a-tonne copper price target by mid-2018, up from $7,140 today. In last Friday’s technical market outlook, Bloomberg Intelligence commodity strategist Mike McGlone writes that the “technical setup for metals is similar to the early days of the 2002-08 bull market.” Hedge fund managers are currently building never-before-seen long positions in heating oil and Brent crude oil, which broke above $70 a barrel in intraday trading Thursday for the first time since December 2014. It’s now up close to 160 percent since its recent low of $27 a barrel at the beginning of 2016.

Few have taken such a bullish position, though, as billionaire founder of DoubleLine Capital Jeffrey Gundlach, whose thoughts are always worth considering.

Commodities Ready for Mean Reversion?



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Energy & Commodities

Base Metals off to a strong start in 2018

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Posted by Haywood Research

on Tuesday, 09 January 2018 06:20

Highlights:  

Base metals had a strong finish in 2017, a year when the copper and zinc prices increased by over 30%, the highest in over 3 years for copper and in 10 years for zinc. Nickel also outperformed, rising by 28%. The performance in 2017 was underpinned by supply disruptions for copper, lack of production growth for zinc, and declining global inventories, within the context of a positive outlook for Chinese, and global growth. 

 

  • Strong copper demand in 2018. It is estimated that China’s copper demand (which accounts for around 50% of global copper demand of 23.5Mt) could grow by up to 3% in 2018, from around 2% in 2017. Codelco, Chile’s state-owned copper miner, sees a sustained increase in copper deficits, supported by growing copper deficits. As a result, the company says the copper price may test records above $10,000/t ($4.50/lb) in 2018. 
  • Potential for supply tightness. Over 30 labour contracts, covering 5Mt of mine supply of copper are due to expire in 2018, mostly in Chile and Peru. Notably, the Escondida contract expires in June. In China, scrap import restrictions and closures related to winter pollution will contribute to tightness in the copper market. 
  • Zinc continues to have the best fundamentals among the base metals. Global zinc stocks were down 59% in 2017, ending the year at 8.2 days of consumption. Chinese zinc imports increased by 43% in the first 11 months of 2017, and continue to be strong. 
  • Outlook is positive. We expect strong global manufacturing output, supported by resilient European and U.S. PMIs, as well as sustained metals demand from China to provide further impetus for a metals rally in 2018Weekly Performance. 

Screen Shot 2018-01-09 at 6.34.38 AM

Precious metals had a strong start to the year, with the price if gold rising above the $1,300 on December 29th amid a falling U.S. dollar and the prospects of another interest rate hike less following worse-than-expected payroll data this morning. This follows a positive 2010 for precious metals with gold (up 11%) and silver (up 4%) finishing at $1,3XX and $17.XX per ounce respectively. Palladium soars. Platinum prices rose almost 50% on the back of robust demand for catalytic converters and limited supply. Palladium prices tested the $1,100 per ounce level on Thursday, with some commentators speculating it could overtake gold, before settling at $1,090 (up X%) on Friday. In contrast, platinum prices finished the year where they began at $907 per ounce

....click here for the full report  

 



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Energy & Commodities

Oil Market Fundamentals Haven’t Been This Strong in Years

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Posted by Bryce Coward - Knowledge Leaders Capital

on Friday, 05 January 2018 07:11

2018 has so far brought in the highest price of crude oil since late 2014 (chart 1), but we shouldn’t be surprised by the price action. Indeed, ignoring geopolitics for a moment, the fundamental picture for the crude markets haven’t been this favorable in years. As we will see, from inventory levels, to the US dollar, to economic growth, to the setup in the futures markets, most signs are pointing to higher oil prices ahead.

Pic1

One of the main drivers of oil prices is the relationship between production, consumption and inventory levels. As chart 2 shows, crude production in the US has recovered to mid-2016 highs, which in and of itself would be bearish for crude prices. But, the total inventory of crude has been falling over that period and now stands at the lowest level in 2.5 years. Chart three depicts total crude inventories (ex the strategic petroleum reserve) plotted with the blue line on the left, inverted axis, overlaid on the price of oil on the right axis (red line). Furthermore, oil consumption has remained strong too. The combination of lower stocks and growing demand has caused the days supply of oil to drop from 34 a year ago to just 25 now. Chart four shows the price of crude on the left axis (blue line) overlaid on the days supply of oil on the right, inverted axis (red line). These two series are highly inversely correlated, so a contracting days supply should result in higher prices. As we will see later, a continuation of this trend is likely.

....continue reading HERE



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Energy & Commodities

Chart of the Day - Gold:Oil Ratio

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Posted by Gary Savage - Smartmoneytracker.com

on Thursday, 04 January 2018 06:45

The gold:oil ratio has been trending in favor of oil for a number of months. I look for this trend to reverse soon in favor of gold.

cotd-211-1

....also from Gary: Stock Market Update



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Energy & Commodities

Copper Outlook at Critical Juncture & Implications For The Silver Price

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Posted by Clive Maund

on Tuesday, 02 January 2018 08:53

We have seen an unusually steady uptrend in copper this month, that has resulted in it appreciating by about 10%, which might not sound like much, but makes a big difference if you are a producer with fixed costs. What is remarkable about this uptrend is not only that it came hard on the heels of a high volume smackdown in the early days of the month that at the time looked bearish, but that we have seen 16 days trading days in a row of higher closes as of the close of trading on Thursday, as can be seen on the 3-month chart for copper shown below. After doing some extensive research it has been discovered that the fundamental reason for this day after day seemingly interminable uptrend was that a prominent Chinese buyer, who has an old fashioned way of doing things, was walking over to the London Metals Exchange every day for weeks with his black briefcase in hand and buying roughly the same amount of copper… 

copper3month301217

But sadly, on Friday, he was run over by a London bus whilst on his way to the exchange, and was thus unable to buy and the price dipped for the first time in a long while… 



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