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Bust in Raw Commodity Cycle Will Turn into Boom; Better Times for Gold Ahead

By Jim Wyckoff of Kitco News
Tuesday March 10, 2015 10:42 AM

(Kitco News) - The gold market is presently suffering a serious mauling from the bears—both from technical and fundamental perspectives. Prices on Tuesday notched a 3.5-month low and downtrends are firmly in place on the shorter-term and longer-term charts. The surging U.S. dollar and the likely tightening of U.S. monetary policy in the coming months are headline news events keeping gold buyers wary.

However, a bigger-picture view of the raw commodity sector, its history and its very cyclical nature suggest gold bulls will again have their day—and likely sooner than most market watchers would ever expect.

The Goldman Sachs Commodity Index (GSCI) is a basket of several major raw commodity futures market prices rolled into one composite index price. All market participants should follow this index, as it’s a gauge of the health of the raw commodity sector, including showing the boom and bust cycles that raw commodity markets have experienced through the years.

The latest bust cycle in raw commodity prices has seen prices fall off a cliff, as depicted on the monthly bar chart for the GSCI. Importantly, such price action is not unprecedented. See on the monthly GSCI chart the bigger price drop that played out in 2008. And see how that 2008 bust cycle quickly turned into a boom cycle that peaked in 2011. Not coincidentally, Comex gold futures prices hit a record high of $1,923.70 an ounce in the fall of 2011.

In examining commodity prices’ history, it’s my strong bias that this latest bust cycle in raw commodities has just about run its course. That means a boom cycle is just over the horizon. Such would also suggest that many raw commodity prices, at their present lower levels, are value buys on a longer-term basis. Gold falls into that category.

Finally, remember that markets are the most very bearish at the very bottom in prices. This appears to be the case at present in the crude oil market. And markets are the most very bullish at the very top in prices. This is getting to be the case in the U.S. dollar index. When both of these key “outside markets” finally do make their turns—and they most certainly will—that will be a strong clue the raw commodity boom cycle is under way.

By Jim Wyckoff, contributing to Kitco News; jwyckoff@kitco.com
Follow me on Twitter @jimwyckoff

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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