This year has been good for commodities. Several have seen new highs, largely driven by the loose monetary policy of the US Federal Reserve and the economic recovery “story”.
Gold and silver are the obvious strong candidates as these precious metals get a lot of attention from the retail crowd. Sugar and soya bean too, are extremely strong. There are other commodities that are gaining strength including coffee, orange juice and cotton, but are not as strong as the earlier mentioned commodities.
Even though crude oil is rallying, it’s relatively weaker than gold and silver. Natural gas and cocoa continue to be weak.
THE STRONGEST
The strongest commodities are the ones which made new highs and these include gold, silver, sugar and soya bean. The trend in gold, which has seen steady rise, is more sustainable than the ballistic rally of silver and sugar.
Gold: After a strong rally, gold has taken a breather and is consolidating between $1,320 and $1,430 an ounce. The chart looks bullish with a target of $1,500. Remember that gold has continued to rally despite the recent rally in the dollar, which shows strength.
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Silver: We believe the metal has much more upside left, but has rallied far above its moving averages, which is a call for correction. A correction back to the $26 or $24 over the next few weeks with the moving average catching up will be good area to go long.
Sugar: Sugar, which began its rally in June, had a steady rise initially. Since October, the rise has been fast, with prices moving far from the 30-week moving average. Sugar is at present, at its all time high of $33 and we would wait for a correction to $26 before going long.
THE STRONG
These commodities have rallied but not made new highs, indicating relative weakness to the above mentioned commodities.
Crude oil: There has been a lot of talk about the rally in crude oil lately with prices in the $92 range, but a look at the chart shows that it’s relatively weaker than the above mentioned commodities. Crude has not been able to clear the $96 resistance level in quite sometime and has not made a new high like the other commodities. It’s also been trading above and below the 30-week moving average indicating a lack of direction. For a strong rally, it has to close above $96 and then clear $108.
Cotton: Cotton prices at $147 are way above the 30- week moving average of $99. We would wait for a correction before going long at $112. Prices right now are showing corrective action.
Coffee: Coffee is rallying but has not made new highs. It, too, has moved far from its moving average and price is in the $240 range. We would wait for a pullback to $20 level to go long. The 30-week MA is at $191.
THE WEAK
These commodities have been in a downtrend, showing relative weakness to the strong and strongest commodities.
Natural gas: The price of natural gas has been falling given the abundant supply. We would stay away from this commodity as there is not much of down side to it on the short side and it shows no signs of recovery.
Cocoa: Chocolate lovers can rejoice despite the recent rally in cocoa. The commodity has been in a steady long-term downtrend with prices making lower lows and lower highs. We’d consider selling at $3,200.
The author is editor of www.capturetrends.com and is based in Chicago