The CRB commodity index jumped up to its 1980 highs, copper hit its 1995 highs and the oil price is at a record high. Meanwhile gold, silver and their shares are in a renewed rise in the ongoing bull market.
The commodity sector is hot, especially the natural resource and energy sector. We believe this primary upmove in commodities still has years of further advances. Why?
AGAIN, IT'S CHINA
China has been one key factor in pushing up oil and natural resource shares as their growing demand has been heating up these sectors. So far, Chinese demand remains high and if their economy indeed slows down as some suspect, it'll probably be temporary because China is the world's growing giant.
This alone is going to keep upward pressure on commodities and we feel it's important to understand this and invest accordingly.
It's also going to keep upward pressure on inflation, especially combined with the Fed's ongoing easy monetary policies. This has been one important reason why the U.S. dollar has been weak and these factors will all continue to be bullish for gold and the other metals.
GOLD: Renewed rise
Gold's 10 week downward correction we call D ended on February 8, and an 'A' rise then began as Chart 1A shows. The D decline was normal in time and price action since it ended within the average time period and gold fell to its 65-week moving average. The leading indicator also dropped to the extreme low area, which is typical for a D decline (see Chart 1B).
'A' rises tend to be moderate, which means if gold doesn't reach a new high and simply consolidates, say staying between $413 (major support) and $455, this would be normal. In fact, since the upcoming B decline also tends to be moderate, don't be surprised if gold moves within a sideways band for several months. Time wise, the current A rise could end toward the end of this month or in April.
This action in a bull market tends to be the springboard for the next C rise, which is the best rise in a bull market. But 'A' rises can occasionally reach new highs and if it does, then the bull market would be very strong.
The point is, some consolidation in the months just ahead would be normal before a stronger rise occurs in the second half of the year. Most important, the bull market in gold that began in 2001 will remain on track as long as gold stays above $413, meaning new bull market highs are coming.
SILVER: Stronger than gold
Silver is the strongest precious metal as you can see on Charts 2B & C. Silver's major trend is up above $6.60, it's strong above $7.00 and once it closes and stays above the 2004 highs at $8.20, another leg up in the bull market will be underway (see Chart 2A).
Copper is stronger than silver as the ratio is declining (see Chart 2D). Copper is heavily used in construction and Chinese demand has been keeping copper strong. It recently reached its 1995 highs and the major trend is up above $1.30.
COMMODITIES: On the rise
The CRB commodity index has been soaring (see Chart 3). This index is made up of 17 commodities encompassing energy, soft commodities and metals. Driven in large part by the renewed oil price rise, the CRB hit a 24 year high this month and over the past three years it's risen over 60%.
Last time we showed you that a major upmove is just beginning in the big 200 year picture of commodity prices. This will likely coincide with China's growth and ongoing demand.
For now, these markets are where the action is. And as long as that's the case, we strongly recommend you stay focused on gold and the other metals, their shares and commodities.