The following is part of Pivotal Events that was published for our subscribers January 13, 2016.
Crude oil has become the phenomenon of the bear market in commodities. This week it has taken out the cyclical low of 33.55 set in March 2009. No mean feat, but it is telling a story. The story is what we outlined in 2Q2014 which was a new price regime such as natural gas suffered. Also the market has to cope with generally weak commodities during a post-bubble contraction.
Our target was a decline to 1/3 of the 2014 high or to 1/4. The first target was 37 and the second was 27.
With fracking there has been a massive technological revolution. Base metal mining recorded one beginning in 1910 when Bingham Canyon showed that low-grade copper porphyry systems could be mined economically. The next revolution in metals was the mining of low-grade gold deposits in the 1970s.
Fracking is another technological revolution that has very little to do with Saudi schemes about market share.
It won't go away and production can be turned on and off, depending upon demand. Bingham Canyon is still in production.
Base metals (GYX) have tried to rally out of a seasonal low in November at 238. The rebound high was 256 and now it is at 236. It is not oversold.
Base metal miners have been in free-fall. The high for the XME on last year's rotation was 29 and it is now at 12.50. The Weekly RSI is down to 26, which is oversold, but not acutely oversold.
This phase of intense pressure could culminate within a few weeks.
In life as well as in the markets, you have to play the cards that you are dealt.
This applies to central bankers and their inadequate theories as well as to orthodox precious metals analysts.
The blunders are that the Fed still ardently believes that that currency depreciation (they call it stimulation) forces a business expansion. Precious metal fans still ardently believe that the Fed is evil and can depreciate the dollar at will.
Both sets of players have been seriously offside.
Because the public chooses what to speculate in.
In the 1970s it was in commodities and wages which drove the CPI to 14 percent. This peaked in 1981 which set up the game that continues - inflation in financial assets. Commodity speculation blew out in 1920 and the subsequent era of financial assets speculation became infamous.
This era of financial wizardry will also be widely described as infamous.
This has already started with the peak in lower-grade bonds in June 2014, the NYSE peak in May 2015 and the Shanghai peak in June 2015.
An early key was the peak in most commodities, including precious metals, in 2011.
Asset deflation has been impressive but not yet disastrous.
Disaster, including real estate in financial centers, seems inevitable.
In which case, and as with previous post-bubble contractions gold miners become the premier investment.
For the cards to come our way in the Precious Metals, gold shares will need to outperform the bullion price.
HUI/Gold set a key low at 96 in November and is working on a bottom.
Constructive action would include gold stocks outperforming the S&P.
The low for HUI/SPX index was 49 in November and it took some work to get above the 50-Day at 59. Then some more work to get to the 64 level from where it is correcting to support at 58. This is constructive.
The other important aspect is that gold continues to outperform commodities. This, particularly against crude oil, is improving operating margins for gold producers.
However, for gold shares to fly the big stock market will have to be, at least, steady.
We accumulated a minor position in some gold shares and will add on opportunity.
US Rail Traffic
- Note the failure at the 40-Week moving average.
- The decline has taken out the low with the Shanghai hit.
Link to January 16, 2016 Bob Hoye interview on TalkDigitalNetwork.com: https://www.youtube.com/watch?v=QAxXWas54pg&feature=youtu.be
Listen to the Bob Hoye Podcast every Friday afternoon at TalkDigitalNetwork.com