Thursday, February 19, 2015

We Are Very Close To A Buy Signal In Precious Metals Sector

In June last year I published an article on an easy play in Precious Metals Market. Here is the link.

Today, despite falling PM share prices we are very close to another LONG trade. Please, look at the chart below:


In the upper section you will find the chart showing the relative strength of Junior sector of PM market (GDXJ) against the big gold producers (GDX). Every time Juniors start showing strength against Big gold the rally in the whole sector begins.
Keep a close eye on the behaviour of PM shares in the coming days.

Sunday, February 8, 2015

Fundamentals of Corn and Wheat Look Better Now

A few days ago I published a post on agriculture commodities - link is here. Today let me take a closer look at two grain commodities: wheat and corn.
Both commodities are in their medium term downtrends. But these days corn and wheat prices look like they are ahead of some correction to the upside or even ahead of starting a new uptrend.

Corn

According to USDA (United States Department of Agriculture) the world production in 2015/2014 season will outnumber the world consumption by 16.9 million metric tons. Simply put, the supply of corn will be higher than demand. The table below shows the difference between corn production and consumption  since the season 2009 / 2010. As you see, since 2011 / 2012 we have seen an overproduction of corn - this is not a good situation for those going long this commodity. In effect, the prices of corn have been trading in a range or trending down since 2011.



                                                                  source: USDA and Simple Digressions

In the ongoing season once again the USDA forecasts that there is going to be an oversupply of corn with the world production of 988.1 million metric tons and consumption of  971.2 million metric tons. It means supply outnumbering demand by 17.0 million metric tons.

But for the first time since the season 2010 / 2011 the demand for corn will grow by 2.07% while production should grow by only 0.38% - please, look at the table below:

                                                                  source: USDA and Simple Digressions

Let me picture these relations once again, this time with a chart below:

                                          source: USDA and Simple Digressions

This should suport the bull case of corn - despite the forecast that in the season 2014 / 2015 the supply should be still higher than demand, there are positive changes in corn fundamentals. Together with the probable bottoming process for a majority of commodities, in my opinion, the above numbers may be of some help for corn bulls.

Wheat

It is a similar story to corn. In the season 2015 / 2014 the world wheat production is forecasted to outnumber the world wheat consumption by 10.2 million metric tons (production standing at 723.4 million metric tons  and consumption at 713.2 million metric tons).  But, similarly to corn,  demand for wheat will grow by 1.31% while production should grow by 1.12%. The difference is not big so wheat seems to be a worse bull play than corn but anyway the fundamentals for wheat are a little bit better for those going long this commodity.


                                                                       source: USDA and Simple Digressions





Saturday, February 7, 2015

Gold Is Still In Its Downtrend

Despite having gained some life most recently, gold (and silver as well) is still in its downtrend.
The chart below clears the long term technical situation of gold:


As the chart shows, in the beginning of 2015 gold bulls tried to break above the descending long term trend line. As usually, they failed.

For those thinking the classical technical analysis makes sense, I have drawn an emerging technical pattern called "Head and Shoulders". Presently gold is bouncing back towards the pink line, which is a crucial element for this formation. In the coming days the battle between bulls and bears seems to be conducted between $1,225 - $1,300 per ounce of gold.

In the short term, the Head&Shoulders pattern looks as below:




Thursday, February 5, 2015

Prices of Agriculture Commodities Are At Their Multi - Year Support

It looks like the agriculture commodities are forming their bottoms. These days their prices are near the long-term support. Please, look at the charts below:


The chart shows two investment vehicles replicating the prices of agriculture commodities:

1. the first one is DBA, which tracks the price and yield performance of the Deutsche Bank Liquid Commodity Index - Optimum Yield Agriculture Excess Return. The table below lists the commodities tracked by DBA:

                                                source: Deutsche Asset and Wealth Management

2. the second one is RJA, which replicates the Rogers International Commodity Index – Agriculture Total Return index. The table below lists the commodities tracked by RJA:


                                                                                 source: elementsetn.com

Going back to the chart, it can be spotted that both vehicles are at their multi-year supports (the blue area). In my opinion, the majority of agriculture commodities should start forming their bottoms.




Monday, January 26, 2015

Big Precious Metals Miners - Long Term Supports Are Working

In the beginning of November last year I placed a chart showing the technical situation of big precious metals miners (link). After nearly three months those miners' prices are still above their strong long-term supports. Please, have a look at the chart below:



Although the shares are above their supports, they are not in a bull market yet. But, similarly to gold, the risk of investing in the whole PM sector is today at the lowest levels in history.

Friday, January 23, 2015

Today Oil Is Extremely Undervalued Against Gold - Expect A Violent Oil Price Appreciation

Please, look at the chart below:






Looking at the chart "Oil against gold" we could easily spot that these days the oil is extremely undervalued against gold. Due to the assumption that gold, as the ultimate currency, expresses the real value of everything, I could put a thesis that the price of oil is at its cheapest levles since 1983.
If the pattern repeats itself, expect the price of oil to start going higher.

Tuesday, January 20, 2015

Every Time Oil Goes Down So Does The U.S. Dollar

I think it should not be a surprise that every time oil prices fall, some time after that the U.S. dollar follows oil. In my opinion this is just a simple play between supply and demand.

Why? Well, oil is a world commodity. If you want to buy it you have to have the U.S. dollars. When the price of oil drops you need less dollars then before. Let me do some basic math: since June 2014 the oil prices had dropped around $60 per barrel. The world demand is around 90 million barrels a day so it means that today the world daily needs are $5.4 billion  lower than just six months ago. On a yearly basis it is around $2 trillions. As you see, the demand for the U.S. dollars should be much lower due to lower oil prices. In effect, the dollar should go down some time after oil prices had fallen.

Let us check it on the chart:


Yellow ranges show the time span between the beginnings of the major oil prices corrections and the beginnings of the dollar downturns.

As you see, generally it had been taking 7 to 20 months since the beginning of the oil prices correction to the start of the dollar downturn. I think that due to the fact that more and more countries try to buy oil using other currencies than dollars, the U.S. currency should correct faster than before. Today we are in the seventh month of the oil bear market so expect the falling dollar any time soon.