2016 Commodity Outlook: More Pain For Hard Assets?
2016 Commodity Outlook: Will The Storm Clouds Finally Lift?
No doubt about it, it was one heck of a rough year in the commodity space. Energies, precious and industrial metals, grains, softs- each complex has assets that are trading at or near multi-year lows.
One look at the CRB index sums up the extent of the downturn…
This closely watched index, which represents an equally weighted basket of the world’s 19 most important commodities, is down nearly 30% year-over-year. And when 2015 finally draws to a close in a few weeks, it’s unlikely performance improves much, if at all.
Fact is, commodities have been one of the worst asset classes to be invested in for quite some time. With the exception of a few fundamentally strong commodities like cocoa and cattle, the space has been demolished the past year.
Is there any hope for commodities in 2016?
Depends on who you ask…
Some see brighter days ahead, while others are just as gloomy as ever.
Here’s my take…
I believe there are some big profit opportunities coming up in select assets. However, next year must be carefully navigated according to each commodity’s supply/demand balance.
In other words, a few deeply oversold commodities may see a sharp recovery, while others will likely remain mired in the muck.
Which assets are best poised for an upturn?
The energy markets holds some of the strongest upside potential.
As you may know, oil and natural gas prices have been decimated this year. Thanks to the US oil boom and the abundant supplies it brought forth, both commodities are trading at half the price they were last year at this time.
But here’s the deal…
Low prices are in process of curing low prices. Judging by the huge downturn in the Baker Hughes rig count, it’s clear US crude exploration is hitting the skids.
That means the ongoing US oil production slowdown will likely start accelerating in 2016.
Of course, the quicker production declines, the faster the oil market will come back into balance. And when it does, West Texas Intermediate will likely rally back over $60 a barrel.
What about natural gas?
Since a large portion on US natural gas production goes hand in hand with crude exploration, I expect the commodity will start seeing a production slowdown as well. And with natural gas usage expanding, it’s hard to see how the commodity stays at these ultra-low prices under $2.50 mmBtu.
For more information on natural gas and ways to potentially profit from a rebound in the commodity, check out my newly released free report.
Unfortunately, my outlook on the metals space isn’t nearly as optimistic…
With the US Federal Reserve bound and determined to raise interest rates this year, investor demand for gold and silver has taken quite a hit. Anyone watching the sharp downturn in these metals the past two weeks knows exactly what I’m talking about.
Here’s the deal…
With inflation still nowhere to be found, it’s likely gold and silver prices slide even lower next year.
In fact, I wouldn’t be surprised to see gold drop to $1,000 an ounce in the next 12 months. Believe it or not, this gold producer is making plans for gold at $900.
But there is a caveat to that gloomy metals forecast…
If there’s a big slowdown in the global economy next year, which takes the US economy down with it, we’ll likely see the Fed return to an extremely accommodative policy.
That may mean another round of quantitative easing (QE4), or even negative interest rates.
Such a “risk on” environment would likely bring capital pouring back into the metals space, as well many other commodity complexes.
Bottom line…
Next year’s commodity outlook is highly dependent on the US central bank and its policies.
Stay tuned to Commodity Trading Research as we’ll continue our 2016 commodity outlook in next week’s article.
See you then!
Until Next Time,
Justin Bennett
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.
Category: Commodity Trading
