Three Charts You Have To See!
Something very interesting is happening. After a downright disappointing performance last year, commodities are leading the way higher in 2014.
Don’t believe me?
Take a look at this chart…
As you can see, the Thomson Reuters CRB Index (green line) is outperforming equities by a large margin in 2014. The Dow, S&P 500, Russell 2000, and Nasdaq are sitting on gains of 3.4% or less.
But the CRB is up nearly 8% year-to-date.
As you many know, the CRB index is one of the best ways to track overall commodity performance. It follows 19 hard assets, with nearly equal weight to energy (39%) and agriculture (41%). Precious and industrial metals have a smaller impact on performance with weightings of 7% and 13% respectively.
So what’s going on?
Why are commodities (which some “experts” predicted would once again be left in the dust this year) outperforming equities by a large margin?
Some of the bullishness is due to the massive gains seen in coffee, lean hogs, and oats, which are all up strongly on the year (62%, 25%, and 30% respectively).
But you can’t ignore the fact there’s only two commodities that are down year-to-date… copper and lumber. And I might add their losses are quite small (-6.2% and -2.8% respectively).
Everything else is up…
Gold, silver, live cattle, cocoa, sugar… you name it- they’re all moving higher in 2014!
After a lengthy spell of falling prices, the supply/demand metrics for many of these commodities are turning decidedly bullish. And with the global economy strengthening, demand is picking up. In some cases, there are fears of a supply shortfall.
But growing demand isn’t the only culprit…
As you can see, there’s no love lost for the US Dollar this year. Even though newly minted Fed Chairwoman Janet Yellen is continuing the central bank’s tapering plans, the greenback is deflating like a lonely party balloon.
In fact, we may see the dollar trading at the 2013 lows near 79 in the not so distant future.
And if it breaks below that line?
Well, you can be fairly certain the bullish party in commodities will continue. Remember, commodities and the US Dollar usually carry an inverse relationship. The strength of this association varies; but it’s fair to say that when one falls, the other rises.
Speaking of falling…
If the greenback drops below 79, there’s very little technical support until the 75 area.
Let me show you what I mean…
If the current bearish trend continues, the US Dollar will find itself in a very precarious position. You see, once the 79 technical support area is broken, bears may make it challenging to stop further declines.
At that point, investors will find commodities are a very good place to be!
Stay tuned folks…
Commodities are getting off to a fantastic start in 2014. And if current trends in the US Dollar continue, this may pan out to be a blockbuster year for hard asset investors!
Until Next Time,
Justin Bennett
Category: Commodity Trading
