The popular commodity indices such as the Goldman, Rogers, DJUBS, and CRB suggest that commodities are in a rather confused state. The “trends” are somewhat messy with no clear indication as to which way they are likely to break over the coming days.
However, if one were to look a little deeper into the action of commodities the picture would become as clear as tropical waters! One of our favourite indices is the CRB All Commodities Spot index. Below are the constituents of the CRB All Comms Spot index (see www.crbtrader.com for a full explanation of the difference between the futures and spot indices). Notice the distinct absence of petroleum based products:
Also note the linear trend since the end of September. Why do we get the feeling that PPI figures are going to surprise to the upside over the coming months.
We also constructed our own proprietary commodity index using just 5 commodities (polyethylene, wool, coal, rubber, and pulp). These commodities are vitally important to industry but are not freely traded which makes their price movements more representative of fundamental supply and demand factors and substantially less prone to financial speculation. We have found the trends to be frighteningly linear:
The trends in the CRB Spot index and our Proprietary Commodity index both confirm each other and are engaged in powerful up-trends. We have a strong suspicion that these trends will continue for months rather than weeks. Based on what we are seeing in these charts we believe that a blow out in long bond yields is coming a lot sooner than the vast majority expect. Be bearish commodities and bullish US Treasuries at your own risk!
