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Is the Inflationary Phase Finally Here?

Commodities / Commodities Trading Jul 15, 2013 - 04:27 AM GMT

By: Toby_Connor

Commodities

Last year I correctly spotted the three year cycle low in the CRB. I must admit the retest of that bottom has taken much longer and been far deeper than I thought it would be. However, I think the retest is over. It looks like the CRB has put in its final yearly cycle low for 2013, and that low has held above the 2012 trough.

As I have noted in the chart below, we did see a positive divergence at this year's bottom as the dollar made a marginal new high but commodities failed to confirm that new high by breaking their 2012 three year cycle low.


CRB versus US Dollar Index Chart

So while I think commodities are finally ready for another leg up, I believe the dollar is in the final stages of putting in its three year cycle top. A three year cycle that has unfolded very weakly I might add. As you can see in the chart below over the last 4 1/2 months the dollar has begun to gyrate violently in a megaphone topping pattern.

US Dollar Daily Chart

Let's face it, did anyone really think that Bernanke was going to get away with printing trillions of dollars and not have something bad happen to the currency? I have been saying for years now this would end in a major currency crisis.

With the dollar now starting to swing violently back and forth I think that currency crisis is quickly approaching. This is not the kind of behavior one would expect from a stable asset. This is behavior consistent with something under extreme stress and on the verge of collapse. For reference, this is the exact same behavior the stock market exhibited in 2007, and you can see what that led to.

SPX 2007-2008 Megaphone Pattern

As I have noted in the chart above the next major three year cycle low isn't due until late next year. If this megaphone topping pattern breaks down this summer I think the three year cycle low is going to occur well below the 2011 and 2008 bottoms. This should drive the next inflationary phase, just like it did in 2008.

CRB versus US Dollar Index Chart 2

Toby Connor

Gold Scents  

GoldScents is a financial blog focused on the analysis of the stock market and the secular gold bull market.   Subscriptions to the premium service includes a daily and weekend market update emailed to subscribers.  If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions,email Toby.

© 2013 Copyright Toby Connor - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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