Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
US Overdosing on Debt - 19th Mar 19 -
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19
The Exponential Stocks Bull Market Explained - Video - 13th Mar 19
TSP Recession Indicator - Criss-Cross, Flip-Flop and Remembering 1966 - 13th Mar 19
Stock Investors Beware The Signs Of Recession / Deflation - 13th Mar 19
Is the Stock Market Still in a Bear Market? - 13th Mar 19
Stock Market Trend Analysis 2019 - 13th Mar 19
Gold Up-to-Date' COT Report: A Maddening Déjà Vu - 12th Mar 19
Save Fintech? Ban Short Selling. It's Not That Simple - 12th Mar 19
Palladium Blowup Could Expose Scam of Gold & Silver Futures - 12th Mar 19
Next Recession: Concentrating Future Losses & Bringing Them Forward In Time As Profits - 12th Mar 19
The Shift of the Philippine Peso Regime - 12th Mar 19
Theresa May BrExit Back Stab Deal Counting Down to Resignation, Tory Leadership Election - 12th Mar 19

Market Oracle FREE Newsletter

Stock and Finanacial Markets Trading Analysis Worth

Metals Market Trend Analysis 2008 to 2009- Part 1

Commodities / Metals & Mining Jun 20, 2008 - 12:27 AM GMT

By: John_Lee

Commodities Best Financial Markets Analysis ArticleOftentimes I talk to investors, even sophisticated ones, and I realize that they treat metals as a group. Particularly in the subset of base metals, most point out the price action of copper and conclude that all base metals are in a raging bull with no signs of slowing down.

Close examination of correlation between various metal prices reveals a very different story, as we shall illustrate. (most charts here are from my friends at Kitco.com)


Phases of a market

"There is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again." - Jesse Livermore, Reminiscences of a stock operator

Each market invariably goes through different phases of a bull. Starting with bottom , accumulation, rise, mania, rolling over, crash , sucker's rallies, and then it starts all over again. People can attribute various reasons along the way for the rise and crash. The fact is price patterns are repetitive and can be observed time and again. Let's start with oil:

Mania

?

Does oil seem stretched and entering a short term mania phase? Yes.? I wouldn't go short, but I would certainly put a tight stop if I were long.

Rolling over

Copper seems to be rolling over and unable to convincingly overcome the $4 level.? $200 oil (possible, but not too probable in my opinion) could propel copper past the $4 level. Conversely, a correction in oil could break copper back to $3 in a hurry.

Crash

Lead staged a spectacular crash in early 08 as prices went from $1.80 to now 80 cents in under 6 months.

Sucker's Rally


Nickel resembled Lead, except the peak was established in mid-?07 instead of early ?08. Since the $23 peak, Nickel has staged several sucker's rallies and seemed to be settling down at the $10 level.

Bottom-Accumulate

Zinc peaked ahead of Nickel at over $2 in late 2006. Since then many have lost their shirts calling for Zinc's bottom. Given Zinc peaked ahead of lead and nickel, it will likely be on recovery mode faster with less risk of downside from here.

Accumulate - Rise

Gold has been on a steady rise since the bull began in 2001. Throughout the bull it has stayed above 200 day moving averages and yet it exhibits parabolic action, as oil did; consequently, the chart suggests the blow-off phase for gold is yet to come.

Fundamentally, while gold is not as cheap as zinc when measured in oil, nonetheless, based on historic relationship, a $130 oil calls for a gold price that is substantially higher than today's $900/oz.


The ratio of Gold to Oil from 2006 to present (sitting at 6 currently). The chart is showing an ?extreme bargain of gold relative to oil. If the ratio were to restore to the peak in 1999 of 26, today's $130 oil price will equate to a gold price of $3380/oz .

Here is a chart of where I see various metals markets are:


Correlations between Price and Inventory Unclear

Some accuse me of being overly technically oriented and ignorant of fundamentals. Fine, there are some that attribute base metal price action to inventory levels. If such a relationship is held true, zinc should not be trading at roughly 1/3 of its 2007 high of $2.2/lb, because the difference of inventory levels between now and then is negligible by historical standards.? In fact, inventory levels have never been a good forecast for future metal prices.

Buy Low - Sell High
To borrow the overused Buffett line, ?buy low, and sell high?. This is ?particularly applicable in commodity investment since metals such as zinc will never be made obsolete in my lifetime. Against rapid currency debasement and $4 trillion held at central banks of emerging-growth countries around the world, my view is:

Oil and Copper - risky investment
Gold and Silver - Good value and entering a blow off phase.
Zinc, lead, and nickel - Current prices will prove to be extreme bargain (particularly zinc at 80 cents) looking back 2-3 years from now.

Metals investment was the focus of my workshop at the Cambridge House Investment Conference in Vancouver (June 15-16). For those interested, the write-up of the conference and my workshop presentation can be accessed here.

In part II, we shall examine how various resource equities (energy, base metals, precious metals) fared against the respective underlying commodities. Stay tuned!

John Lee, CFA
johnlee@maucapital.com

http://www.goldmau.com

John Lee is a portfolio manager at Mau Capital Management. He is a CFA charter holder and has degrees in Economics and Engineering from Rice University. He previously studied under Mr. James Turk, a renowned authority on the gold market, and is specialized in investing in junior gold and resource companies. Mr. Lee's articles are frequently cited at major resource websites and a esteemed speaker at several major resource conferences.

John Lee Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules