Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

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