Some consider precious metals to be timeless stores of wealth which predate civilization itself. Others consider precious metals to be mere commodities. No matter where one fits within that spectrum, one thing can be stated as a fac. In the modern era, precious metals are indeed included in the wider commodity world when we are considering their price behavior. There exist dedicated commodity funds. Which buy and sell all commodities simultaneously – including precious metals – with the stroke of a digital button. It thus will behoove precious metals investors, to pay attention to broader commodity flows… not as the single determinant of gold and silver prices. Rather as one of the many important factors which impact the metals.

The CRB (Commodity Research Bureau) index remains our preferred way to track the prices of diverse commodities. The CRB, which represents an average of 19 commodities including precious metals, industrial metals, the liquid energy complex, and agriculture, is hitting resistance squarely at a former rising trend which dates back to the sector’s 2016 bottom (royal blue line), below. Unlike gold which, as we have highlighted in recent weeks, has recovered a similar broken trend, broad commodities are showing relative weakness by failing to recapture this important support level.

Commodities Short-Term

For the week, the CRB commodity average closed higher by 3.3 points. Or 1.9%, to close at 181.3 on the index. Yet note below the blue trendline beginning at the 2016 low near 155. Then rising through the 2017 low at 167. This trend was broken decisively in December 2018.

Prices have since rallied back up to the trend, but are now encountering significant resistance. Our best assessment is that commodities will now enter a period of range-bound prices to last. For another 12 – 18 months.

Commodities Long-Term

While the short-term outlook shown above continues to look challenging for commodity investors, this struggle fits well within our longer-term outlook. When we zoom the above chart out, we can see that even the present weakness falls within what is a longer-term 12-year bottoming pattern: a terminal wedge. Note the pattern below in magenta:

Terminal wedges take their shape from a resemblance to a wedge (of cheese, perhaps). It is critical to observe that pattern. Although it takes form during a declining market, tends to represent a bottom. What is noteworthy is that buyers, who are appearing every several years along the lower magenta trendline are emerging at a relatively higher slope than the sellers, who are emerging on the upper declining trendline. Yes, both lower and upper trend boundaries of the pattern are declining. However, the slope of the buyers is relatively shallower than the slope of the sellers. In the majority of instances, these patterns resolve in a move higher, as buyers finally overwhelm sellers, indicated by the green arrows.

We expect that any further decline to either match or marginally break the 2016 bottom will represent the final low for this long-term bear market in commodities.

 

Commodities and Precious Metals

The major takeaway from the above pattern is not that a new bull market will emerge immediately from the bottom – but at the very least, upon the breaking of this pattern, the majority of the decline will be behind us.

Following a bear market, a period of sideways stability should form across most commodities. Prior to a new bull market in the future.

Yet first, the immediate surge from the pending low (green) should represent a sizeable advance in percentage terms across most commodities. This will be a tradeable event, at the very least.

While gold tends to move more to its own rhythm, we remind readers that silver and platinum have shown a high correlation to the CRB commodity index over the past decade. It has been a challenging decade for both silver and platinum investors; however, the pattern we are observing suggests that all commodities are soon to begin a period of stability.

As precious metals investors, we should consider that the commodity market will at least stop “blowing against us as a headwind” when this pattern resolves. As it has for the past 12 years. Silver and platinum, especially, are expected to begin seeing stability once this final low in the CRB is put into place. Let us watch for this scenario during the next 12 – 18 months.

 


CHRISTOPHER AARON
BULLION EXCHANGES MARKET ANALYST

Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency. 

Christopher Aaron specializes in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq. His strategy has helped his clients to identify both long-term market cycles and short-term opportunities for profit.

This article is a third-party analysis and does not necessarily match the views of Bullion Exchanges. Do not consider Bullion Exchanges as financial advice in any way.

 

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