With news of a compromise on extending the Bush tax cuts, recent strength in the U.S. dollar, and signals from China it may raise interest rates, it is a good time to check on the health of weak-dollar assets, such as commodities (DBC). Commodities, especially hard commodities like copper (JJC) and gold (GLD), are often used as a way to protect purchasing power during periods where concerns about future inflation are elevated.
In general, commodities tend to have a tailwind when the U.S. dollar is weak, and a headwind when the greenback strengthens. The extension of the Bush tax cuts could add as much as half a percentage point to U.S. GDP in 2011. Stronger economic growth in the U.S. could propel the dollar higher and put some pressure on commodities.
If we compare the early stages of the last bull market in commodities to the current bull market, it allows us to better assess the ongoing investment merit of copper, silver (SLV), gold, wheat, etc. MACD is a technical indicator used to monitor the strength of a trend. The chart below shows one way to use MACD in the context of the CRB's last bull market.
The chart below allows us to compare and contrast the last bull market (above) with the present day gains in commodities.
While we need to keep an eye on the U.S. dollar, there are currently no major concerns relative to the longer-term investment trends in commodities. Pullbacks, and even violent corrections, are to be expected during any bull market. As long as technical and fundamentals factors continue to be supportive of higher commodity prices, we should err on the side of maintaining exposure to this asset class.
[…] Outlook for Commodities Remains Positive Chris Ciovacco View all posts by Chris Ciovacco s […]
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Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC (CCM). CCM would like to thank StockCharts.com for helping Short Takes create great looking charts.Terms of Use. This article contains the current opinions of the author but not necessarily those of CCM. The opinions are subject to change without notice. This article is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The charts and comments are not recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations are not predictive of any future market action rather they only demonstrate the opinion of the author as to a range of possibilities going forward. All material presented herein is believed to be reliable but we cannot attest to its accuracy. The information contained herein (including historical prices or values) has been obtained from sources that Ciovacco Capital Management (CCM) considers to be reliable; however, CCM makes no representation as to, or accepts any responsibility or liability for, the accuracy or completeness of the information contained herein or any decision made or action taken by you or any third party in reliance upon the data. Some results are derived using historical estimations from available data. Investment recommendations may change and readers are urged to check with tax and investment advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Short Takes is proudly powered by WordPress . Entries (RSS)
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