Commodity Price Breakout

Commodity Price Breakout

From boom to bust to boom again a commodity price breakout is underway. The Commodity Bloomberg Index is hovering around a 52 week high at 89.92 returning commodity investors a respectable 7.19% year to date.

Commodity prices are jamming through price resistance levels. In fact, the commodity market is enjoying its biggest rally since August. The commodity price breakout is broad-based Crude oil +14.12% YTD. Metals too are experiencing a commodity price breakout. Aluminum is at its highest level since August 2011 at $2,559, Nickel at $15,275 a ton in London is at its highest level since December. Copper price is in a bull market and precious metals, gold and silver are both in the green from a year ago.

But how could the commodity market be experiencing a commodity price breakout so late in the economic cycle, particularly when the global economy peaked?

Typically it is tumbling commodity market prices that forewarn investors of a downward trend in economic activity, bearing in mind that everything around us either comes from the ground or under the ground. So this current commodity price breakout does jive with the economic fundamentals of a slowdown in global economic activity.

Put another way, commodity price breakout is being driven by speculative investment rather than productive investment

After all, if it were the latter then the Baltic Dry Index would not be hovering around its long-term low of 1,281.00, bearing in mind that commodities are transported via sea freight.

Moreover, further evidence that commodity price breakout is not driven by productive demand is that the soft date (consumer and business sentiment) and hard data (economic indicators) have leveled off and are now trending downwards.

Whats more, the ECB President Mario Draghi admitted only three days ago (April 20) that “growth may have peaked.” and the International Monetary Fund lowered forecast for the global economy The IMF said it anticipates the global economy will expand by 3.2 percent this year, down 0.2 percentage points from its forecast just three months ago.

So what could then be spurring this speculative demand for commodities, in other words causing this current commodity price breakout?

The developing market frenzied commodity boom, particularly in China’s, south-east Asia and South America fizzled out last year. Paradoxically, the current commodity price breakout is being driven by the protectionist policies of the Trump administration.

The US sanctions against United Co. Rusal, the largest aluminum producer outside China has set-off a panic in the metals market with manufacturers and consumers scrambling to secure supplies. Moreover, speculators jumping on the bandwagon to profit from the short-term price hike caused by the sanctions.

“It really is unprecedented in terms of the turmoil it’s unleashed,” Robin Bhar, a metals analyst at Societe Generale SA, said by phone from London. “It’s amazing to watch”

So the current commodity price breakout in metals is being fueled by fears that sanctions will upend the global supply chain for metals.

Geopolitical jitters in the middle east are also driving a commodity price breakout in the energy market. Trump is the most pro-Zionist president in US history by recognizing Jerusalem al-Quds as the capital of Israel. While the US new pro zionist stance has energized Israel’s support for the Trump administration it has also angered and alienated Muslims in the region, put another way the US is no longer viewed as a mediator in the troubled region.

So the US Iranian rift could widen with Iran becoming even more skeptical about US intentions. Trump and Iran could become a scenario of escalations and that could fuel oil price rises going forward.

Moreover, Syria is a potential powder keg with the battle for USD hegemony centered on being able to control the Syrian corridor across to the Mediterranean to Europe. Iran may be blessed with oil but if it can’t channel its oil to the large market in Europe then what good is it? The ongoing Syrian war (internal link) is yet another resource war (a logistic oil pipe-war).

Independent journalist Eva Bartlett tells the truth about the Syrian war at the United Nations.

But perhaps the Commodity Price breakout is the result of almost a decade of the central banks creating trillions of dollars of Quantitative easing QE to keep asset prices artificially inflated and the economic “recovery” alive.

The Roman Empire several thousand years ago too was struggling with debt, they too tried to create more coins by circulating coins with less silver. But if there is more currency chasing an equal amount of goods and services then it stands to reason that prices will rise. The Roman Empire ended in a currency collapse.

So this commodity price breakout could be the first shock wave of liquidity flooding into commodity prices to shelter from the coming hyperinflation caused by excessive QE which has debased the dollar.

The commodity price breakout isn’t due to a booming economy is due to investors sheltering from the coming inflation-all that liquidity has to go somewhere.