The Obligatory Article About Gold (and a Few Other Commodities)

Gold has had a pretty good year, and when that happens, I’m pretty sure every content creator in the world of finance is required by law to talk about it. It can be dangerous to write about a topic that tends to trigger very emotional responses, but I am a God-fearing, law-abiding citizen.

A little history first. Gold was a juggernaut from 2001 to 2011, returning 474% and delivering performance superior to the S&P 500 in all but 3 of those 11 years. The years following the 2011 peak were less rewarding, as gold declined over 40% through 2015 and failed to establish a series of higher highs for nearly a decade. But the yellow metal is having its day.

In June, prices finally broke through resistance at 1375 and have now spent a month consolidating above the key level. There is still plenty of resistance between here and the all-time highs of 1923, most notably the 61.8% retracement (from the entire 2011 to 2015 decline) of 1583, but gold now has a base of solid support to build on. Alternatively, a push back below 1375 would be a major accomplishment for the bears.

Silver was impressive this week, too. It rallied 6% and convincingly broke downtrend lines – no matter how you draw them. That comes after holding the 2016 low ($14) last fall and failing to get oversold (a sign of strength) on the pullback earlier this year.

The laggard within precious metals has been Platinum. The futures are still below long-term downtrend lines, but prices have been stable for the past year, even managing to set a few higher lows. A resolution above resistance at 900 for one of the weakest names in the space would likely be positive for all precious metals. A break below support at 780 would point toward a continuation of the downtrend, rather than a reversal.

Palladium, on the other hand, has been the strongest within the space. It threatened to set new all-time highs earlier this month and is clearly still in an uptrend (indicated by a price above an upward-sloping moving average). The recent failed move is less positive though, and meaningful resistance at 1600 could take some time to digest. A drop below the second quarter lows near 1300 would have bearish implications and, given its relative strength over the past few years, is less likely if other precious metals are rallying.

The positive resolutions in gold and silver have overshadowed recent weakness in other commodities. Despite rising tensions in the Middle East this week, Crude Oil, Gasoline, and Natural Gas each fell 6% or more. The CRB Raw Industrials Index, comprised of 13 input materials ranging from Copper to Tallow, is trading near multi-year lows.

Cotton and Tin have been among the weakest of the CRB constituents (at least of the ones that have regularly published prices – anyone know where they trade Wool these days?). Cotton has trended lower since June 2018 and is close to decade lows of $56.

Tin is resolving lower after a 3 year consolidation.

In contrast to precious metals, none of the CRB Raw Industrials members are at or near multi-year highs. The story in ags is much the same, with Corn being a notable outlier as it threatens an upside resolution.

This relative strength in precious metals is worth noting for market participants. The ratio of Precious to Industrial Metals has historically had a negative correlation with U.S. equities.

The ratio itself lacks a longer-term trend, sitting near a flat 200-day moving average, but if Gold and Co. continue to outperform, it could be a headwind for stocks.

What do you think?

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