The Bull Market In Commodities Remains Intact

The weakness in commodities over the last month was merely the market's way of shaking weak hands out of the market. Fundamentally nothing changes, nor does the trend of spot commodity prices.

Everyone is obsessed with watching the behavior of commodity futures markets but these are so subject to speculation that all they really tell you, from a short term perspective at least, is how emotional the crowd is. They tell you little of the fundamental or primary trend of commodity markets.

Note the behavior of the CRB Spot Commodity Index (an index of spot prices for commodities). It has hardly budged over the last few weeks and it is certainly not displaying any behavior that could be regarded as being out of the ordinary.

I think the weakness we observed over the last few weeks was merely a reflection of the market attempting to shake weak hands out of the tree. Fundamentally nothing has changed. Liquidity conditions are very positive (junk grade bonds closed at a multiweek high on Friday), the Fed/US administration seems happy to let the USD slide in a controlled manner, and demand/supply conditions have not changed at all over the last month with respect to commodities.

I think commodity prices will be materially higher by year end. Buy into any weakness, says Brad McFadden of Daily Trading Report.