Cyclical Commodities Continue to Weaken, Gold Moves in Relation

[edit] Also see this post on inflation/deflation excerpted from NFTRH 525, hot off the presses.

Crude Oil and Industrial Metals continue downward. This is significant per this NFTRH monthly chart showing these items and the broad CRB itself having hit trend lines from the 2008 highs. These pullbacks from long-term trend lines are notable and qualify cyclical commodities as risk indicators for the cyclical macro.

Here is oil’s weekly view. Key support was lost last week as noted in this article: Positive Implications for Gold Miners if Crude Oil Breaks Down. I expect currently oversold WTI to rally from the noted support area, but remain ‘not bullish’ on this cyclical commodity (and remain in scouting mode for the upcoming gold miner buying opportunity).

wtic

Industrial Metals have made a classic breakdown, retest and a potential failure in progress.

gyx

As for the counter-cyclicality implied above, here are the views of the counter-cyclical metal vs. these cyclical items. Gold/Oil has broken a long-term trend line. Sure, it’s early but a real move has to start somewhere. Again, reference the link above for the reasons this is important to the real investment case for gold mining.

gold/oil ratio

And here we have the counter-cyclical metal breaking out of a bottoming pattern vs. a basket of the most cyclical metals; those used in industrial applications during healthy economic phases. A successful breakout here in Au/GYX would be a warning on future global economic health.

gold/gyx

Along with the negative implications for risk ‘on’ markets and the economic cycle, the above will guide on the right buying environment for the counter-cyclical gold mining sector. Again, reference the link above for the details, which are beyond the scope of this post.

What is not beyond the scope of this post is our planetary view of the aspects of a counter-cyclical environment and hence, the right time to be getting defensive about the cyclical world and offensive about its counter condition.

As also noted in the above-linked article “we are in the heart of tax loss selling season with yet another losing year for gold stocks (as a whole, some quality operations did just fine) wrapping up. So this post is not implying people should run out and scoop ’em up hastily.”

It is time to be paying attention. The next 1-3 months are going to pivotal.

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