Have Commodities Found a Bottom?

 | Sep 27, 2011 | 11:30 AM EDT
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It's been a wild ride in the raw-commodity-futures markets recently, but much of the price action has been to the downside. The European Union's smoldering sovereign debt crisis and building evidence that the world's major economies are again slipping into recession have been bearish weights on most commodity market prices.

There are, however, early clues that two of the leaders of the raw-commodity-market sector -- gold and crude oil -- have put in market bottoms. Crude oil and gold markets are leading the other raw commodity futures markets in general price direction.

Gold spiked to a two-and-a-half-month low Monday, but a strong rebound has encouraged the bulls. December Comex gold futures on Monday careened to a fresh 10-week low of $1,535.00 an ounce on margin-call-related selling pressure and on the general liquidation of weak-handed long positions. Ironically, the safe-haven precious metal has not recently benefited from the shakier world market place. Part of the reason is that trading gold became a "money game" the past few trading sessions, whereby market fundamentals are pushed aside as traders worry about keeping their trading accounts liquid.

The extreme daily price volatility in gold futures -- a $130 daily trading range Monday and a $126 daily range last Friday -- prompted the CME Group (CME) futures exchange to raise trading margin requirements for gold futures. The CME Group has made several similar margin increases in the past several months. The margin hikes and a "when in doubt, get out" trader mentality drove gold futures prices down more than $250.00 an ounce from the middle of last week to Monday's spike low.

Tuesday morning the atmosphere in the gold market perked up a bit from the bulls' perspective. As world stock markets rallied Tuesday due to reports European Union and International Monetary Fund leaders are working harder to shore up Europe's debt problems, bargain hunters stepped in to "buy the dip" in gold. There are also fresh technical clues that gold prices notched a near-term market low on Monday with the bears having become exhausted at the lower price levels.

Nymex crude oil futures are benefitting from investors' increased appetite for risk. November Nymex crude oil futures on Monday scored a fresh six-week low of $77.11 per barrel, before promptly reversing course and posting slight gains on the day. On Tuesday morning, there was strong follow-through buying strength in crude, amid the improved attitudes in the worldwide market place. With the world stock markets posting gains Tuesday, crude oil prices also pushed solidly higher. Appreciating world stock markets hint the worst may be moving behind us regarding the present economic malaise. That would mean increasing demand for liquid energy worldwide.

On the daily bar chart for the active November crude oil futures contract, it now appears that a technically bullish double-bottom reversal pattern is forming, which suggests that a near-term market low is in place.

Importantly, the near-term price trends in raw-commodity-sector leaders gold and crude oil will continue to have a heavy influence on other commodity market prices. If gold and crude oil have indeed put in near-term market lows, it's likely that many other commodity futures markets have as well.

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