An examination of the daily bar chart for the Continuous Commodity Index (CCI), which is a basket of 17 major raw commodity futures prices (of grains, metals, energies, fiber, international foods) rolled into one composite priced index, quickly reveals the present state of the raw commodity sector: bearish. This week, the CCI hit a fresh 10-month low, and the index is down around 20% from its all-time high scored in April.
In just the past few weeks, many commodity futures market prices depreciated by 20% or more. Copper, which is a leading industrial metal and a harbinger of world economic activity, has seen its futures prices drop from a high of $4.55 a pound on August 1 to a low of $3.07 this week.
The raw commodity sector leader crude oil this week dipped to a six-week low of $77.11 a barrel, basis the Nymex November futures contract. In early August, the crude oil futures market dropped to a 14-month low of $75.71. Comex gold futures prices this week dropped to a fresh, 10-week low of $1,535.00 per ounce. In just three weeks' time, the precious yellow metal dropped in value by nearly $400.00 an ounce. Similar situations exist for corn, soybeans and wheat, as well as coffee and cocoa.
Major bearish fundamentals that have negatively affected raw commodity futures prices in the past several weeks have been weaker worldwide given the economic data released and the festering European Union's sovereign debt crisis. The weaker, worldwide economic data suggest that global demand for raw commodities could decline. The EU debt crisis has not only added to worries of a worldwide economic recession, but it has prompted a resurgence in the value of the U.S. dollar against other major currencies of the world.
The stronger greenback has, by itself, been a major bearish factor for the commodity markets. In recent years, traders and investors had purchased raw commodities as a hedge against a depreciating U.S. dollar. Most major world commodities are priced in U.S. dollars.
From an important technical perspective, most commodity futures markets are now in near-term price downtrends on the charts, which suggests their prices will continue to trend sideways to lower for at least the near term.
It is Important to note that the major influence on the raw commodity market sector for the rest of this year, or longer, will be the U.S. stock indexes. If the U.S. stock market can work sideways to higher in the coming weeks, then most commodity market prices would likely post near-term lows and begin to trend sideways to higher. However, if the U.S. stock indexes show more weakness into the end of the year, most commodity markets would do the same.