What Is the Longer-Term Picture for Commodity Prices?

The trends have changed but many observers have not yet recognized the shift.

I have been seeing a lot of posts and opinions about the future of commodity prices. I am sure you have too. Many of these opinions are based on temporary bottlenecks and stockpiling or temporary production problems due to Covid. It is a top-down approach and basically ignores individual supply/demand situations.

As a veteran of the inflationary 1970s and early 1980s I have a different take on the situation. Let me illustrate with two charts. 

In this long-term line chart of the Invesco DB Commodity Index Tracking Fund with the symbol (DBC) , below, we can see that prices have broken out on the upside from a six-year base pattern. A six-year base tells us that this rally has room to run and it is not a short-term blip on the charts. Key chart resistance at $18 was broken. DBC is trading above the rising 40-week moving average line.

The weekly On-Balance-Volume (OBV) line has been moving higher from early 2020 and is not a new thing. The Moving Average Convergence Divergence (MACD) oscillator is above the zero line but has crossed to the downside for a take profit sell signal. 

 

In this weekly close-only Point and Figure chart of DBC, below, we can see a large and powerful base that can support further gains. A price target of $46 is being projected.  

 

 

Bottom-line strategy: Traders, economists, investors, and others have been lulled to sleep with weak commodity prices for many years. One by one the trends have changed but many observers have not yet recognized the shift. Transitory is a favorite word for journalists but I think it is misplaced. A weaker dollar will add to the gains in the months ahead. High prices have not motivated CEOs to dig for more copper or oil or many other minerals and that will mean that higher prices will be needed to ration stagnant supplies.

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