Since last summer, the commodities complex has been shaken to its core. The crash of the oil price and the recent collapse of copper have made headlines in all media and on all trading desks worldwide. Crude oil was still trading between $105 and $110 per barrel in June of last year, while it currently trading around $45 per barrel. That is an usual decline of 60%. Mind that oil is THE most important commodity on this planet, both in terms of usage but also in economic terms.
Readers remember how gold and silver crashed in April and June of 2013. Mainstream media had grabbed the “opportunity” to call the end of the gold bull market with a lot of cabal. We should note that gold came down 40% off its 2011 peak while silver was 60% lower. Since then, the metals have been consolidating, and have refused to trade lower.
It is worth at the combined chart of the metals, oil and copper. The chart below shows how the metals have been leading commodities lower. In particular, oil and copper have followed the path of the metals although with a delay of one year.
Gold The Leading Commodity
The most interesting observation on the chart is that the metals are in a consolidation phase for a year and a half now. The crash in gold and silver was breathtaking. Consequently, they require suffienct time to repair the (technical) damage. Looking at the chart, it seems that gold is now breaking out of its consolidation period. This could be a huge event going forward, given that the yellow metal respects its breakout. Why could this be so important? Because gold has traditionally been quite well correlated to the commodities, so the recent breakout in the midst of a collapsing commodities complex is surely a sign of great strength. But more importantly, gold could start leading the other commodities higher over time.
It is for sure premature at this stage to call a final bottom in gold, and a confirmed decoupling with other commodities. Those confirmation will come over time. Going forward, current price levels in gold should hold. Ideally, gold stays permanently above $1300. If that would be the case, this trend bears watching by every investor.
