Time to Buy Commodities Again?

Commodities have gone down by nearly 30% (CRB Index) since Q2 2011. If you are a believer that money printing by central banks will eventually increase commodity prices despite the poor economy, it may be a good time to buy again.

Let's have a look at the CRB index chart (Source: stooq.com) since 1994 and draw a trend line.

This is a "dumb" method to time your investments, but it can be terribly efficient. Since the start of the bull market in 1998, the CRB index has rebounded 3 times on this trend line, and we are now very close to hitting it again. We have about the same buy signal has we have on Gold and Silver. So it might be a really good time to increase exposure to commodities (or get back into commodities).  Although the bull market is getting old (14-year), many projects have been cancelled or delayed in 2008 which should give more legs to the bull market on top of money printing by central banks.

For individual investors, the easiest way to get exposure is to buy commodities ETFs such as RJI, or funds composed of commodity stocks such as Carmignac Portf Commodities A. As usual check the chart of the ETF or mutual fund against the index tracked over at least 2 or 3 years to make sure you are not scammed into paying high fees and that the financial product you plan to buy suffer from excessive decay.

Silver and Gold Next Buying Opportunity: $25 and $1500

All markets have started to correct including Gold and Silver. Let's see if we can analyze trends to find entry points for the precious metals. I should note that If you have little exposure, any time is a good time to buy physical Gold and Silver simply to protect yourself against financial apocalypse, even if the possibility is remote. Simply view it as an insurance and one where you are likely to get your premium back !

First, let's have a look at Silver which have been correcting since April 2011 after nearly hitting 50 USD. (Charts: Boursorama.com)

We can clearly see a descending channel since April 2011 and if the trends continue, we should see Silver close to 25 USD where it should be another good time to aggressively add to your positions. Now let's see a longer perspective with a 15-year logarithmic chart.

The long term trend is clearly on the upside and the interesting is that the lower line of the channel is around 25 USD. That means that if you believe in the long term fundamentals of Silver (central banks will have to monetize debt, shortages etc...), you should really be an aggressive buyer below 26 USD.

Now let's have a look at Gold with a chart between October 2010 and March 2012 which shows Gold peaked in September 2011 and have been correcting since. If the trend continue we could reach about 1500 USD.

If we look at the long term chart, here again there is a clear uptrend channel with the lower line just below 1500 USD and it would again be a tremendous buying opportunity like in October 2008 or August 2005.

To conclude based on the trends mentioned above, we could be close to a multi-year buying opportunity for both Gold and Silver. There is no way to tell for sure, but if the chart continues their trend, those opportunities should occur in April or May 2012. There is always the Iran war scenario (where precious metals would just go ballistic), but I very much doubt that Obama would go to war against Iran before the presidential elections in November 2012.

Time to Buy Gold and Silver Again ?

Following up on my previous post "Is it Time to Get Back into Gold and Silver ?" at the end of September, it looks like we may again be at interesting levels for both Gold and Silver.

Let's see the Gold chart between June 2006 and December 2011. (Source: Boursorama)

The gold chart recently broke the trend it started in 2008. Having said that it is currently oversold according to with an RSI-14 of 27.50. This could then be a buying opportunity, but since gold broke the trend there may be more downside. How much downside? Let's see the 11-year chart to provide a forecast.

In that time frame, gold is still in an uptrend, and the level line of the channel shows support (around 1350), so Gold could potentially down to around 1400 USD. Currently is around 1570, so it would be approximately another 10% drop. So the downside is limited (provided the long term fundamentals and trends stay intact), it appear it could be a good time to buy more gold even though more downside it likely. It would however become a screaming buy around 1400 dollars. On another note, Gold price evolution may be linked to the S&P 500, as if the index falls below a certain level, say 1000, we are likely to see further quantitative easing (or similar).

Let's now study Silver. Here's the silver chart (via SLV ETF) between June 2006 and December 2011.

Silver has also just broken the trend it started in 2008, it is however not yet in oversold territory with a RSI-14 of 33.8. If SLV cannot rebound quickly, it could easily go back to the low 20s with a very strong support at 20. This kind of level would also mean Gold between 1200 and 1300 which I don't think we'll get to.

To conclude, if we don't go through a major market panic in the next few weeks, it might be a good time to buy some Gold and Silver, especially if you are fine with a potential further 10% correction in Gold and over 20% in Silver in the short to medium term and are confident in the long term fundamentals of precious metals.

Is it Time to Get Back into Gold and Silver ?

Silver and Gold have been crushed during the last two days of the week. Let's see where we are in the long term trends and if there could be a buying opportunity right now.

Let's start with Gold and the chart between April 2006 and September 2011. (Source: Boursorama)

Gold has been in a upward channel since 2008, it has recently broken the trend on the upside, but is now back to trend, but not yet at the bottom line of the channel. If you believe the fundamentals (and trend) for Gold have not changed, you could start to buy now, but this would be a screaming buy around 1500 USD per ounce.

The RSI is at 33, so it is not technically oversold yet. This will be technically oversold when if it is below 20 or 30 (different sites use different thresholds).

If you wait a few more days, you could buy at lower price. But as I have learned with Gold, the correction seldom comes and I have wrongfully postponed purchases in the past.

Now let's look at Gold from a longer term perspective with the logarithmic chart of Gold between 2000 and 2011.
There is also a long upward trend here, but the lower line of the channel is around 1200 USD per ounce. The last time, it touched the lower line was during the 2008 market panic. If you believe we are going to experience a similar scenario where everything will be sold due to margin calls, then you might want to start buying Gold below 1300 USD per ounce.

Now, let's see the case for Silver. Actually since Godl and Silver are highly correlated most of the time, we could consider following the Gold charts above to time Silver buys. Having said that, here's the silver chart (via SLV ETF) between April 2006 and September 2011.

Although it's not as clear as with the Gold chart, there is an upward channel since 2008, with the current SLV price of 29.98 and the lower line of the channel around 27.50 as well as an RSI of 23, it could be a good timing to start buying tomorrow especially if Silver corrects further. Of course, if Gold goes back to the lower level of its 10-year channel, then this won't be a buying opportunity as it could fall much further. However, if Gold goes back between 1200-1300 as discussed above, Silver could go into the low 20s.


To conclude, if we don't go through a major market panic in the next few weeks, it should be a good time to buy Gold and especially Silver. But if you believe it's likely there is an across the board sell-off of all assets irrespective of their fundamentals, you may consider delaying those purchases.

Where is Gold headed in the Short Term ?

Gold has broken the trend its started in 2008 on the upside in recent weeks as shown in the chart below (Gold in USD, source: Boursorama.com)
Gold has now started a parabolic move, and is headed towards 2000 USD per ounce. This remind me of the run-up in Silver earlier this year, where Silver reached 50 USD per ounce before severely correcting. It has since then somewhat recovered.

Although I still think that in the long term, Gold is headed much higher until we get positive real interest rates and debt issues are resolved, in the short term, Gold could reach a psychological level such as 2000 USD and then correct somewhat (10% to 20%) before moving up again.

2000 USD (or just above) also corresponds to the top line of the trend started in 2001 (See chart below. Source: Boursorama). Please note that it is a logarithmic chart as such scale is better suited for longer periods of time.



Right now, it's difficult to see what could trigger a sell-off in gold. The recent margin requirement hike did not put much downward pressure on gold. On the 25-26 August 2011 (This week), the federal reserve will meet at Jackson Hole and many people expect them to announce QE3 (explicitly or in disguise) at that time. If it does not happen, and the FED clearly waits and sees, we could see a short term correction in Gold as QE3 (or equivalent) will eventually be implemented.