We said a couple of weeks ago that the dollar would lose its grip on commodities (read: Is The Dollar About To Lose Grip On Commodities And Gold?).
That appeared to be a good call, so far.
As the chart below shows, the commodities complex (represented by the CRB index in brown) is bouncing off long-term support which goes back to early 2009. The commodity plunge that started in the middle of last year may have seen its worst. A big reason for the commodity plunge was the sharp rise in the dollar (green line). A rising dollar is normally bad for commodities. The dollar has reached potential overhead resistance along its early 2009 highs. A correction in the dollar would give an added boost to commodity prices and stocks tied to them.
The Big Breakout
So far, we have seen a significant bounce in energy related stocks, in particular oil and gas, in the last few weeks. This week, uranium shares were truly on fire. We had suggested our readers recently to watch the uranium space. Whether this is THE big breakout remains to be seen, we do not think this is the big turnaround yet, but we do not exclude it neither. In any case, the commodities complex is brewing again, and this is the time to gradually add strong miners to ones portfolio.
For precious metals, going forward, it likely means that better times are ahead. Whether that time is “now” remains to be seen, we still believe a bit of consolidation is required before a big breakout takes place. As we said last week, The targets to watch for a structural breakout in the precious metals complex:
Things are getting excited in the commodities complex. Investors who have done their homework, will likely see nice returns in the months and years ahead. Investors who have lost sight of the commodity space, are probably going to re-discover it when prices will be much higher. That is how the investment psyche works for most.