Chart Advisor: Taking a Closer Look at Commodities

By Ryan Gorman, CFA, CMT, BFA

1/ Commodities are Awaiting Direction

2/ Gold Keeps its Shine

3/ Despite Hurricane Disruption Fears, Oil yet to Break Out

4/ A Look at Interest Rates

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1/

Commodities are Awaiting Direction

Today we are going to look at some commodities. The great thing about technical analysis is that because it attempts to analyze supply and demand, it works on anything with a freely traded price. 

The Goldman Sachs commodity index has held in a tight range this year, it is still above the 30 week moving average and the elder bars are blue. The moving average is turning up, we should look for a break one way or the other. 

Courtesy of StockCharts.com

Past performance is not indicative of future results

Commodities are important inputs and it is hard to see prices coming in-line if these levels hold. A breakout to highs from here would also signal a risk that inflation is reigniting. By the time you read this, we may have CPI numbers. So far, this trading range doesn’t offer a clue. 

2/

Gold Keeps its Shine

This year gold blasted above the $2000 per ounce resistance level (roughly $195 to the ETF). Since the massive move, the gains have been digesting nicely as the 30-week moving average catches up. 

Courtesy of StockCharts.com

Past performance is not indicative of future results

Here again we have to wait for some direction. The elder bars have cycled blue to green and blue again which could signal a breakout to the upside. Lots of things could move gold, geopolitical uncertainty, higher inflation expectations, etc. This makes it worth following! 

3/

Despite Hurricane Disruption Fears, Oil yet to Break Out

Oil is back toward the highs of the last 2 years. I sometimes keep tabs on financial media and this does not seem like a widely discussed topic. Due to the importance to the economy, a breakout to new highs would pressure inflation.

Courtesy of StockCharts.com

Past performance is not indicative of future results

With the elder bars green and the 30 week moving average beginning to slope up, we could get a breakout. Often a hurricane in the gulf can power such a move, but it has not. When something that usually happens doesn’t, it is worth paying attention. 

4/

A Look at Interest Rates

The final chart is a look at 10 year interest rates. Bonds, which have prices that move inverse to interest rates have had a rough time since the fed began their hiking cycle a few years ago. Long term treasuries especially, but even the broader indexes are well off their highs in a long drawdown. 

Courtesy of StockCharts.com

Past performance is not indicative of future results

This chart does not offer much yes, we have to wait for a move to develop. On the one hand if the fed has successfully slain inflation and begin cutting OR higher rates slow the economy, it is reasonable to see a big breakdown from this base. 

However, if things remain more status quo, a breakout to the upside could happen. The yield curve is currently inverted, meaning short term rates are higher than long term rates. This is an unusual circumstance in the long run. If the fed did cut 2 times for 0.5% the curve would still be inverted. Historically, the 10 year yield is 1.5-2% higher than the fed funds rate. The drive of the 10 year is just as much about inflation expectations and growth as it is what the fed does with short term rates.

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Originally posted 11th July 2024