Commodities have suffered severely over the past month, as risk averse investors sold out of their positions in the wake of the ongoing concerns for Europe’s sovereign debt issues.
Many commodities now have reached key support levels and actually bounced overnight.
Initially we examine the CRB Index (.CRB) which is a measure of performance of a basket of commodities. From the chart below you can see that CRB is trading in a falling channel formation and is now at the confluence of a number of support levels, primarily the lower channel support and the support levels which have held since mid 2009.
Copper is seen as a bellwether for economic strength and it has held up well for the past couple of years, as seen on the chart below. Copper is also at key support levels, primarily the long term up-trend which has been in place since 2003 and the support from the lower end of the trading range it has been in for the past couple of years.
Crude oil appears to have found support around $US70 and bounced significantly overnight up 4.7 percent. From the chart below we see that the $US70 level has been key for the past twelve months. The oil spill in the Gulf of Mexico will have severe implications for deep sea drilling worldwide and I expect that this avenue of exploration and production will be heavily curtailed in the near future.
Early this week we highlighted that Gold is set to shine near term and that the dollar index is possibly forming a double top formation which will be positive for commodities as they are US dollar denominated.
The chart below shows that Gold has remained strong despite the pullback in other commodities prices. The upward trending channel is still firmly in place and the Gold price is looking to break to new highs, as the precious metal continues to be more attractive than paper currency.
Commodites look set to bounce from key support levels. Our miners have been sold down due to investor risk aversion and the worries about the new Resources Rent Tax.
The lower Aussie dollar and the current prices of our key miners must be starting to look attractive to investors, particularly those from overseas. Liquidity is still key at the moment so keep that in mind when investing.
Key stocks include: AWC, BHP, CEY, FMG, LGL, MCC, NCM, ORG, OSH, PDN, PNA, RIO, WPL.
By Michael Hevern
Head of Research