Will Commodity Prices Push Higher?

By Jim Donnelly, Olson Global Markets

With gold and silver prices apparently breaking out of year-long consolidation patterns, and aided by a surge in agriculture prices (due to extreme weather conditions), the Reuters/Jefferies CRB Total Return Index (CRB) broke solidly above key trend line resistance at 295.60. Increased worries over a possible Israel/Iran confrontation added to the recent uptick in oil prices as well.

Still, the threat of worsening global economic conditions suggests that demand for many commodities may be tempered over the intermediate-term, such as aluminum, copper and nickel. With this week’s Jackson Hole conference expected to hint of more monetary stimulus from Europe, Japan and possibly the United States, a renewed shift into commodities could nevertheless result.

Some argue that in the absence of more normal economic growth expectations, demand destruction for many things could ensue in things like beef and gasoline. Others argue that the monetary effect of central bank easing efforts will ultimately cause commodity prices to move higher.

From a technical point-of-view, the Reuters/Jefferies CRB Total Return Index (CRB) has moved solidly above key “cross” trend line resistance despite overbought conditions on weekly charts. The real question from this vantage point, however, is whether the CRB can extend further and then break above primary downtrend resistance (drawn off the 2008 all-time high of 473.97) that currently sits at 320.00. A break above that downtrend would suggest that central bank stimulus might support a turnaround in global growth expectations. On the other hand, the failure to do so could be a glaring hint that fiscal restraint accompanied by price deflation might emerge instead.

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