My view on there being a bubble in commodities that is unwinding has not changed, despite the mini-crash in precious metals last month.Here are five aspects to the commodities downturn to consider: 1) Commodity markets are usually keyed to broad economic trends -- and that's the case in 2013, according to the World Bank which issued its Global Economic Outlook in January predicting raw material prices will fall this year. Why? Economic growth in the U.S. and China is middling, and Europe is flat on its back. 2) Thanks to a spike in crude oil production and slower global demand, the U.S. government is forecasting that a gallon of regular gasoline will cost about $3.50 this summer — down more than 10 cents from 2012. Iron ore, Australia's biggest export item, fell to a 2013 low on May 16 to $126.70. The stocks of local gold miners such as Kingsgate Consolidated (ASX: KCN), Medusa Mining (ASX: MML) and Perseus Mining (ASX: PRU) are getting crushed. 4) One of the big surprises in commodities is the slump in lumber prices, given the robust housing recovery in the U.S. The culprit seems to be slower demand in China. So far this year, the commodity has fallen more than 15%. 5) Copper futures touched an 18-month low last month, according to this piece in the Wall Street Journal. In recent years, China has had a ravenous appetite for the stuff and represents about 40% of annual copper demand. Not this year: China's first quarter GDP came in at below forecast, some 7.7%.
It doesn't get much uglier than the three charts below. Since their highs in 2011, commodities like gold, silver, and oil have all been in relentless downtrends with lower high after lower high. While the ETFs for all three commodities--SPDR Gold Shares (GLD), United States Oil Fund (USO), iShares Silver Trust (SLV)-- saw rebounds in the second half of April, the rallies have all since fizzled and resulted in lower highs. While GLD still is still about 2.5% above its mid-April closing low, SLV made a new multi-year low on a closing basis today. There's always a bear market somewhere.The investments discussed are held in client accounts as of May 1, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
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