It has been my view that with broadscale central bank QE in place, the global economy
should soon experience a reversal in growth momentum from negative to positive. In
2008, the CRB Commodities Index experienced a price bubble top of near 475 before
crashing to long term support around the 200 level in early 2009. There was a strong
recovery out into 2011, but the CRB has languished since then as China, the major
commodities consumer, experienced a sharp deceleration of growth. With Beijing now
showing better production numbers, the CRB has been drifting higher again recently,
and at 305, is set to challenge the five year downtrend line in place since the 2008 top.
Index indicators for the CRB show the index is slowly turning positive, so speculation
about whether it can take out the longer run downtrend is not idle. CRB Index Chart
A break above the downtrend does not by itself imply a new longer term advance may be
in store. Commodities are too volatile for that. Moreover, the CRB would have to take out
the 370 level interim high set in Apr. 2011 to solidify the bull case.
The 320 line on the chart does reflect my judgment that 320 represents minimal long term
fair value for the index based on a macro view of the curve of production costs. It would
be disappointing not to see the CRB hit the 320 level this year especially since continued
global economic growth should be sufficient to wipe out the small amount of excess
commodities production capacity which is still apparent.
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