Commodities Market

Commodities prices are clearly cyclical, but do not match up with
business cycles fundametals with precision. However, with signs of
global economic recovery abundant and with accomodative monetary
policy in place, an advance in commodities prices is a typical enough
development. Observers have pointed out that commodites prices
follow 3 and 6 year cycles as well as a 40 wk. cycle. These tracking
methods are also imprecise. Historically, it has been important to
track commodities prices against the CPI over longer term periods
such as 10 year intervals because such measures reveal where the
pricing power is in an economy. As a last introductory comment,
major inflations most often start with a powerful, sustained surge
in commodites prices, especially energy.

Over the past 10 years, broad commodities composites have held
their own with the CPI, and have surged ahead over the past 12
months. Commodities consumption has declined relatively in
modern broadly diversified economies, and periodic supply /
demand tightness in the materials area must be contrasted with
a pool of surplus labor that has developed via globalization. In
short, it is tougher to generate commodities-led inflation when
labor costs lag so substantially even if monetary policy is more
expansive than its longer run measure.

Commodities composites are interesting now because prices have
surged through long term resistance levels. These surges can last
from 12 - 30 months and can be rewarding to speculators who now
have a large cadre of fellow players who can engage in the markets
through a variety of ETFs and ETNs.

Below is link to the CRB commodity composite chart with a 6 month
or intermediate term perspective. It is a postive view. If you are
intrigued by the idea of the 40 week or 10 month cycle, watch now
because a downdraft is due. If such was to unfold, it would shift
the trend trajectory to a less elevated level. CHART.