Commodity Reversals and Copper Gold Update

Price collapse: who's expecting it?

Gold-copper is at an important juncture. It has been rising, but hasn't broken out yet. However, with recent volatility being what it is, the ratio could break out any day. the breakout delta from the current level is 6 percent. That is, if gold rises by 3 percent and copper falls 3 percent, the ratio breaks out. An upward breakout in gold/copper signals deflation or possible stagflationary recession that is a monetary crisis, hence gold outperforming.

Final Leg of Rally Underway With CPI on Deck

The final leg of the rally got going overnight. Russell 2000 has about 2.4 percent to go, Nasdaq 3.5 perecnt to a corrollary resistance area.

The December CPI report is out tomorrow. Crude oil was flat on the month. Inflation expectations should be forward looking, but most of the market is driving in the rearview mirror. The only part of this report that will matter is the sticky-CPI, subcategories such as rent. If those come in high, then the 20 percent advance in crude this year becomes a catalyst for a much higher CPI in January and February. Otherwise, CPI is aleady priced in.

Coffee broke out. An individual commodity can trade for its own reasons, but I can't ignore the significance if coffee breaks out of a 50-year trading range. If inflation is taking off, individual commodities should break out of their trading ranges.

The 30yr futures (ZB) bounced above major support. That's helping the stock market today, but this could flip on a dime and back again until the next major move reveals itself.

Inflation or Disinflation: Coffee Edition

If there's sustained long-term inflation, if the bond bull market is dead, coffee should break out of its going-on-six-decades pattern. There's still room for upside even if it reverses later, no short-term call. This isn't an indicator, but assets like this should start breaking out of these long-term patterns if high inflation is happening. Remember that if we had a gold standard, prices would fall over time because technology and efficiency improve faster than money supply growth. Sustained high inflation requires money creation well in excess of capitalism's price-lowering forces. Using the coffee example and ignoring the non-linear impact of inflation: even if the govt goes nuts and increases money supply by 10 percent year after year, if coffee growers and processors increase output/cut costs by 15 percent year after year, the price of coffee will fall even under inflation. If there is the kind of high inflation some are forecasting, commodities like coffee need to break out of their mutli-decade trading ranges.

The 1970s: Coffee and Sugar

I expect a pullback given my overall bearish interpretation of near-term macroeconomic forces. Longer-term, coffee has a nice base that will beget a double or tripling of its price. Sugar is not nearly as bullish as coffee here, but starting from a lower price, it would be a quadrupling or sextupling if it followed (or led) coffeee in a bullish/inflationary scenario.

Honey Honey Can I Get Support

The futures charts aren't updated for close yet, here that means you can't see the failed breakout. Sugar is at 16.20 curerntly, coming up on that green support line. Coffee also pulled back today, but the breakout is still intact.