Be Careful Precious Metals Bulls
Another friendly reminder that positioning in copper remains super speculative bullish - aka, there is much room for speculators to reduce their bullish bets again. The same can be said for gold and copper, but not for crude oil.
Once again, there seems to be less demand than people realize - especially from China.
Tailrisk Secular Inflation
My firm Kucrop Analytics does not advise on where commodity prices are headed during the next 12 months or so. We successfully implemented a short to mid-term approach to trading commodities with time horizon of between a few weeks up to two or three months.
We also don’t like speaking about commodities broadly but instead focus on each market on its own as each is driven by different fundamentals and has different quantitative unique behaviors. But as I get more and more questions about the macro and political landscape, I wanted to share a few thoughts with you of where I do think society is currently moving - without being judgemental.
Nevertheless, I need to admit that this chart by Fidelity is quite cool and highlights that there is more than one reason to believe that we’re still in another cyclical commodity bull market. Their current idea is to decrease bond exposure and instead invest more into commodities. The reason: Fidelity thinks that the cycles are soon due for another major change: Value should outperform Growth, Small should then outperform Large Cap and commodities should outperform bonds.
This case would of course also imply that inflation continues to stay a hot topic for decades to come. Of course, this is very much a tail-risk by now - but a mighty one, the implications would be huge. Just one week ago, we had elections in Europe. And one of the main pain points for young and middle-aged people was that the governments around Europe do too little about the surging cost of living - especially rent and food (which account for those people for the largest share of their monthly fixed costs). With salaries surging by much less than “real” or “felt” inflation (we all know that our personal inflation is much higher than the one that the governments announce), it is becoming increasingly difficult for a large part of our society to maintain the pre-covid standard of living. There was a world before Covid and a world after Covid. Political trust has since been squandered, and anger among the population continues to grow. You can get the feeling that the earth has been spinning a lot faster for a few years now.
The result of the election was that political pressure from the right has increased. Secular inflation would be the ultimate disaster and would very likely continue this political movement and probably also lead to political instability in the medium to long term.
All of these things can be worrying, but do in fact change nothing about the way we pick long and short commodity ideas. Picking commodities solely based on political or macro views wasn’t a good idea in the past and won’t be in the future.
Always remember: commodities are not long-term investments - they are cyclical trades.
In Other News…
This week, look out for the following:
Empire State Manufacturing Index on Monday
Retail Sales data on Tuesday
Philly Fed Manufacturing Index on Thursday
Flash PMI’s on Friday
A subscription costs $29 a month, and you will receive an additional in-depth report every Sunday evening at 6:00 PM CEST. Moreover - you will receive a quarterly economic growth report as well. That information will only be published to members and not the general public.
Till next Monday, Lukas
If you have any questions in the meantime, please feel free to contact me via X or Mail.