Commodities: The Bottom Is Looking Mighty Ugly
London (Feb 16) Last week was an odd one in the commodity sector. While the bear market continues to cause low prices in the energy and industrial commodity sector, precious metals exploded higher. Divergence is the name of the game in the wild markets of 2016. Volatility tends to create divergence in terms of historical price relationships between assets. However, the current level of volatility and divergence within the commodity sector could be flashing a real warning sign for industrial commodity prices as well as other assets including equities, debt and currencies. Before you continue reading this piece, I forewarn you - the takeaway is not a pleasant one.
While precious metals lurched higher, other industrial raw material prices continue to move lower. In one case, an important commodity posted a new multi-year low.
The commodity bear is not hibernating
Industrial and agricultural commodities as well as shipping rates were all ugly last week. The world's most liquid and watched commodity, crude oil, turned in what was the worst performance of the week.
Last Thursday, crude oil traded down to $26.05 per barrel on the active month March NYMEX futures contract. That was a new low and the cheapest the energy commodity has been since way back in May 2003. While the energy commodity rallied by over $3 per barrel on Friday, it still posted losses of over $1 on the week. Oil product prices remain weak with heating oil and gasoline both straddling $1 per gallon level. It is ironic that on a day when gold posted a gain of over $50 per ounce and silver rallied by more than half a buck, crude oil tanked. However, it was not the only commodity to feel the pain of the commodity bear. Gold and silver were the exceptions.