Crude oil is sitting at a major relative strength low compared to gold. In the past decade, the only times gold continued to outperform crude was March 2020 and briefly in 2016.
Remember, these are technical comments only. Just as you must be aware of fundamental data for the stocks we recommend based on technical criteria in the report, so too must you be aware of important data regarding delivery, market moving government releases, and other factors that may influence commodity pricing. We try to limit our technical comments to the most actively traded contracts in advance of delivery, but some contracts trade actively right up to delivery while others taper off well in advance. Be sure you check your dates before trading these contracts. For questions regarding this section or additional coverage of commodities email will.gibson@nasdaq.com.
Data represented in the table below is through 12/12/2023:
Broad Market Commodities Report
Portfolio View - Commodity Indices
| Symbol | Name | Price | PnF Trend | RS Signal | RS Col. | 200 Day MA | Weekly Mom |
|---|---|---|---|---|---|---|---|
| CL/ | Crude Oil Continuous | 68.61 | Negative | Buy | X | 77.80 | -11W |
| DBLCIX | Deutsche Bank Liquid Commodities Index | 457.61 | Negative | Sell | O | 492.44 | -11W |
| DWACOMMOD | DWA Continuous Commodity Index | 780.73 | Positive | Buy | O | 794.58 | -3W |
| GC/ | Gold Continuous | 1977.80 | Positive | Sell | O | 1949.60 | +1W |
| HG/ | Copper Continuous | 3.79 | Positive | Sell | O | 3.80 | +7W |
| ZG/ | Corn (Electronic Day Session) Continuous | 485.25 | Negative | Sell | O | 544.73 | +2W |
As discussed in yesterday’s report, falling energy prices were a large reason for November’s dampened inflation data. However, crude oil (CL/) is now approaching a big area of support on its trend chart (in the mid $60s) and also sits at a major relative strength low compared to gold.
The relative strength chart below compares crude oil continuous (CL/) to gold continuous (GC/) at a 3.25% scale, meaning that each box equates to 3.25% of relative performance. Reversals into Xs (three box minimum) mean that crude outperformed gold by about 10% and vice versa when reversing down into Os. More directly, when this chart is rising in Xs crude is outperforming gold and when the chart is falling in Os crude is underperforming gold.
Currently, the chart sits in Os at a relative strength calculation of 3.48, which is an irrelevant fact on its own; however, over the past decade, relative underperformance for crude has often stalled at this point (highlighted). In fact, there have only been two trips below this relative strength low in the past 10 years - March/April 2020 when crude briefly went negative amidst the Covid pandemic, and early 2016 when Congress eliminated the US oil export ban (source: Reuters).
Gold does not have as wide of economic applications and implications as crude oil, suggesting that if we get a mean reversion in this relationship its inflationary impacts would likely not zero out…and for that reason we would need to see other goods (mainly services) prices come down to keep inflation on its path of descent. Fortunately (although perhaps unfortunately from an economic demand perspective) most commodity prices are in downtrends, but the recent velocity of those downtrends leaves many commodities at risk of short-term upside mean reversals. These mean reversals will likely come on a relative basis, as evidenced today with crude and gold, which would then result in asymmetric impacts on future inflation prints. Said differently, the less economically impactful commodities have ripped, leaving those with more impact at risk of an upside mean reversion and "negative" impact on inflation.
