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COMMODITIES OUTLOOK - December 2019 - Phase-One Trade Deal Lethargy! – Base Metals Continue Lower - Major Lows for Q1 2020 – Inflation-Pop Cycle On-Track for Q2 2020 – Precious Metals in Corrective Downswing...

The two key drivers for most commodities remain the direction/amplitude of the US$ dollar and the ongoing trade-tariff negotiations between the U.S. and China. For the most part, the US$ dollar index was identified last October as resuming its 7.8-year cycle downtrend which originated from the Jan.’17 peak of 103.82. Despite the market’s bullish interpretation from a phase-one trade deal, the outlook remains very bearish. So what does this suggest? – does the trade-deal collapse or does its effects get brushed aside due to some other exogenous event? – or maybe the Elliott Wave analysis is skewed? This month’s report begins by examining the US$ dollar’s path since October’s peak of 99.66 and updates the trend of its shorter-term daily composite cycle.

This month’s report updates the benchmark CRB-Cash index which is currently at an important tipping-point from which its trend will be determined over the next several months. The Base Metals analysis is led with updates for Copper – its entire counter-trend downswing that began in early-2018 remains incomplete and is timed to a similar multi-year correction in the US10yr Breakeven Inflation TIPS – that correlation will be important in timing its low over the next months. Over the last month, other base metals like Lead, Zinc and Nickel have each traded into upside targets and have since declined sharply, in-line with forecasts. These are expected to form synchronous lows with Copper sometime in Q1 2020.

Precious metals remain bearish since Elliott Wave impulse uptrends from earlier this year ended into September’s highs. Gold is off $100 dollars/ounce but silver has declined by $3 dollars/ounce or -15% per cent. Only a small proportion of excessive long-positioning has been liquidated whilst cycle analysis points lower until end-Q1 2020. We discuss the immediate shorter-term outlook but also illustrate secular bull vs. secular bear scenarios for the next several years. Platinum and Palladium have completely different rhythms but these show up-coming inflexion points into year-end.

The energy contracts of Crude/Brent Oil are probably the most important indicators of how economic events will unfold over the next few months than any other commodity. Positive-correlation to equity markets remains constant but Crude/Brent oil remain key underperformers. We already know that will some conviction, these two will ultimately participate in the next stage of the ‘Inflation-Pop’ cycle uptrend, targeting record highs into the next decade, but before that begins, a hefty downswing must first unfold in order to complete last year’s corrective zig zag pattern from the Oct.’18 peaks. What does that tell us? – it tells us to expect some ‘shock’ within the next month, lasting into Q1 2020.