CRB Index

Long term chart of commodity index my observation and conclusion.

1.        to unfold.

Period	Low	High	% change	Duration (years)	Reasons
1776 -1783	26.00	136.30	446%	7	American War of Independence	Boom
1783         - 1792	30.26	136.30	-78%	9		Bust
1792 -1815	30.26	103.84	243%	22	Various wars in USA	Boom
1815 -1860	32.32	103.84	-69%	45		Bust
1860 -1864	32.32	131.42	307%	5	American civil war	Boom
1864 -1912	26.71	131.42	-80%	48		Bust
1912 -1920	26.71	112.03	319%	8	First world war	Boom
1920-1939	29.30	112.03	-74%	19		Bust
1939 -1951	29.30	134.86	360%	12	Second world war	Boom
1951 -1970	97.70	134.86	-28%	20		Bust
1970 -1980	97.70	330.03	238%	10	USD DE pegged with Gold	Boom
1980 - 1999	187.16	330.03	-43%	20		Bust
2001 -2011	187.16	627.38	235%	10	Chinese Boom	Boom
2011 - to date	400.00	627.38	-36%	6		Bust

My observation

Prior to 1951

1.       most of the boom the CRB index went up to 130  -150 levels

2.       Most of the up move in commodity could be linked to wars.

3.       Most of bust in CRB index went down to 30 levels

4.       The average duration of boom 10.8 Years.

5.       The average duration of Bust is 23 Years.

6.       The fall in commodity during the bust was -75%

7.       The average up move in commodity during boom was 335%

But something has changed dramatically since 1951

1.       From 1951 US started to printing more USD then the gold reserves it  had.

2.       USD was implicitly de- pegged to Gold since 1951 and USD was explicitly de pegged with Gold since 1971

3.       For the first time in history commodities are showing an sustained up move i.e. its making higher level in every up move and down move.

4.       This is nothing but devaluation of dollar v/s commodities which is playing on for last 45/65 years.

5.       The bust in commodity after 1951 lasted for an average of 20 years

6.       The price of commodity fell by approximately 36% during the bust

7.       The current fall in commodity started in 2011 (2008) and the fall in index is equal to 36%

8.       In history only twice has commodity prices went up without any major wars or geo- political conflict.

a.       De-Pegging of USD form gold

b.      Rise of China as an economic super giant.

My Conclusion

1.       The price correction in commodity is over.

2.       The time correction in commodity may take time depending on how fast they devalue dollar by creating more currency.

3.       Looking at Quantitative easing going on around the globe I won’t be surprised if the current commodity bust gets over must before 20 years which looks like long term average.

4.       The price of commodity will go up in USD or we can say that the value of USD will fall in comparison to the Value of commodity.

5.       Looking at US it looks like a better choice in increasingly fragile world.

6.       So USD will appreciate against all other currencies.

7.       But USD will depreciate against hard assets like commodities and primarily Gold.

8.       I expect a massive rally in gold to unfold. 

Crude Oil

Crude has been decimated off late and the whole world looks worried about the price of crude oil. I missed one of the best opportunity by reversing my sell call given on (16th November 2013 & 10^th January 2014) on crude on June 2014 when crude oil almost peaked. It was a sucker rally in crude which got me in.

If we look at the price of crude today, I think it had bottom out and the crude is forming an inverse head and shoulder pattern and signals a reversal. If Crude breaks above 40$ we could see 50$ and beyond very soon.