With Base Metals Leading Commodities Down, Prepare for More Market Volatility

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We always keep an eye on the commodity market as it has a huge impact on metal prices.

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Commodities have been in a falling market since 2011, but, so far, this year has been more of a flat market for commodities. We expect to see some movement soon. The rising US dollar has been a key factor in driving commodities down and although the dollar still strong, it has been taking a break for the past seven months from its meteoric rise while posting a flatter trajectory. A more stable dollar this year clearly helped commodities to stay flatter as we can see in the next graph.

US Dollar (green) vs CRB Index (Blue) 1 year out

Dollar index (green) vs CRB Commodity Index (blue), one year out. Graph: MetalMiner.

Both, the dollar index (in green) and commodity Index (in blue) are within their one-year range. For the last couple of months, however, commodities are starting to fall again, approaching record lows while the dollar is rising again.

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We recently talked about a similar flat behavior in the stock market and how technology indexes could be leading stocks’ recent gains. Back to commodities, it seems like base metals are the ones taking the lead, and they are pointing down.

Industrial Metals ETF 1 year out

Industrial Metals ETF one year out. Graph: MetalMiner.

The recent Chinese market sell-off might explain the bad performance of base metals compared to other commodities, as they are more sensitive to buying activity on the ground level.

What This Means For Metal Buyers

The first half of 2015 has been relatively stable for commodities. However, as we see base metals recently sinking, we can expect to see more volatility across the board.

 

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