Björn Wylezich/Adobe Stock
I’m really tired of hearing the word “bull market” every time some metal rises in price by 20%.
Free Download: The February 2016 MMI Report
The common definition of bull market is an increase of 20% from a low and that, to me, is a very bad definition. However, even well-known sources such as The Wall Street Journal or Bloomberg keep using this definition, which only demonstrates a complete lack of understanding of what a bull market is. We saw this when the WSJ called bull market on China’s stock market and last week Bloomberg declared a zinc bull market.
Is Zinc in a Bull Market?
You don’t have to be a hedge fund manager to realize that there is nothing bullish in zinc’s chart. Yes, zinc rose in February and so did other base metals, part of it due to a weaker dollar and the fact that they all deserved a short-term rally after many consecutive months of declines ( also known as bargain hunting).
Although February brought a good opportunity for zinc buyers to buy some volume, prices are not yet ready to make a substantial upside move. Under the current bearish commodity environment, this rally might just fall below resistance levels.
What’s Really a Bull Market?
To me, a bull market means price strength in an atmosphere where funds are creating a tailwind. The kind of environment in which bearish news is dismissed and bullish news is enhanced. An environment that enhances the likelihood of a metal price to continue to rise. In conclusion, an environment where metal buyers want to be hedging/buying forward.
Free Sample Report: Our February Metal Buying Outlook
That’s not really the case with zinc. First, zinc is showing momentary price strength after a huge decline, the kind of price strength caused by bargain hunters. Second, the current macro environment doesn’t favor prices continuing to rise. A slump in oil prices, a bear commodity market, China’s widening trade surplus and its ongoing stock market crash are not factors that would favor a rising trend in zinc prices going forward. Moreover, despite some production cuts, there is a lot of zinc sitting in warehouses and off-exchange storage that could also prevent prices from rising.
What This Means For Metal Buyers
If you call bull market every time a metal rises 20% you are going to be right at some point but the definition is useless when it comes to having a good purchasing strategy. The point is to identify when your metal is showing price strength, backed up with strong fundamentals and under a bullish macro environment that will help prices to continue to increase, so you can start hedging. Zinc is just not at that point yet.
So what about now?! BULL market now or MANIPULATION? [June 2016]