Opinion: Commodity Markets Are On-The-Move

As the world is celebrating Christmas and New Year, markets are getting less attention. And that’s when it can get interesting. Crude oil, for instance, moved +4% higher on Friday.

The beaten down commodities sector was THE most important theme in 2015, much more important than the U.S. Fed rate hike, at least according to our view.

Mainstream media has overly emphasized the importance of the interest rate hike, creating a narrative around it.

Crude oil is the most important energy asset in the world. Investor sentiment surrounding crude has recently reached the lowest levels ever. Only three times in the last 25 years did sentiment reach similar low levels.

The first chart illustrates our point, see the lower chart (source: Sentimentrader).

Even the 2009 crash did not create such a damage in sentiment.

Interestingly, when sentiment collapsed to similar levels, it marked a secular bottom. In 2002, it marked the start of a strong secular rally, which accelerated two years later.

NOW is the time to accumulate beaten-down energy stocks!

Our point of view is that we have a reached a long term bottom in crude and most commodoties. Prices can only go higher from here, or, ultimately, move sideways for a while.

Let’s not forget that both Mr. Draghi and Mrs. Yellen continue to work towards their inflation target, as confirmed by themselves in their latest speeches.

Sooner or later, they will get what they are aiming for. Given the oversold condition in most commodoties, we expect a huge rally in commodities at a certain point.

Shorter term, we see the first signs of a strong rally in the precious metals complex. Gold stocks, being known for leading the metals higher and lower, are already preparing their traditional January rally.

While gold is going sideways in recent weeks, gold stocks have moved some 7% off their lows.

As the year comes to an end, and tax loss selling has run its course, we are preparing ourselves for a gold rally starting in January.

We suggest you take your time to revise your portfolio allocation as well. Do you have some supercharged assets in your portfolio? ‘Turbo’ will not come from traditional stocks, nor stock indexes or bonds. We recommend staying away from currencies, which are constantly manipulated by governments that are desperately hoping to weaken their currency, and, by doing so, stimulate exports.