Commodities threaten their decade-long downtrend

Livewire News

There have been some real fireworks in the base metals complex in recent weeks, with Zinc and copper hitting multi-year highs, and nickel and cobalt moving very strongly. Sprott Asset Management has published a view on the fundamentals in the metals, suggesting a decade-long technical downtrend may be ending:

  • Base metals are showing signs of real strength, with prices across the complex breaking out, or threatening to do so.
  • Copper and zinc have looked the strongest of the bunch and both have recently broke out of multi-month consolidation patterns.
  • The moves we are seeing have the hallmarks of a supply (destruction) driven rally, which tend to be sharp and ferocious in nature.

An industry-wide decline in reserve quantity (depletion) and quality (grade), accompanied with a complete lack of new discoveries means we believe we're likely to see an increase in M&A as prices begin to rise, which is why we're interested in quality exploration and development stage plays. Every now and then you get a feeling that the market is sending a message. Last week was one of those weeks as we witnessed a whole host of commodities either breaking out of multi-month consolidation patterns, or seriously threatening to do so. The topside moves were generally spread across the commodity complex, but by far the most significant moves were seen in the base metals where we witnessed breakouts across the board, some in rather spectacular fashion. From a higher level, this is best shown in a chart of the Bloomberg Industrial Metal Index, which has now broken out above a down trend that has been in place since the index peaked way back in 2007, over a decade ago.

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