The Best Time to Buy Commodities

I last posted on the Spec Trading page on December 12 that it was the Worst Time To Buy Stocks.  Of course, the stock market continued higher until Friday when stocks had its first down day in 12 days.  Good timing on my part, right?  

The message I meant to convey is that this is actually the best time to buy commodities.  There are signs everywhere that after bottoming a year ago in a 3 year cycle low that this will be a good year for commodities.  We have gone years in a down cycle when compared to the stock market.  This 15 year chart of the CRB index shows that commodities have not experienced any significant price inflation except for crude oil in 2008 which caused the great recession.  Since then, the price of most commodities has been abysmal.    

For the past 4 years, there has been virtually no price inflation with commodities.   The stock market functions on 4 year cycles but the commodity cycle is actually a bit shorter at 3.5 years.  The previous 3.5 year low with commodities was in January of 2016.  The most recent 3.5 year cycle low was just in April of 2019.  We have since seen the stabilization of many commodities we like to trade such as energy an metals. 

We even got a golden cross confirmation that commodities should be moving higher a couple weeks ago.  

What this all means is that for the next year or two, we should expect futures trading to become a lot smoother.    We should be braver in terms of accepting risk.  In particular, as you suspect I am extremely bullish on the metals.  I am also bullish many of the agricultural commodities and I am bullish energy

At the beginning of intermediate cycles, traders need to control their anxiety.  Because recency bias conditions us to become bearish, it is difficult for us to immediately turn bullish, but it is at these turns where risk is easiest to manage and where gains are maximized.  We need to enter positions early and keep stops lose so that we do not lose a good position.  Later as the cycle improves we need to control our greed.  We will tighten up stops more and be satisfied with "making enough".  

So with that said, gold is nearing a point of long term resistance going back 8 years.  

Zooming in closer, you can see we have a bit of a resistance zone between 1520 and 1525.

I believe that for the next couple of weeks, the price of gold will consolidate along this resistance zone much in the same way gold consolidated along the  1525 area in a similar fashion to gold in June when it consolidated along the 1550 area.

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We need to be managing our emotions and not allow them to dictate our common sense.  Looking at your commodity account hourly when this is happening can be very excruciating when the price pulls back.  The pull back is not a place to be exiting our positions.  It is a place to anticipate a drop and add to our existing position.  We want to be building these positions on trending moves to make more money than your mind can comprehend.