Short-Term Caution on Commodities

While we continue to remain bullish about commodities over the long-term, we believe that in the short-term caution may be well advised in the commodity space (as a whole). We continue to hold that while Gold is a good buy on substantial declines, the rest of the space, especially base metals seem ripe for a sharp correction.

Commodities have a tendency to witness very sharp corrections, so dont be unduly worried. If you are the one who incessantly worries about such sharp corrections then the commodity space is best avoided.

The chart below provides a graphic representation of the US Commodity Open Interest (as published by Bloomberg).

(Click on the Image to Enlarge)

While we would like to avoid particular recommendations, we decided that we would like to make an exception

It is imperative to note that at the present juncture, on a purely technical basis, we believe that commodities like copper may witness selling pressure once it falls below US$260. The first sign of trouble will be hinted once it falls below 264 and 262.

In case of short-term gold speculators, it is prudent to note that our post about Gold a couple of weeks back is still valid. In the very short-term, speculative long-positions in gold could be contemplated once it cross 1007 and 1011. On the downside, very short-term speculative short positions could be contemplated once gold falls below US$1000. But, keep in mind that the interesting development that gold is not closing below US$1000. Below 1000 major supports are at 997, 990, 987 and 982.

Please note that our bullish long-term stance in the commodities being in a secular structural bull-market with cyclical bear-market corrections remains intact.