The gold is historically a hedge against the market. It`s a safe heaven. In volatile markets, we often see increasing gold prices. So, why is it so calm out there now?
Commodities use to move in a very long cycles that last many years. That`s what we call a super cycle. In the historically chart below we can see the cycle goes on between 20 and 30 years. The last cycle was a declining cycle that started in 1980 and ended in the year 2000.
As you can see from the CRB chart I have added today, the new super cycle started in 2000. The commodity prices increased in eight years, and plummeted in 2008 during the financial crises. Reuters/CRB index is an index with 28 commodities, which is commodity prices ranging from metals to oil and grains. 26 of the commodities are listed on the US and Canada exchanges.
As you can see in the chart below, we are now in the middle of the bottom in 2000 and the top in 2008. Where do we go from here? Are the commodities bullish trend over? Or is it starting a new trend? A bullish trend?
First of all; the bullish trend started in 2000 because the demand increased. At the same time the supply was at a minimum because of the downtrend we have seen since 1980. Many of the miners had to shut down their businesses. Rising demand and minimum supply means increasing commodity prices.
Most of the demand came from emerging markets. The GDP in China rose 12% a year. The supply startet to increase again which had an impact of the commodities prices. The first phase seems to be over. Do we have a phase nr two comming up soon?
If so, China will be the trigger to the next cycle by consumer spending as they spend Yuan like never before. The Chinese people are earning more money now than ten years ago. In 2004 the average income was 8500 Yuan per year. That`$1400 dollars. Today they earn about 25000 Yuan or $4200 per year.
No one is paying attention on the ernings this week. Everyone`s eyes is on Capitol Hill and the White house now. I look forward to see the earnings of Google and Apple. News to for today: Empire State Manufacturing Index at 8:30am.
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