A COMMODITY SUPER-CYCLE? |
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Recent reports of a Commodity Super-Cycle grabbed my attention for two reasons – first, this is diametrically different to the outlook I foresee developing during the next decade, and second, this terminology has surfaced at a time when various commodities have already undergone large percentage gains measured from the Feb.’09 lows (CRB Reuters/Jefferies index is up 50%) – a contrarian signal perhaps? Commentators are describing the super-cycle as something expected to inflate prices by at least a two or threefold amount during the next several years. Is there any basis for this assumption? The only way to gain some idea of whether this is possible is to examine the long-term price trends and apply an Elliott Wave count onto the data-series. This can be done by examining the Cash CRB Index (the CRB Reuters/Jefferies only goes back to June 2005), Crude Oil and even Copper, three useful gauges of inflation/deflation. It is most important to first obtain long-term historical data. We have collected CRB & Crude Oil price data that goes back over a hundred years and specifically Copper from the period beginning 1784, over 226 years ago. The most notable recognition is that from about the years 1812-14, copper prices began to decline from US$1520 dollars per tonne (one thousand, five hundred & twenty) to a low of US$108 (one hundred & eight) in the year 1932, the moment that marked major lows for almost all commodities and of course for the Dow Jones index. A depreciation of -92% per cent over a period of 120 years is considered to be the end of a super-cycle, and the beginning of new one afterwards. We don’t know how long the next growth cycle will take because historical data only begins from 1784, but we can measure this in another way, through Elliott Wave patterns. The archetypal pattern for price expansion or growth is depicted as a five price-swing sequence. When examining producer price/cash-spot copper prices over this period, from 1932 onwards, a very identifiable pattern emerges. Prices can be seen unfolding into this five wave (price-swing) format ending in May 2006 at US$8875. That means the super-cycle growth process has already ended. We can affirm this statement by applying various amplitude measurements attributable to such patterns, incorporating Fibonacci price-ratio relationships of each period. This article continues on The Gail Fosler Group LLC website – view chart & EW count >>> Copper Super-Cycle—Beginning or End? Why Markets May Be Irrational But Predictable END | FIN | ENDE |
