March 29 (Bloomberg) — The surge in commodity prices may be close to peaking, ending a four-year rally that included a range of raw materials from oil to copper to gold, said Daniel Chesler, an independent analyst who studies market patterns.
The Goldman Sachs Commodity Index has failed to top the record it reached in October, gold is down from a 16-year high in December and the dollar has rebounded from a record low against the euro, Chesler, 38, said in a telephone interview yesterday from Wellington, Florida.
All three are signs “we may be making a top here,” said Chesler, a former Louis Dreyfus Group orange-juice trader who accurately forecast in November the rally in orange juice and cotton and in February predicted the drop in sugar prices.
Commodity prices have surged as economic growth in Asia and the U.S. stoked demand for metals for new homes and appliances and fuel needed for airplanes and cars. The dollar’s plunge last year helped make products priced in the U.S. currency cheaper for buyers using the euro or the yen.
A divergence between the Goldman index of 24 commodities and the Reuters-CRB Index of 17 raw materials is “cause for concern” even if some commodities such as oil or copper continue to rise, Chesler said.
Goldman’s energy-weighted total-return index rose to new highs before the CRB in every commodity rally since 1999, he said. This year, the 18 percent rally in the Goldman index has failed to top the record close of 6469.24 reached Oct. 26. The CRB has taken the lead by reaching a 24-year high of 322.42 on March 16.
Shift in Leadership
“For the first time since 1999, we’ve seen the CRB making new highs while the Goldman Sachs Commodity Index has not made new highs which is very unusual,” Chesler said. That kind of “shift in leadership” normally precedes a final top or bottom in markets, he said in a March 28 report to clients.
Prices are already beginning to wane. The CRB fell 3.9 percent last week, the most since June 1994, as the price of cocoa, coffee, silver, wheat and orange juice each plunged more than 5 percent. The CRB closed yesterday at 307.36.
Goldman’s total return index fell 2.7 percent last week, the first drop in seven weeks. The index fell 40.31 to 6249.29 yesterday.
“I’ve been publicly bullish on commodities since 2002,” Chesler said, adding that yesterday’s report was his first to note that commodities may be peaking.
“We’re not calling a top,” he said. “We’re seeing some signs one might expect to see at a top, but the jury is still out. You would need to see some fairly important breakdowns across the board to get a top started.”
More Declines Needed
For the commodities rally to end, crude oil will need to fall below $40 a barrel in New York from about $54 now, and copper must drop below $1.20 a pound from about $1.45 now, Chesler said. Crude oil is up 52 percent from a year ago and copper is up 7.9 percent.
Gold is near a six-week low, spurred by a rally in the dollar. The U.S. currency has rallied about 6 percent from a record low on Dec. 30 as the Federal Reserve signals it will keep raising interest rates to curb inflation as the economy grows.
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Claudia Carpenter in New York at email@example.com.
Source: Bloomberg Latin America