Major trainwreck in raw commodity sector

NEW YORK (April 4) Gold and silver futures prices are getting pounded late this week, as is the rest of the raw commodity sector. Sector leader crude oil is down over $5.00 a barrel today and at a four-year low, after suffering strong losses Thursday.

Raw commodity markets have been hit hard by rising and even extreme trade tensions between the U.S. and its major counterparts. A few futures markets have traded down their daily price trading limits Thursday or today.

The Fed funds futures market is now pricing in five U.S. interest rate cuts this year. At 0.25% for each cut, that’s a 1.25% total cut this year. Analysts are saying the Fed funds futures are pricing in a U.S. recession. A U.S. and/or global recession is bearish for commodity markets, from a demand perspective.

Importantly, futures markets traders generally tend to overdo on the upside significantly bullish fundamental events, and overdo on the downside significantly bearish fundamental evens. Such is very likely the case with the global economic-growth uncertainties at present. I have been in the commodity markets business for 40 years and the trainwreck seen in the raw commodity sector late last week is one of the worst I’ve ever seen.

However, value-buying opportunties are lurking. Legendary investor Warren Buffet has said in the past he likes to buy stocks when there is blood in the street. He also said when most others are greedy he is fearful, and when most others are fearful he is greedy. Many would agree such are the cases today. Commodity market watchers need to monitor the U.S. stock market extra closely in the near term. When the major U.S. stock indexes rebound and appear to have put in market bottoms, such will also likely be the case with commodity markets. And my bias is that this will be sooner rather than later.

KitcoNews