Marc Cuniberti: Commodities on the rise?
Are commodities finally on the rise after years of being in the doldrums?
We would all agree that prices in the grocery store continue to rise on many things, but commodity tracking indexes show quite a different story.
The most common method of tracking commodity prices is the CRB commodity index, a commodities future price index which presently tracks 19 common commodities, which include aluminum, cocoa, coffee, copper, corn, cotton, crude oil, gold, heating oil, lean hogs, live cattle, natural gas, nickel, orange juice, silver, soybeans, sugar, unleaded gas and wheat.
In contrast to what some people think they are seeing as they browse the shopping aisles, if we scroll up a chart of a popular commodity index, we see a marked decrease from 2011 to 2016, losing more than a third of its value.
Despite that this fact does not seem to represent the prices I am seeing in the grocery store and probably you neither, the commodities indexes have definitely been going down for half a decade. Just recently however the index has started to creep up and commodity investors are starting to salivate.
Commodities can have huge swings and can take years as is evident by the half decade erosion witnessed in these basic materials. With the price of gold also creeping up over the last month or so and some believing gold is the first to sniff out inflationary pressures, the possibility that the inflation that the Federal Reserve so badly wants may finally be materializing. The Federal Reserve has stated repeatedly that a 2 percent inflation rate is their goal in order to help foster a lasting economic recovery and conversely fearing that deflation (falling prices) works against that goal.
The question that arises in my mind is that if inflation, as measured by the Fed, is under still under 2 percent and the commodity index trackers show a continued erosion for last 5 years or so, why do people perceive the prices of many things are continuing to increase? And if the Fed manages to increase inflation to its 2 percent target, what will shoppers actually see in the store aisles of America?
With the commodity indexes appearing to gain traction and gold seeing a healthy and persistent rise in its price, could the inflationary fires finally be starting to ignite?
This is not the first time we have seen upticks in the commodity index and the latest spike could be just another flash in an otherwise cold pan. The proverbial “head fake” in the apparent rise in commodity price index could again give way to another fall in the price chart as so often happens in the price action of anything plotted. The indications are just that, indications only and can in no way be taken as anything definitive, but the persistent up trend at least in the short term look promising to commodity investors but might spell bad news for consumers as they hit the shopping malls and super markets in the days and weeks to come.
Keep in mind that many indexes may not be able to be invested in directly and past performance is never a guarantee of future price movements. Always consult with a qualified financial advisor before making any investment decisions.
This article expresses the opinions of Marc Cuniberti and should not be construed or acted upon as individual investment advice. Marc Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cuniberti can be contacted at MKB Financial Services 164 Maple St #1, Auburn, CA 95603 (530) 823-2792. MKB Financial Services and Cambridge are not affiliated. Website: moneymanagementradio.com
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