Study: gold and agriculture will bounce, but don't be a long term bull


Commodity prices (gold, silver, and agriculture) have taken a beating thanks to Trump’s trade war.



Commodity prices tend to move together as a family. Earlier this week, we demonstrated that gold’s short term outlook (1-2 months forward) is bullish. So far this case is playing out: gold is bouncing off of a support and oversold weekly RSI.

The short term bounce will probably continue for the next few weeks in gold. And since commodities tend to move together as a family, this suggests that agriculture will bounce as well in the next few weeks.

We can look at the short term bullish case for commodities through the agriculture lens.
So far Bloomberg’s Agriculture Subindex has tanked. It is now -9% below its 50 daily moving average.

When the Agriculture Subindex crashes like this, it tends to make a short term bounce in the next month.

Here’s what happens next (historically) to the Agriculture Subindex when it crashes -9% below its 50 daily moving average for the first time in 1 month.


Click here to download the data in Excel.

Conclusion

As you can see, agriculture prices tend to bounce for 1 month (short term) because they are extremely oversold. However, this is also a long term (1 year forward) bearish sign for agriculture. These types of crashes don’t usually happen in the middle of a commodities bull market. They usually happen in the middle of a bear market.
Since agriculture, commodity prices, and gold move together in the long term, this suggests that gold won’t begin a bull market any time soon in the next year.
The case for commodities is simple:

  1. Short term bullish for commodities (gold and agriculture)
  2. Long term bearish for commodities (gold and agriculture). Gold will probably continue to swing sideways in a big range.

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