Guest Post: Who’s Right About Commodities: Bears Or Bulls?

Tyler Durden's picture

Submitted by Marin Katusa of Casey Research

Who’s Right About Commodities: Bears or Bulls?

In the last few weeks a slow slide in commodity prices – metals in particular – has turned into a full-scale nosedive.

All through 2011 copper had remained essentially between US$4 and $4.50 a pound, but on September 11 it dropped below that range and didn’t really stop falling until October 4, when it bottomed at $3.05. Aluminum gained ground in the first half of the year to reach $1.24 per lb. in April, but after losing 10% in the last 30 days it is back below that, at $0.96. The spot price of nickel lost 19% in the last month; zinc prices fell 17%. Precious metals were not spared either: The price of silver shed a whopping 33% in 30 days, while gold is currently down 15% compared to its price on September 6.

Grouping the commodities together really shows how rough the last few months have been. The Standard & Poor’s GSCI – an index of raw materials that tracks 24 commodity prices – is down 24% since April, when it hit a 32-month high. On October 4 it touched 572.92, its lowest level since November 26, 2010. Falling metal prices were the main culprit: Silver closed at its lowest price since February, and copper saw its cheapest settlement in 14 months.

The slide in commodity prices ends a period of discord between a global economic story of frailty and impending doom and commodity prices that were holding their ground at or near record highs. The disparity stemmed in large part from opposite outlooks for the world’s developed and emerging economies – Europe and the US are struggling to maintain any kind of economic momentum but emerging economies have continued to grow, led by China. Investment actions (encouraged by the printed money stemming from QE2) then heightened that difference, as investors turned to commodity prices to profit from emerging-market growth.

The investments that fed the disparity came from a very broad base. It used to be that investing in commodities was only for institutional players and real market participants, but over the last decade a slew of retail investors have jumped on board the “good-times commodities train.” Since the start of the current commodities supercycle in the early 2000s, investing in raw materials shifted from a risky, hard-to-access game to a commonplace portion of most portfolios.

Before, most ordinary investors were only exposed to commodities by owning shares in oil or mining companies. Now, a broad range of commodity-based exchange-traded funds (ETFs) spanning agriculture, energy, and metals have given investors access to direct exposure to raw-material price swings… and the sector has provided such consistent rewards that many financial advisors and pension managers now believe that all ordinary investors should have some slice of their long-term money parked in commodities. The assets of ETFs and similar investment products that hold baskets of commodity futures have increased sixfold since 2007, reaching a value of $37 billion this summer.

In recent months, however, the tide has turned in a major way. Investors and advisors are beating a hasty retreat from all risky holdings, and for many that includes commodities. Current global economic uncertainty is pushing investors toward very low-risk options, starting with US bonds and ending with dividend-paying utilities. Commodities, which were previously better-insulated from retail investor panics, are feeling the pain.

Of course, retail investors abandoning ship only account for a small part of the pressure on commodity prices. Commodity prices are complex beasts, with annual variations relating to contract talks, stocking seasons, de-stocking seasons, currency ratios, and speculative action.

Take copper as an example. China accounts for something like 40% of global copper demand, and its unceasing demand growth helped copper prices rebound quickly after the 2008 recession. Whether this demand growth will continue is a topic of much debate.

The bears point to tightening monetary conditions and a global slowdown to argue that China’s economy will grow just 5% this year – a sluggish rate, compared to its double-digit expansions over most years in the last decade. They also point to reports of very large speculative stockpiles in China, accumulated in part as a way to skirt bank lending restrictions imposed by the Chinese government. The copper bulls, on the other hand, argue that demand is holding up well. Volumes at most companies are still up year on year; even in Europe, Germany is still showing reasonable growth; and in the United States the copper rod market is expected to register 3% growth – that would be down from 6% last year, but it’s still growth. As for China, the bulls expect 8% economic growth and say it is merely a matter of time before the Chinese return to the market and restock heavily. Minmetals stoked that fire somewhat last week with its C$1.3-billion bid for Anvil Mining (T.AVM), a copper company.

In addition to all of those factors and arguments, the scrap market plays a role. The “urban mine” of recycled metals accounts for roughly one-third of global supply, but as prices fall scrap flows slow down significantly. That tightens the market even if demand also weakens. Many scrap dealers are holding on to their copper until prices recover; they did the same in 2008-‘09, helping to push prices up.

So commodity prices are complicated and difficult to forecast at the best of times, which is not exactly how we would describe things at present. Yes, that’s our lead-in to saying that predicting where prices are going from here is a challenge, to say the least.

Again, let’s use copper as an example. Copper price forecasts now range from below US$6,000 per tonne (from the head of the copper department at Minmetals) all the way through to $10,075 (from Barclays Capital). Goldman Sachs, Credit Suisse, and Standard Bank are closely aligned in their outlooks, all expecting copper to sit just under $9,000 per tonne through 2012.

Certainly, the fundamentals of the copper market remain very tight. Based on current demand predictions, the International Copper Study Group expects to see a deficit of 250,000 tonnes in the global refined copper market in 2012, before moving closer to balance in 2013. To put 250,000 tonnes into context, global demand for refined copper products in 2010 averaged 19.4 million tonnes. And it is important to remember that current and forecast copper prices all sit comfortably above the break-even point for producers. The marginal cost to produce a tonne of copper averages between $4,000-US$5,000, creating a solid floor for spot prices.

But as one Credit Agricole analyst pointed out, “the fundamentals just won’t matter in a financial panic.” We’ve already seen some of that irrational movement: Copper’s lowest point this week, of $6,635 per tonne, represented a 33% decrease over just two months. The metal boasted a spot price just below $10,000 at the start of August.

Really, commodity prices from here will depend on whether Greece defaults in an orderly, supported manner or goes down in an uncontrolled inferno, torching Europe’s books for years. Both are still options. A planned default has its downsides – as German Chancellor Angela Merkel puts it, “If we tell a country ‘We cancel half of your debt,’ that’s a great deal. Then the next guy will immediately show up and say he wants the same.” Nevertheless, the only way Greece can survive its suffocating debt levels is through some kind of default, and if the European Union can come up with a default management plan, then the other countries of the Union could be protected from the worst of the fallout.

An unplanned, “oh-my-God-how-did-this-happen?!” style Greek default, on the other hand, could decimate numerous European banks and in doing so create exactly the same maelstrom that gave birth to the 2008 recession in America.

Despite some bearish indicators and a lot of nervous investors, a recession is not necessarily in our future. Goldman Sachs, the permabull of commodity price forecasters, remained committed to its prediction that commodities will continue to outperform. While reducing its oil and copper forecasts for 2012, the bank reiterated an “overweight” recommendation on commodities over the next 12 months, explaining that the turmoil in Europe will take away “some of the upside” to commodity prices, but will not reverse prospects.

“With recent GDP revisions by our economists falling hardest on Europe but with emerging market growth expectations still relatively solid, we continue to believe that demand growth in 2012 will be sufficient to tighten major commodity markets,” lead analyst Jeffrey Currie wrote. The group sees potential for commodity prices to climb as much as 20% over the next year. Goldman did reduce its forecasts for oil and gas: The bank now expects Brent crude to average US$120 per barrel over 2012, down from an earlier prediction of $130, and expects copper to trade near $9,500 per ton, down from $11,000.

Barclays Capital added its voice to the chorus that is trying to remind frantic investors that a recession is not guaranteed, agreeing with Goldman that emerging markets could still save the world from a significant recession while also limiting further commodity price slides.

Many people are still hopeful that that chorus is singing the truth: These days any and every sign that we can avoid a recession sparks a bull market day. On October 5, the day after copper, oil, and silver all hit multimonth lows, commodity prices across the board gained ground after Federal Reserve Chairman Ben Bernanke said the central bank would take further measures to prevent a recession if necessary. Bernanke said the Fed could ease monetary conditions further, following the launch of Operation Twist in September.

We think it is likely that the commodities which fell in September and early October were following the example set by oil in early August. Crude prices were too high, having failed to fall in response to increased stability in Libya and weakening demand. So they corrected: Brent crude fell about 8%, while WTI crude lost roughly 14% in late July and early August. Since then crude prices have been fairly stable; they dropped somewhat while other commodities were flailing in September, but not dramatically.

So perhaps the metals realized they were overvalued, like oil had been given the global economic climate, and corrected. If they are following oil’s footsteps, things should remain relatively stable from here. But, as mentioned, that would require an orderly Greek default. And given that the Greek debt “crisis” has now been going on for two whole years and Europe’s leaders have continued to respond with solutions that are too little, too late, a significantly proactive step such as planning for Greece’s default may be too much to ask. And in the case of a frantic and disorganized default, commodity prices could easily drop further.

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nope-1004's picture

Gotta print, so must beat down commod's to show no inflation.

Gotta maintain the USD reserve, so must beat down PM wealth preservers (I think the CME calls those "evil speculators")

I really don't care.  I'm buying all the time.  Fuck JPM.  Screw Benocide.  The hell with Geithner.  Obama is a flake, as all the bankster controlled ones before him.  My wealth is in PM's near to me, not in the hands of the criminal cartel.



I think I need to buy a gun's picture

social security announced cost of living adjustment to return in 2012.....after 3 year absence....

Guess what that means inflation is coming back year and no even that cost of living adj won't cut it....

My tv is starting to smell like shit from all the bullshit coming out of the CNBC talking heads,,,,they are literally making shit up as they go, there is sooooo much shit starting to fly i'm getting ready to duck during Kudlow right now.

Stack Trace's picture

Kudlow is a sack of hack stitched together with BULL-shit.

Pinto Currency's picture



"Investors and advisors are beating a hasty retreat from all risky holdings, and for many that includes commodities."


If we had stable currencies that would be true, however our currencies have been destabilized for a  protracted period and are now being grossly undermined by QE and good old fashioned inflationary monetary policies.



Latest Fed data shows M1 is now up 22.5% year-over-year


When the currency crisis occur - and given central bank policy and the collapsing worldwide debt bubble, it will - there will be a run to real assets.

Harlequin001's picture

When you listen to this you could be forgiven for thinking that the amount of real gold traded at the margin is infinately more than the investors who hold it for the longer term, hence the volatility. Which is bullshit.

It amazes me how all these traders seem to sell or buy at exactlky the same time and by that I mean to the minute, which is uncanny...

Or is it one player with massive influence over prices through derivatives?

Go figure...

rocker's picture

Very Good Harlequin001. I really like that thought.
It is as true with the markets too.
Goldman must share that software that can manipulate markets with "special club members". And at a previous determined time they push F4,($).

Silver Bully's picture

I need to get Upper Crust, Super Special Club membership then. I thought I had to hit control, alt, delete on my vacuum tube algo thingy. Should I call tech support?

clymer's picture

Beats morning shit head and his hot (albeit strategically "plugged-in") co-host.


Z-Big's Translation: "We need to make certain that the architects of global planning are provided deflection from blame, by being painted as philanthropists who give so much. This way we can remain the .0001% and throw the remaining 1% to the pitchforks. (he even says *cough* "they are making millions of dollars" ..not billions, let alone trillions)

Get ready for the next stage of global consolidation of control, courtesy of the ignorant public's easy steer toward "millionaires".

Jeffrey Sachs should stick with NWO-shill, Charlie Rose. I like him better when he goes up against Hugh Henry:


flacon's picture

Unfortunately MSNBC spelled "Unfortunate" incorrectly. "UNFORTUANTE". Quality American is US. @8:25 in the video.


Other than that, I like Brazinsky's use of "DESPOTISM", it's one of his favourite words - and I have watched almost all of his TV appearances since 2008. He enjoys DESPOTISM. 


And for once I actually agree with Bra-zin-ski in that America is pretty much dumbed down and reduced to slogans, "simplistic slogans". 


I think Brazinsky is thinking as a central planner, in REACTION mode. We are just too damn stupid of a species to figure it out on our own without the loving hands of god-planning which Brazinsky will gladly give as long as he is able to play god. 

mickeyman's picture

He learned that playing Civ 2

flacon's picture

Civ 2? What is that?


Central planners are disgusted with the results that central planning has produced, but they blame that on the free markets and lack of CONTROL. The solution, of course, is MORE CONTROL and now Brazinsky is talking about PUBLIC SHAMING of those who profited from the policies of central planning. He is advocating an out right class WARFARE. Posting LISTS of the "rich". I wonder if he will post lists of people who benefited from TRILLIONS of dollars of bailout, POMO etc. and specifically target the policies of the central planners as the ultimate culprits of this wealth disparity and detail HOW they got rich by putting their buckets in the way of the "stimulus" to catch as much as they could.... 


(I was dreaming, the goal is to produce a scapegoat, not to solve any problems)

Hephasteus's picture

Fractionally reserved cannon fodder. Bankers they they are hooked on the scam. They do it over and over and over till you puke all over them and disolve them like a fucking fly. Don't make me throw up bankers.

Now quick sign some athletes up for some huge contracts and make a big noise about it. Right you fuckers.

Executioner's picture


 Do you mean, Zbigniew Brzezinski ?

Executioner's picture

You're right its like a soup letter :)

flacon's picture

I like the name Executioner. 

adr's picture

instead of talking heads, replace with defecating asses. Now all the words spewed make sense.

fonestar's picture

Word to your mother of the otha brotha!  Wealth is measured in oz.  Chumps are measured by their stacks of FRN.

slewie the pi-rat's picture

good luck avoiding that recession!

achmachat's picture

you should really stop putting money (gold and silver) in the same category as commodities.

Hephasteus's picture

Copper lead and sulfates are  a commodity side affect of gold and silver mining. As banks try to make thier paper belieavalbe they cause a huge glut in those commodity markets. Silver they just let get rediculously short supplied and then glut rediculously short supplied then glut.  Gold is pure money. Silver is 10 percent commodity 90 percent money.

TheSilverJournal's picture

Silver's going to min. $1,000 / oz. in real my vote is with the bulls.

Hearst's picture

History shows that Silver has made many people fortunes and supported many empires.

"The richest silver deposit in American history was discovered in 1857 in Nevada. Two brothers, Evan and Hosea Grosh, found the deposit, but died before they were able to record their claims. Henry Comstock, a sheepherder and prospector, who cared for the brothers' cabin, unsuccessfully tried to find gold on the land, sold his claims within months, and died a poor man. But the silver lode came to bear his name.

 One of the earliest discovers of the Comstock Lode's silver riches was George Hearst, who later found more mineral wealth in the mountains of Utah and South Dakota and finally the Anaconda copper deposits in Montana. His son, William Randolph Hearst would become the nation's most powerful publishing baron. Beginning with The San Francisco Examiner, which his father gave him in 1887, when William was 24, he would develop the nation's first media empire, including newspapers in most major cities and a string of magazines."

Silverhog's picture

Interesting, nobody willing to go to the bottom of the ocean to retrieve old fiat. But a ship laden with Silver is all over the news. If they found 10 ounces of Silver in the Andrea Doria's safe it would have been a hit on TV. Instead they found a hand full of rotten water logged Italian Lira. Stick with 5000+ years of monetary history. 

Libertarians for Prosperity's picture



Silver's going to min. $1,000 / oz. in real my vote is with the bulls.

My personal price target for silver is $12,000/oz, maybe $100,000/oz if the "Cartel" looses control. 

Very fluid situation right now.  Lots of wild cards. 



TheSilverJournal's picture

$100,000 / oz. in real terms seems a bit high. LIkely, up to 2 billion -3 billion will per yr. will be able to be mined the first couple years and that number will continue to grow until the right above ground supply is available. If 2 billion could be mined that first year after price explosion and silver is valued at $100,000 / oz., that would make one years worth of mined silver $200,00 trillion. If by some bizarro fashion it actually got that high, it would be for a very short period of time. But who knows, fiat has made it to this point so that shows how whacked out things can get. In the end, though, it all leads back to equilibrium. People did spend a ridiculous amount on tulip bulbs at one time too.

LawsofPhysics's picture

Depends on whether or not people want keep eating.

cossack55's picture

Methinks the author misses the whole point of commodities, at least for real-world, non-paper delineated reality.  Odd name "katusa". Used to be a descriptor with negative conotations in Korea 40 years ago. 

kengland's picture

"Certainly, the fundamentals of the copper market remain very tight. Based on current demand predictions, the International Copper Study Group expects to see a deficit of 250,000 tonnes in the global refined copper market in 2012,"


How can this dipsheet reference "fundamentals" in this phony arse system? How can he weed through all of this fiscal and monetary bullsheet and come up with fundamentals?


Sad thing is, there will be thousands who will follow this turd down the toilet.


topcallingtroll's picture

Ben cant QE until people are begging for it.
I am thinking commodities might have a little bit further to fall but some positive growth surprises ought to keep it falling much further.

agent default's picture

When panic sets in all investors want to go to cash, and all central bankers want to go to their printing presses.

Turd Ferguson's picture

"The price of silver shed a whopping 33% in 30 days, while gold is currently down 15% compared to its price on September 6."

The author writes this as if this move in the metals was nothing but a natural correction in price when, in fact, it was a direct and coordinated beatdown, manufactured to give The Cartel room to continue covering their massive short positions without driving gold through $2000 and silver through $50. 

Grimbert's picture

And both metals are massively higher than this time last year.

printmemoney's picture

Mr. Ferguson.....I must say I have been very impressed with gold and silver's ability to hold their lines at 1650 and 30 against these relentless between market attacks. We still may be looking at another kick in the teeth, but the physical buyers will come in in droves. You run a terrific site.

Libertarians for Prosperity's picture



Personally, I think Turd's site caters to the absolute dumbest investors in the market. 

The predictions are worse than dart throws and the conversations are utterly nonsensical.



printmemoney's picture

Sounds like you check it out quite a bit.......maybe if you are "looking to do the opposite of the turd herd" you should sell your physical metals (that you don't have) and go long bank of america

akak's picture

Personally, I think Turd's site caters to the absolute dumbest investors in the market. 

The predictions are worse than dart throws and the conversations are utterly nonsensical.

If you truly believe all that, then why do you continue to read (and most probably, troll) his blogsite?

Personally, I think that trolls who actively and continually spread misinformation, disinformation and dissension to disrupt anti-establishment online forums (while constantly changing their handles to pretend that they are new members and not the same, repeatedly discredited troll) are the absolute dumbest and most worthless pieces of human waste in the world.

jomama's picture

i must have missed that link to your blog...?

Libertarians for Prosperity's picture





Ahh, yes...  "The Cartel".... that phantom, illusory nemesis of the doomer goons. 

Like religious fanatics who resort to stories about devils, spirits, gods and virgins when they don't understand the world around them, doomer goons do the same when the price of silver and gold bounce around. It's the Cartel's fault!  

Didn't you ever watch Scooby Doo as a child, Turd?  It's a metaphor for life.  At the end of every episode, when the "Mystery Gang" finally solves their puzzle, the villain or "ghost" was always a real person: the neighbor, the butcher, the teacher, etc.  It was never anything illusory or metaphysical or surreal like ghosts, goblins or evil spirits.  There was always a real answer to all the unknowns, whether you know the answer or not. 

When you continually explain all price movements as the handiwork of some phantom "Cartel", you're really no different than narrow-minded creationists or the "Mystery Gang."  Everything from margin hikes to SIFO rates to the mechanics of ETF's have actual, real explanations to those who truly understand (or have a real curiosity to understand) how the market works. 

Everything else is just carnival barking or good fodder for cartoons -especially cartoons involving talking dogs and farting bears.

Your insistence in blaming everything on some evil phantom Cartel is really quite sophomoric. 

Crash JP Morgue, buy Silver



JustObserving's picture

The Fed does intervene in the gold markets:

"That day the U.S. announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake."

Paul Volcker, Nikkei Weekly 2004

printmemoney's picture

your post is that of a freshman............who do you think initiates margin hikes?  no, you're right the margin hikes in silver early in the year happen all the time, especially in ES positions



buyingsterling's picture


Exactly. You don't know what you're talking about. Un-backed currency is the must lucrative scam in history, and those benefiting the most from it will do anything in their power to keep it going.

Libertarians for Prosperity's picture



Can you tell me more about this "unbacked currency?"  That sounds suspicious.


buyingsterling's picture

Go spend some time at or

AustriAnnie's picture

"Can you tell me more about this "unbacked currency?"  That sounds suspicious."

Which one?  The one we have now, or the ones that came before:

Chaffinch's picture

I think your post demonstrates a good understanding of Scooby Doo, but I think you need to study the gold and silver markets a bit more carefully Libby.

cbaba's picture

Have you ever heard Andrew Maguire ?,

Who has over 40 years of experience as a metals trader,

he is the whistleblower for the silver and gold price manipulation.

Any bells ringing ?

do you think he is also a phantom or a ghost ?