Why Commodities are Rebounding in 2014

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.
[Gold bars]

After a long downtrend in the commodities market, a big bounce is underway.

Recall that in last week’s Making Money Alert, I wrote about the gains in gold and gold mining stocks. Those gains really have ramped up since that mention, but it’s not just the precious metals’ segment that has been enjoying a bounce of late.

The entire commodities sector has been on a tear. One look at the chart of the GreenHaven Continuous Commodities Index Fund (GCC) shows the big rebound in the space off of the multi-year lows we witnessed in January.


As you can see, commodity prices have spiked significantly during the past month, with GCC up nearly 7%. The latest resurgence in the space now has GCC back above its 50- and 200-day moving averages.

So, why are commodities doing so well here?

While there’s no single reason for the boost in commodities, there are various factors that likely are responsible for the 2014 rebound. First, the commodities segment got way too oversold last year, and now there’s a reversion to the mean where buyers are coming in as a value play. Then there’s the recent decline in the value of the U.S. dollar. A weakened dollar is bullish for commodities.

Other key reasons for the recent boost in commodity prices are growing sentiment that the global economic picture is starting to improve materially, and that situation could mean increased demand for all sorts of commodities. Finally, there’s a combination of fear over both a return in inflation that could further reflate commodity prices, as well as a fear-induced bid in the market in response to the equity market sell-off to start the year.

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I suspect commodity prices — especially gold and gold mining stocks — will continue to rise in the weeks and months to come. This trend is one that subscribers to my Successful Investing newsletter already are tapping and, I suspect, will continue to ride higher in the coming weeks.

If you’d like to find out more about my Successful Investing advisory service, I invite you to check it out today.

Was that it for the Correction?

After a horrible start to 2014 that saw the S&P 500 sink about 5% through the first five weeks of the year, stocks in the broad measure of the domestic market have come roaring back.

The chart here of the S&P 500 shows the decline in January that took the index down below its 50-day moving average. The pullback took stocks all the way down to where they were back in October. But since falling to its early February low, the S&P has recaptured all of its lost mojo.


The index now is firmly above its 50-day moving average and appears to be heading back to new highs.

So, was that it for the correction? Is the wider sell-off that many thought was firmly in progress now just a bad memory?

The price action of late certainly suggests that things are “back to normal” in terms of being bullish. Of course, these days “normal” means stocks that are overhyped, overbought — and a market that’s overly bullish.

As always, the charts don’t lie. The recent surge in stocks toward new highs represents a renewed bullishness, so keep an eye on stocks here to see if, in fact, we breach that new high territory. If we do, then we definitely can say that was it for the correction.

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Wisdom from a Racing Legend

“In racing, I wanted to be a winner and to be a winner you have to be willing to roll the dice.”

–Bobby Rahal

The auto racing legend gives us advice that’s pertinent not just on the track, but to just about anything you do in life. If you want to be a winner, you simply have to tempt fate and take chances. Yes, you could lose, but you’ll never succeed unless you try.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week about how the dovish policies of Federal Reserve Chairman Janet Yellen and Congress are propelling stocks. I also encourage you to comment below.

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