wavepicker
There is a key difference between a mineral commodity and an equity in terms of trend picking.
A company can hive off a loss maker, or inept management, and turn things around relatively quickly through its own measures.
Minerals producers sell into global markets and are reliant on demand trends and other suppliers that take risks similar to theirs, possibly on another continent.
The supply chain is long, slow, and relatively transparent: There are no "big" surprises. If we found another "Century" mine it would be many years before anything came onto the market.
There are many small-bit players that are trying to fill the gaps across the many booming metals that are in demand. They simply have no hope, but will likely profit handsomely.
Charts are not useful IMO at this juncture because the most likely situation we are at is that of "increased tightness" in zinc, not a move to balance and certainly not a trend to restocking.
Indeed, as the price of zinc has been increasing, consumers have been drawing down on their inventory in the hope that the tide of higher prices through LME (which is the industry price setter and has transparent warehouse data) would turn.
True to form, when zinc went into backwardation at a price that made delivering into spot a more desirable position than holding inventory, LME (in recent weeks) has began to receive inflows of metal on a more regular basis than anytime in the past year. This trend will continue, as backwardation offers a good price premium to those chancing their arm with any "spare" metal.
"Destocking" zinc is all good and well if you believe you can turn the market around. Note that the Chinese have achieved this through the intervention of the SRB in the global copper market. And the Chinese are presently trying the same for zinc except they do not have a strategic reserve to rely on - just some short term capacity to deliver some excess metal to spot.
It is my view that most of 2007 will be characterised by an underlying theme of zinc destocking, occasional metal inflows, outpaced by overall outflows.
This theme is supported by global trends that have been in place for some years, and the reasonable expectation that conservative growth scenarios pan out in 2007.
For the past 2 years the majority of lesser informed analysts have simply adopted a view that the market has "peaked" and has to fall next year.
It is a view based on the fact that all bull markets come to an end.
I agree that this bull market will unravel, too.
However, I presently see the weight of evidence pushing zinc to a much greater high in 2007.
In relation to the USD, good point.
Don't know the answer.
If one were to rely on "trends", then the USD has further to fall.
So will the trend of continuing higher commodity prices match the ongoing inverse relationship?
And if not, at what price point of the USD will the relationship end?