Commodities are known for their volatility, as demonstrated by historical data. Take the mid-1970s rally, for example. In 1974, inflation reached nearly 9%, but by 1976, it had dropped to 2%. This decline in inflation was accompanied by a significant decrease in oil prices.
In 1974, for example, sugar prices reached $.66 per pound, but by 1976, it had fallen to around $.08 cents per pound. This significant drop in sugar prices coincided with a decline in the Consumer Price Index (CPI), a common measure of inflation.
A similar pattern can be observed in recent times. In June 2022, CPI peaked at around 9%, but it has currently fallen to 3.6%. If history repeats itself, we could see a further decline in inflation until 2024.
However, it’s important to note that everything moves at a much faster pace nowadays, so it’s possible that history may only rhyme, not repeat exactly.
If that’s the case, inflation could be due for another increase, even if oil prices stabilize or decline. Looking back at the 1970s, it took four years from the inflation trough in 1976 for prices to peak again in 1980, reaching nearly 15%. Sugar prices also rebounded from $.08 per pound to around $.45 per pound by 1980.
Considering the shorter timeframes today, with 1.5 years of declining inflation, it’s possible that we might experience another 2-3 years of rising inflation.
Will Inflation Peak in 2024-2025?
While the idea of higher inflation might sound concerning, it also presents investment opportunities.
For example, we previously discussed the potential of gold miners as an investment. The VanEck Gold Miners ETF (NYSE:) recently cleared the 50-day moving average for the second time, indicating a confirmed recovery phase.
It’s worth noting that miners often lead the precious metals markets, and their upward movement can be a sign of increased inflation concerns.
There are three important technical indicators to consider:
1. Calendar Ranges: The ETF has held the July 6-month calendar range low, indicating a potential reversal.
However, there is still some distance to reach the July 6-month calendar range high.
2. Phases: The ETF has closed above the 50-day moving average twice, showing a slight improvement in its phase to a recovery stage.
Additionally, the momentum indicator shows some resistance at the 50-day moving average, indicating the need for more momentum.
3. Leadership: The ETF is now outperforming the , but it still needs to overcome the dotted Bollinger Band resistance for further improvement.
Keep an eye on the high reached on August 30th at 30.00.
ETF Summary
- (SPY) has support at 440 and resistance at 458
- (IWM) is pivotal at 185 with support at 180
- Dow (DIA) is pivotal at 347
- Nasdaq (QQQ) has support at 363, and a break above 375 would be favorable
- Regional banks (KRE) are pivotal at 44
- Semiconductors (SMH) are pivotal at 150
- Transportation (IYT) needs to reclaim 247 for a healthier outlook
- Biotechnology (IBB) has a compression range between 124-130
- Retail (XRT) is weak but volatile. A breakdown under 57, the 80-month moving average, would be significant.
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This post is for educational purposes only as trading carries risks.
