Are Weak Commodity Prices Signaling Deflation Ahead?


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Watch: Don't Get Clipped by Outrageous ETF Bid/Ask Spreads The Commodities Barometer: Copper Just what the Doctor (Copper) Ordered

The above chart of copper sums up what is happening in the commodities markets, and it has us worried as it sets up a bearish technical pattern that shows a market that is rolling over.  The price support where buyers have stepped in numerous times in the past failed in April and the technical pattern that may be forming would be very bearish. 

Copper's recent pop in price thus far is just a normal reaction after such a large decline through previous support (see Gold's recent example here). 

How copper performs the next few weeks and months will be very telling as to the inflation versus deflation debate.

What Next?
Copper is not the only commodity down significantly since 2011.  Coffee (NYSEARCA:JO) prices have been crushed, down over 60%, cocoa (NYSEARCA:CHOC) prices are down 40%, and industrial metals (NYSEARCA:HEVY) as a whole (including copper) are down 30%.   Energy commodities also are down double digits as a group since 2008.

Precious metals (NYSEARCA:GLTR) and livestock are the only major commodity groups up in price since 2008, and their price gains are more than offset by the decline in agricultural, industrial metals, and energy related commodities.  Overall commodities are coming down in price, not going up, and that is signaling a risk of deflation, not inflation.

Luckily, we can stay ahead of the curve. 

Deflationary forces in commodities are saying that now is the time to protect your investment portfolio.  Even if the recent weakness in commodities is just a temporary setback, there are better protection alternatives than the bubble-like gold and silver. What are they?

The ETFProfit Strategy Newsletter follows copper and other commodities using technical,fundamental, and sentiment analysis along with common sense to see what isreally going on and find ways to capitalize in the stock, bond, forex, andcommodity markets.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , ETFs

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