Commodities Prices Ready to Soar on GSCI Breakout (Chart)

Goldman Sachs Commodity Index, Weekly Bar.

I decided to use the weekly chart so you can get a better long term perspective.



The daily GSCI chart broke out to the upside on a close over 380. The weekly chart is now breaking out with a close over 400. Next upside target is 460. This might not seem like much, but it is 15 percent. The GSCI is currently over bought so there could be some chopping around before we head sharply higher.

I have been posting the charts on money supply, the FED balance sheet, and reserves for months. They all look like a gushing oil well. I wrote some time ago that it usually takes 12-18 months for these effects to bring inflation. We are now inside those windows.

I am also following long term interest rates. The Fed was in buying size and this caused a short term back up in prices. This will be a short term phenomena. A real battle is brewing between the FED and the bond vigilantes. The FED has used about 30 percent of their announced bullets already.

Expect commodity prices to trend higher over the next several years.

A good look at the GSCI chart shows a 2008 high near 900 on the upside. Since the GSCI is heavily weighted in oil, it is likely that a long list of commodities will make new highs before oil.

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Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

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According to Bob Pisani's blog, "Goldman Sachs: A Sigh Of Relief On Street" what company did Credit Suisse criticize?

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Question: According to Bob Pisani's blog, "Goldman Sachs: A Sigh Of Relief On Street" what company did Credit Suisse criticize?

Answer: Potash

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Goldman Sachs: A Sigh Of Relief On Street

Posted By: Bob Pisani | Reporter

The CPI number, which posted a decline of 1.7 percent on the headline number and core at 0 percent, both below expectations, was not great but bear in mind much of this is due to the decline in commodities. This decline has likely run its course, so we may see much more moderation in the decline in CPI and PPI. Also bear in mind the dollar has been weaker recently, which will put more upward pressure on commodities.

Elsewhere:

1) You could hear a sigh of relief on the Street as Goldman reported a loss of $2.12 billion, or a loss of $4.97 per share.

This is pretty terrible, but it was about in line with expectations: many analysts had already expected a loss of close to $5.00 (consensus was a loss of $3.73), so anything in the ballpark was good news.

As expected, Goldman reported significantly losses in Principal Investments (including $961 million from losses in commercial real estate), and a $631 million loss due to the decline in value of their investment in International and Commercial Bank of China. There was also a loss of $3.41 billion in Fixed Income due to losses on leveraged loans and residential mortgages.

Goldman trading up about 3 percent pre-open.

2) The Fed will cut rates today, the question is whether it will make a difference. ECB Pres Trichet late yesterday said "Do we have a feeling there is a limit to the decrease in rates? At this stage certainly yes."

3) Gee, who will sign the paychecks? Best Buy trading up 9 percent after offering a separation package to nearly all corporate employees, and reporting earnings a bit ahead of expectations ($0.35 vs. $0.24 consensus). They are reducing capital expenditures by 50 percent next year.

4) Fertilizer stocks trading up as Merrill Lynch upgraded Potash , Mosaic , and Agrium though Credit Suisse lowered estimates for Potash, noting weaker demand and prices.

5) Automotive parts supplier Johnson Controls has withdrawn its 2009 guidance; no surprise given the uncertainty in the automotive sector. More surprising is their estimate of 2009 auto sales: 9.3 million units, probably one of the lowest estimates on the Street.

6) Yesterday's volume and price action was about the quietest since Labor Day. In fact, the volatility has been notably lower for the past week and a half. The S&P 500 is down about 40 points since hitting its recent closing high on December 8th, but the decline has not been intense; there has not been particularly strong buying or selling pressure in the past week and a half.

This has been part of a trend: December has seen a smaller range of price swings than November, and November smaller than October.

Auto Bailout Anger: Everyone Should Just Chill Out
There is no guarantee this will continue. In particular, there has been concerns that we will see a new round of redemption requests after January 1 in light of the Madoff scandal. But for the moment, market participants (other than those who trade volatility) are happy with the more stable markets.

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