Commodities: Hark the Safe Haven, Nevermore?

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Commodities: Hark the Safe Haven, Nevermore?
The supposed safe-haven premium of commodities has broken down. Why we're not surprised.

By Nico Isaac
Tue, 26 Jun 2012 12:00:00 ET

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They've been caught holding the bag one too many times. Their blind loyalty and faith have gone unrewarded for too long. And, as a June 21 CNBC news article writes, "The commodity bulls may have finally 'thrown in the towel.'"

These are the straws that broke the commodity bulls' back:

May 2012 saw the Reuters-Jefferies CRB index of 19 commodities suffer its worst monthly loss since the recession of 2008.
Since hitting 3-year high in April 2011, the CRB index has fallen 20% to its lowest level in 2 years.
And, on June 21, 2012, the CRB saw its biggest single-day drop for all of 2012.

The CNBC news article then adds: "[Economic] fundamentals have been deteriorating for some time; but now the eternal commodity bulls have thrown in the towel. In other words, the perception has changed."

More like their perception of commodities as a safe-haven from a "deteriorating economy" has changed. See, back in early 2011, the mainstream experts embraced hard assets as a surefire shelter from the Category 4 financial hurricane.

It helped their logic that back then, the pace-setter CRB Index stood at a 3-year high. These early 2011 news items capture the commodities-to-the-rescue mindset:

"I'm a big believer that the commodity bull market is here to stay. The world has changed and if you don't acknowledge that, you've been sleeping." (National Post)

AND -- "Given the unrest in the Middle East, increasing debt issues in the eurozone, and falling stock markets, commodities should continue to remain underpinned." (Associated Press)

Hindsight exposes the flaw in such thinking: From its April 2011 high, the CRB Index was yanked into the eye of the finanical storm right along with stocks, housing, emerging markets and everything else once nailed to the ground.

Foresight is another thing all together. That's where the January 2011 Elliott Wave Theorist comes in. There, chief Elliott Wave Theorist editor and EWI president Bob Prechter warned that 2011 would see many supposedly disparate markets fall together as one with these keen words:

"The year 2011 is setting up to be a down year across the board. The list includes...commodities...The current juncture in the stock and commodities markets is the flip side of early March 2009. Then, there was a completed Elliott wave structure (5 waves down), extreme bearishness among all types of investors... Now we have a completed countertrend Elliott wave structure (3 waves up), extreme bullishness... Stocks and commodities were oversold. Now, they are overbought."

"The [CRB] index should soon begin another wave down that takes it [significantly] lower."

Flash ahead. In the May 2012 Elliott Wave Theorist, Prechter presented the updated chart below that shows the fulfillment of his January 2011 "across the board" decline:

Check those dates again! The positive correlation between the CRB Index and the NYSE Composite isn't new; it's been going on since 2007!

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Tags: all the same market theory, Bob Prechter, commodities, CRB index, Elliott Wave Theorist, New York Stock Exchange (NYSE), Robert Prechter, precious metals, safe haven, silver

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