Michael Campbell: David Bensimon declared we were in a commodity driven, prosperity driven boom, and to adjust yourself accordingly. Then coming out of the big disruption of 2008, in the last quarter of 2008 and early 2009 Bensimon said “don’t worry the Commodity Bull Market is going to reassert itself in a magnificent way”. Obviously there was major money to be made following that advice.

Now we have seen real weakness across the board in commodities,  what do you see now? Specifically is the commodity bull market over?

Whole interview begins at the 19:17 minute mark. Basic predictions transcribed below {mp3}mtmay26{/mp3}

Bensimon: The quick answer is certainly not. The commodity bull market is really a multi-decade really long term cycle. Of course in the course of any large scale long term movement there are going to be swings within that trend that go in both directions. What we are in right now is a corrective movement in a larger uptrend.

As far as some technicals and fundamentals. I am looking out the window here in town in  China and I am seeing building after building of unfinished projects that have clearly halted. So the facts on the ground are that there is a visible slowdown here in China in the construction industry which is a major part of China’s economic growth, in Europe you have a real crisis on the debt side, and these kind of forces is what is driving a pullback in commodity prices.

On specific commodities:

1. Copper

I mentioned 6 weeks ago in my quarterly report that copper is vulnerable to a 25% drop. That sounds like a big drop but in the context of markets that move in the  100’s of percentages going up 25% going down is not that large on a relative basis. The expectation was a drop from $4 back to $3 driven by the fundamentals of a slowing China and technical elements supporting a retest of that low at $3. The market in fact fell quickly to $3:50 and is now hovering around $3:40 and there is really no change to my expectation that we are in the middle of this downswing and we should reach another 10-15% to that $3:00 area, probably in mid-July.

2. Oil

My view back in the April report about Oil which is an even larger industrial commodity, that it would very precisely drop 14-15% from $103 to $89, which the first downleg of a slightly larger movement. It would be driven by the fundamentals of a removal of the risk premium of Iran, my expectation being that the Iranian problems would ameliorate and not explode as was being expected at that time. Also the technical elements were favoring a retreat, and as it turned out the Oil market did drop exactly that %15 from $103 to the low of $90 so far. My view here is that on a short term basis we could see a little bit of consolidation, but the general movement has not completed and I would be looking for a continuation to the low $80’s by around the middle of July as well.

3. Gold:

There is a very interesting situation here. In our last discussion back in January, my expectation was for a decline to a particular timing window in April. I think it is important to always highlight that price targets and time targets are always predicated on certain other technical elements that need to be invoked or triggered to confirm those particular price or time windows. In the case of Gold, the view that the market would decline to a window of opportunity in April was predicated on the market breaking through a major channel that had been guiding the market since 2008, and the last touch of that channel occurred in December 2011 just a month before we spoke. The expectation was that if that channel gave way we could fall to an important low in April. As it turned out the market did not break that channel, as the low from December held initially and the market pushed up inside that channel. But the larger fundamental forces that were evolving in the world around that time did assert themselves and pulled the market for Gold, as with all other assets, back down to that base of the channel which by then had crawled up the the $1,600 level. What happened then was that the market did break decisively through that channel at $1,600 and plunged very quickly once that trigger had been invoked. It fell to the next natural level of support which was the double bottom at $1.520 and that’s exactly where the market halted.

Its a very natural expectation that once you reach that historical support that you’ll get a reactive bounce and that is what we have seen in the last week or so with the Gold market bouncing to the high $1,500’s. This territory that we are in right now, conceivably could push as far as $1,620 without voiding the structure of the downtrend that we are in. But the very serious implication of having broken that major several year uptrend, notwithstanding whether it hits $1,620 or not, the market is going to continue now down to the next lower support below $1,520. The next lower support has two price levels, the $1,400 and $1,300 levels that I mentioned back in January. Those pricing levels are very much in play and the two timing windows are very particular dates in July and August. Any one of those combinations could be the one that materializes.

But the larger structure of the Commodity Bull Case is very much intact and if we do get that low of $1,400/$1,300 at the end of the summer that would be a beautiful, a really very structurally strong entry point to acquire positions in Gold with a view to continuing this long term bull trend that will take us up to the long term objective I’ve had for more than a decade of reaching $2,600 in 2014.

David Bensimon correctly called dramatic market movements throughout 1998-2012. David runs Polar Pacific which you can reach HERE