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

Over the last couple of weeks, we’ve seen plenty of action, fortunately following right along with my forecasts. So let’s take a quick look at the charts.

This will be a bit of an abbreviated video today because it is a holiday, but I still want to show you the charts of the main markets.

Let’s start with gold. As you can see here on this chart of gold, gold has indeed slid quite sharply down to around the $1,526 level, testing the low from late December 2011, and it is finding some technical support there.

We should see a bounce, bringing it back up to say $1,600, $1,610. But I do believe, based on all of my indicators, that we will see a break below $1,500 down to around the $1,440 level in the coming weeks. So I remain bearish on gold.

Now let’s also take a look at silver. Silver has been following gold quite closely and is falling actually even sharper than gold, which is to be expected.

Silver’s finding some technical support in here, but I do expect silver to break through the $26.60, $27 support level and move lower still.

All of my indicators remain bearish in silver.

Let’s take a quick look at the U.S. Dollar Index as a proxy for the U.S. dollar. Indeed, in the last video update I did for you, I did indicate that I expected the dollar to break this resistance line here, mid-channel, and move above the 81, 82 level.

That’s precisely what happened. I wouldn’t be surprised to see a little pullback then a further rally up to 84. This is largely being driven by the meltdown in Europe and the European sovereign-debt crisis, which in the short term is bullish for the U.S. dollar.

Now let’s take a look at the Dow Industrials. We have begun to see a rather sharp sell-off here. However, we’re coming into some very important support levels in the Dow. More specifically around 12,250.

As long as that level holds, we should probably trade back up to the 12,900 level. And we’ll have to see what happens at that point. If 12,250 gives way on a closing basis, we could see further losses in the Dow — down to about 11,800 or maybe even 11,500. It’s a little too early to say.

Right now I want you to enjoy your holiday. We’ve got a lot of action-packed markets that will probably continue right after the holiday as they open tomorrow morning and heading into June. I see lots of volatility and lots of trading opportunities.

So stay tuned. This is Larry. Again, have a nice holiday today and a good week.

Larry Edelson has over 34 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Power Portfolio provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.

For more information on Real Wealth Report, click here.
For more information on Power Portfolio, click here.

Ed Note: Mike’s Guest Tomorrow is David Bensimon:

Mark Leibovit spells it out in a quick 6 minute comment below. In short, Mark went on a Sell Signal back on March 5th and continues to think Markets are in a normal Negative Seasonal pullback that has further to go. Mark thinks there is still time for the bears to bring the Stock Market, as measured by the S&P 500, down below the recent low of 1292 and if he were an investor he would remain in Cash waiting for a confirmed low sometime between now and July. 

As for agressive traders he would be biased to the short side.  

Click on either image or HERE for all the details:

Click on image or HERE for all the details:

While it might not look like it now, the most investable trend over the next 20 years is going to be in the resource sector, the renewable and non-renewable resources, the minerals, ores, fossil fuels and biomass a wealthier and growing global population is increasingly demanding from finite supplies and already strained production capabilities.

For example:

The metal content of copper ore has been falling since the mid 1990s. A miner now has to dig up an extra 50 percent of ore to get the same amount of copper. As grade drops the amount of rock that must be moved and processed per tonne of produced copper rises dramatically – all the while using more energy that costs several times more than it use to. With the lower grades of ores now being mined energy becomes more and more of a factor when considering economics.

The average grade of gold deposits has been dropping as well.

“We took the nice, simple, easy stuff first from Australia, we took it from the U.S., we went to South America. Now we have to go to the more remote places.” Glencore CEO, Ivan Glasenberg in the Financial Times describing why his firm operates in the Congo and Zambia

Ed Note: Richard Mills entire argument & charts to support the conclusion posted below can be read in its entirety HERE 

Conclusion – Junior’s, An Argument for a Contrarian Investment

Our reality – we’re living on a relatively small planet with a finite amount of reserves and a growing human population.

The world’s major miners are making immense profits but they are having an extremely difficult time replacing reserves let alone growing them. Mining is the story of depleting assets, that asset must be constantly replenished, miners that want to stay in business must replace every pound, oz and gram taken out of the ground.

Juniors, not majors, own the worlds future mines and juniors are the ones most adept at finding these future mines – majors do not make discoveries, juniors do, that’s their function in the resource food chain. Junior resource companies already own, and find more of, what the world’s larger mining companies need to replace reserves and grow their asset base.

Junior resource companies – the same ones who today are so oversold and undervalued – are the present owners of the world’s future commodities supply and, most important for investors seeking outsized returns, they act like leveraged exposure (with price gains many times that of the underlying commodity) to the specific commodity(s) investors want exposure to.

Are there a few junior resource companies, with exceptional management teams operating in politically safe jurisdictions, on your radar screen?

If not, maybe there should be.

Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

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