Looking at a long-term commodity index chart is the best way to quickly see how commodity prices have moved lower and higher throughout the last several decades. A commodity chart is a good place to begin research on the commodities markets. The CRB Index, originally known as the Commodity Research Bureau, began in 1952 and has been the most popular commodity index. It has had a few different sponsor names in its history, with the most recent being Barshart's cmdty BLS Commodity Price Index.
The index currently consists of the following 22 commodities: Burlap, Butter, Cocoa Beans, Copper Scrap, Cotton, Cottonseed Oil, Corn, Hogs, Hides, Lard, Lead Scrap, Print Cloth, Rosin, Rubber, Steel Scrap, Steers, Sugar, Tallow, Tin, Wheat, Wool Tops, and Zinc.
Commodities tend to move in long-term cycles lasting about 18 years on average. There was a bull market in the 1970s for commodities that lasted until the early 1980s. Many people will remember this as the time when gold prices hit a monstrous $850 an ounce and the Hunt Brothers drove silver to $50 an ounce.
Other Tools for Long-Term Research
While each commodity has idiosyncratic characteristics, raw material prices tend to move together as an asset class. That is why it is always a good idea to look at commodity index charts to identify trends. Before investing in or trading any specific commodities, always make sure that the overall trend of commodity prices supports a long or short position. The more homework you do, the better your chances of a successful result.
The CRB is the most popular commodity index, but there are others that reflect specific sectors within the asset class. For example, the XLE or Energy Select Sector SPDR is a great index for monitoring bullish or bearish trends in the crude oil market.
There is a historical inverse relationship between the U.S. dollar and commodity prices. Therefore, if you look at a chart of the U.S. currency it often displays the exact opposite trend of commodity prices. That is because the dollar is the reserve currency of the world and the benchmark for most raw material prices. When the value of the dollar appreciates, commodities tend to move lower and vice versa. When analyzing commodity trends, the trend of the dollar can tell you a lot about the future path of commodity prices.
Higher Interest Rates Tend to Be Bearish and Lower Rates Tend to Be Bullish
Interest rates also play an important role in the path of least resistance for prices of commodities. Higher interest rates increase the cost of carrying inventories, so they tend to be a bearish factor. Lower interest rates do just the opposite and tend to be a bullish factor. When interest rates in Europe and Japan moved to negative territory in 2016, the prices of many commodities rebounded from multiyear lows. Monitoring interest rates is a good way to gauge the overall trend of commodity prices.
Another way to look for bullish or bearish signs in the commodities sector is to monitor the currencies of nations that depend on commodities for revenues. Currencies of commodity producing nations like Australia, Brazil, Canada, and Russia tend to move quickly with commodity prices.
Long-term index charts in commodities offer a quick pictorial of the current status of long-term trends, but the dollar, interest rates, and commodity currencies are often good metrics to watch when trying to establish an overall long-term trend in the asset class.
The latest bull market in commodities began in 1999 and peaked thus far in 2008 as many commodities hit record highs. Commodities became more common as an asset investment and many new commodity ETFs were created. This bull market is a bit different than the 1970s bull market that was reflective of a high inflation rate.
The current bull market was mainly fueled by increased demand from rapidly expanding economies in China, India, and South America. Further research and long-term commodity index charts can be found at cmdty by Barchart. They have more information on the calculation, history and charting of the commodity index.