How To Spot The Commodities Recovery First

Commodities prices have essentially crashed.

The Thomson Reuters/CoreCommodities CRB Commodity Index peaked near 365 in 2011. Today it sits at just 189, a brutal loss of more than 48%. Gold, silver, oil, natural gas, uranium, coal, iron ore, and copper are all at or near multiyear lows.

It’s been devastating for companies producing them and countries dependent on exporting them.

But by definition, commodity production is a cyclical business, and what goes down simply must come up.

In fact, there’s so much upside potential at the other end of this sector-wide slump that my eyes have been glued to some important indicators – including some that few others are looking at.

When a bottom and recovery develops, it will appear here first. That will give us the earliest opportunity to capture gains on the way up.

I really like what I see right now. Let me show you…

Commodities Recovery Indicator No. 1: When the Big Buyers Are Buying

One significant indicator is the JPMorgan Global Purchasing Manager’s Index (PMI).

Fund managers U.S. Global Investors Inc. (Nasdaq: GROW) track the global PMI carefully because it has historically anticipated the direction of commodities months in advance.

According to U.S. Global Investors, “when a PMI ‘cross-above’ occurs – that is, when the monthly reading crosses above the three-month moving average – it has signaled a possible spike in certain commodities, materials, and energy. Three months following previous breakouts, copper had an 81% probability of rising approximately 7%, while crude oil jumped 7% about three quarters of the time.”

That’s powerful stuff. And here’s how it looks on a chart.

What’s more, U.S. Global says commodities gain sufficient momentum to surge ahead when U.S., Europe, China, and global PMI readings all print above 50.0, “with the one-month readings above the three-month trends.”