Behold the Commodities Bounce

After a long downtrend in the commodities market, a big bounce is underway.

Recall that in last week’s Making Money Alert, I wrote about the gains in gold and gold mining stocks. Those gains really have ramped up since that mention, but it’s not just the precious metals’ segment that has been enjoying a bounce of late.

The entire commodities sector has been on a tear. One look at the chart of the GreenHaven Continuous Commodities Index Fund (GCC) shows the big rebound in the space off of the multi-year lows we witnessed in January.

As you can see, commodity prices have spiked significantly during the past month, with GCC up nearly 7%. The latest resurgence in the space now has GCC back above its 50- and 200-day moving averages.

So, why are commodities doing so well here?

While there’s no single reason for the boost in commodities, there are various factors that likely are responsible for the 2014 rebound. First, the commodities segment got way too oversold last year, and now there’s a reversion to the mean where buyers are coming in as a value play. Then there’s the recent decline in the value of the U.S. dollar. A weakened dollar is bullish for commodities.

Other key reasons for the recent boost in commodity prices are growing sentiment that the global economic picture is starting to improve materially, and that situation could mean increased demand for all sorts of commodities. Finally, there’s a combination of fear over both a return in inflation that could further reflate commodity prices, as well as a fear-induced bid in the market in response to the equity market sell-off to start the year.

I suspect commodity prices — especially gold and gold mining stocks — will continue to rise in the weeks and months to come. This trend is one that subscribers to my Successful Investing newsletter already are tapping and, I suspect, will continue to ride higher in the coming weeks.

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