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2021 – The year of BitCorn and Bitcoin?

 In Newsletter

Issue 147

Assets Covered: USD, Copper Futures (HG1), Copper (LME), Corn Futures (C1), Brent Crude Oil Futures (B10), WTI Crude Futures

 

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What a year! 2021 is off to a rip-roaring start. Year to date (YTD), we’ve seen some dramatic price action – just in the first two weeks of January:

 

  • The Dow Jones Commodity Index is up 5.3%
  • Brent Crude has risen 8.9%
  • Copper has gained 3.7%
  • Corn surged 8.1%
  • Bitcoin is up 23% (at its high of $41,515 on Jan 8, BTC was up 42%!)

 

At the same time, equity indices are pretty flat, with the S&P500 rising 1% and Germany’s Dax falling slightly. 2020 was a pretty stellar year for equities – now 2021 may seem to be the year for commodities. (For the record, we view Bitcoin as an asset, not a currency, which is why we include it in this commodity price analysis.)

 

Why is this happening? Some believe we’re seeing a cyclical turn toward an inflationary environment that would push up commodity asset prices. That’s certainly what some investment banking analysts think. A Goldman Sachs analyst has even claimed his clients are referring to corn’s rapid rise as “BitCorn”.

 

But we’re just not seeing the case for sustained inflation. The incoming Biden administration initially promised $2,000 stimulus checks to every American, but that’s been reduced by 30% this past week to $1,400.

 

So where are we headed? As silly as this sounds (given the excitement over cryptocurrencies) it all starts with the US Dollar.

 

We expect to see a return of the Dollar to moderate medium-term levels, as shown below. There is not, however, an expectation that we hit the levels of Q2 2020. In any case, financial markets are so delicate at the moment that we expect a moderate return of Dollar strength to have a significant impact on commodity prices.

 

CHRIS/ICE USD Index Futures (DX1)
CI Futures generated this chart. Book a demo to see it live in action.

 

Copper, of course, is the first stop to understand broader market implications. Given copper’s rally of late, it seems unstoppable. But we expect a ~20% fall in the copper price over the next couple of months. Yes, this is a dramatic call, but copper has been a rocket ship since Q4 2020, so we expect a notable level of moderation here.

 

COMEX Copper Futures (HG1)/Copper (LME)
CI Futures generated this chart. Book a demo to see it live in action.

 

 

On the ag side, we’re looking at Corn. We’re not expecting corn to fall below the levels of Q2 or Q3 2020, but we have seen corn rise nearly 40% since May. It’s been a great ride, but we’re afraid that it may be coming to an end.

 

CBOT Corn Futures (C1)
CI Futures generated this chart. Book a demo to see it live in action.

 

 

Finally, we come to crude oil. Both Brent and WTI have seen healthy rises since May. We predicted a January peak back in our August newsletter and reiterated it in November. For months, we’ve expected a pullback for several reasons, expecting moderate strength to return in Q3.

ICE Brent Crude Oil Futures (B10)/NYMEX WTI Crude Futures (CL1)
CI Futures generated this chart. Book a demo to see it live in action.

 

Q1 could be a pivotal time for markets.

 

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China freight, gamestops