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Commodity charts give you an indication of the direction of commodity pricing. Due to the nature of the commodity business, the major cycles can be quite long. This is a result of the time it takes to find and evaluate the resource, clear all of the regulatory hurdles and build the producing facility. In many cases bringing a new mine on stream can take over 10 years.
When base metal prices are low, few companies can raise money to explore for minerals. Under these conditions, many of the existing mines shut down because it costs more to produce the base metal than it can be sold for. As the supply of material slowly decreases, the base metal price starts to increase. Commodity charts are an ideal way to spot a change in the trend of a number of commodities.
Shown below are one year commodity charts of copper, nickel, aluminum and zinc. If you review these charts on a monthly or quarterly basis you should be better prepared to trade stocks that are related to these metals.
Using the information in commodity charts to trade base metal mining stocks should give you added confidence in your investing decisions. The price of a commodity will affect the fundamentals of the company buying or selling that commodity. If there is a change in these fundamentals there is a reasonable chance that the stock price of that company will be affected.
Also, remember that one of the main uses for copper is electrical wire and when the economy is improving the need for copper increases as the economy is highly dependent on electricity. You can use the price of copper to gauge the health of the economy.
If you know how to read stock charts, then you will have a reasonable understanding of commodity charts.
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