When it comes to commodities, there are two factors that dictate prices. The first factor is the underlying demand for the
commodity, which can exceed or lag relative supply. The second factor is the technical picture, which is in focus for global investment-bank desks, which simply respond to the direction of a price of a commodity while paying little attention to the fundamental forces in place.
Right now, it's the latter factor ruling the markets. Many commodities are being dragged down by technical factors as losing sessions beget more losing sessions. As a result, silver, platinum and copper have all been sucked down, each trading more than one standard deviation below their 50-day moving average. On a technical basis, this "oversold" condition usually is a considered a "buy" signal. Come to think of it, the fundamental picture also means it's also time to buy. Let's take a closer look...
These three metals sold off sharply in recent months on fears that the global economy -- led by a sputtering U.S. economy -- was headed for a slowdown that would crimp demand for these commodities, which have a range of industrial applications. Yet as we've seen in recent weeks, the potential systemic shock that some were anticipating in July and August is now less likely to happen: Recent U.S. economic data have been decent enough to likely deter a recession; Europe is belatedly tackling the Greek debt crisis, and the rest of the world is cooling to a more moderate but still-respectable rate of growth.
This means demand for these commodities is unlikely to slump sharply from current levels, and pricing should rebuild at least part of the way back. This isn't a call for a boom in the commodities sector, but a solid opportunity for a rebound snapback. If that's the case, then what's the best way to play for each metal?
Silver
Mining firm Couer D' Alene (NYSE: CDE) is always a solid play on silver when the metal is in an oversold state. I made a pair of suggested trades on this stock earlier this year. Back in January, I thought it looked undervalued at $22.