Commodities have been a crushing long trade, with the latest rout taking oil below $50 a barrel, gold on its longest losing streak in almost 20 years and the commodity currencies – the Canadian, Aussie and Kiwi dollars — to six-year lows.
They are not the only victims: Copper, iron ore, mining stocks and soft commodities have also fallen victim to a rollover that some brokers have called a “second wave meltdown”. The blame game is on with Chinese regulators searching for a bear raider manipulating gold markets, while others point the finger at the U.S. Federal Reserve for triggering a repeat of the taper tantrum as interest rates are poised to rise. Meanwhile emerging markets are regularly named as culprits, in particular China with its slowing growth.
The falls are so extreme that market watchers are forced to reach for long-term charts to provide context. The Australian dollar last traded below 74 US cents in 2009 and before that in 2006. Is this now a very low entry point or a value trap?
If the Aussie can ever reclaim 110 US cents notched up in 2011, then it would appear to be a tremendous buying opportunity, on the other hand if the low point of 60 US cents tested post crisis in 2008 is again possible or even worse the Aussie revisits levels below that witnessed in 2003, the currency could remain a soul-destroying trade. This is the conundrum facing those who might be tempted by a get rich quick trade on commodity plays.