Written by HardAssetsInvestor.com

The commodities underwent a broad correction in mid-March. After that, many commentators were ready to declare the commodities bull market over. But since then, most of those types of assets have rebounded.

The exception has been gold and other precious metals. To size up the state of the market in commodities, HardAssetsInvestors talked to Bruce Zaro, a market strategist at Delta Global Advisors. The Huntington Beach, Calif.-based investment advisor focuses on international market equities and commodities for its institutional clients.

HardAssetsInvestor.com (HAI): Do you see the latest rebound in commodity prices as affirmation that the bull market is still strong?

Bruce Zaro (Zaro): Yes, the bull market is still intact. Even if the U.S. dollar rallies for awhile, I'd still expect most commodities to hold up well. The exception is gold, which trades primarily as a dollar substitute. But the rest of the commodities spectrum has a very powerful demand-side aspect. The growing emerging markets such as China, India and Latin America have such a huge appetite for energy and copper and other raw materials that prices are still going to keep rising.

HAI: What looks like the best investment in that universe right now?

Zaro: The big draws are ETFs such as Market Vectors Global Agribusiness (AMEX: MOO) and streetTRACKS Gold Shares (NYSE: GLD). A lot of people are asking about agriculture and gold as ways to take part in the long-term bull market for commodities. But there's a really interesting timber ETF out there we're telling our clients to take a close look at now. That's the Claymore/Clear Global Timber Index (AMEX: CUT). Like other commodities, timber offers low correlations to other asset classes. It also has a supply-and-demand imbalance which is being driven by spiraling demand in emerging markets.

HAI: Are you avoiding gold then?

Zaro: People should still own gold. But we're neutral in the short term. We're suggesting investors slowly accumulate it and not jump into the market full throttle right now. Over time, we remain bullish on its prospects. Our main holding in that area among exchange-traded funds remains GLD. It represents the actual metal itself and not a bunch of gold stocks, as you would be invested in other indexes.

HAI: Anything else you're investing in for clients at this time?

Zaro: Yes, we're also very interested in the Market Vectors Steel ETF (AMEX: SLX). The global demand in steel is likely to continue. Steel producers have strong pricing power. For some time, there has been concern about shortages of steel. In that environment, that puts a lot of power in the hands of the producers. Earnings for big names such as U.S. Steel (NYSE: USX) and the big Indian steel maker Mittal (NYSE: MT) have been going through the roof. We don't see any slowing in that sector. For a short period, steel could certainly pull back in sympathy with any sustained commodities correction. But we also feel that steel has the momentum both fundamentally and technically to buck that trend in the longer term.

HAI: Do you have any caveats about investing in commodities at this time?

Zaro: Investors really need to remind themselves that commodities have a long history of running way up and then undergoing sharp corrections. Even though most experts believe that demand-supply characteristics of commodities as a group remain positive over the longer term, that boom-bust profile won't go away anytime soon.

HAI: What are the technical signals showing in terms of commodities pricing cycles?

Zaro: We keep a database of the overbought/oversold conditions of commodity ETFs for our clients. Right now, it shows the average commodity ETF is 104% overbought. For example, the iPath S&P GSCI Crude Oil Total Return ETN (NYSE: OIL). Its average price over the last 30 trading days has been $61 per share. Currently, it's at $71, making it 100% overbought from where you'd expect it to be.

HAI: That's a fairly short-term view, though, isn't it?

Zaro: No question, yes. Granted we're talking about 30 days, which is a very, very small picture. But what those types of overbought/oversold figures indicate are conditions taking place in the market right now. So by that standard, you wouldn't want to jump into commodities until there's a bit of a pullback. We'd be looking for close to a zero percent overbought. The market could go negative on that score as well. In recent corrections, commodities - with more volatility than the average stock - got as much as 200% overbought before they fell meaningfully. In this cycle, the odds are that commodities will bump up a bit more before they pull back. We wouldn't be surprised to see commodities ETFs get to the 150% overbought range before correcting in a meaningful way.

HAI: What about longer-term technical indicators?

Zaro: The longer-term indicator we follow is the bullish support line. That is just an imaginary trend line that keeps a sector heading higher. The backdrop on this is that many of these support lines for commodities have been in place for several years. So when there's a change, we tend to notice it and switch around our holdings very quickly. Most of the ETFs we follow are still comfortably above their support lines.

HAI: Are there any exceptions?

Zaro: Yes, the streetTRACKS Gold Shares (NYSE: GLD). On April 23, the price on bullion violated its bullish support line by falling to $900 per ounce. We have stopped initiating new positions in the ETF with that break. But we're not selling. We'll probably wait for a little bit of a bounce up in price to lighten up on those positions. When gold sold off in May-June of 2006, it took 16 months for it to recapture its previous highs. With that as a possible scenario, we're going to be patient on GLD here.