By Bruce Zaro

With the recent pullback in gold, there has been much debate among investment pros whether commodities in general are in a bubble and, if so, whether they're about to go the way of the Cabbage Patch Doll.

The growing consensus is that the Federal Reserve will now concentrate on defending the US dollar (with “defending” being a relative term here, I realize), and that it will signal it is going to at least pause its easing campaign after this week's meeting.

The charts of well known commodity indices are showing nothing more than a pull back from recent extended highs - with the exception of gold, which this week broke its bullish support line and may, therefore, be in for at least an extended correction.

First let's look at Point and Figure charts of two broad commodity-based indices:

Reuters Jefferies CRB Index:



An unweighted average of a broad base group of commodities, "The Old "CRB" is showing little more than a simple pullback from the recent 422 high -- so far. This could break a bottom at 412 and even trade down to the 400 level and still be considered a normal pull back. Trouble would start in the 378 - 380 area, which would result in multiple downside breaks. Even in that instance, such breaks would be occurring at already-oversold levels (if it occurred soon), so at the moment there seems to be little cause for alarm.

S&P GSCI Index:



The Goldman Sachs commodity Index shown above is weighted heavily toward crude. Given oil's recent strength, it's not terribing surprising that we're merely seeing a normal pullback here, as well (latest column of Os)-- this one isn't even flirting yet with breaking even one double bottom.  Bull market corrective action suggests it could trade down as low as the mid-point on its trading band (680), but the bullish support line lies well below that level (656) so it seems silly at this point to declare commodities dead.

Gold



(charts above courtesy of DWA)

Suffering the most in recent weeks has been gold.  The precious metal logged a triple bottom break recently at 904 and, more importantly, followed that up with a support line violation at 896. Thus, the bearish price objective now points to the 850 area and the January lows.  The good news for gold bulls: that level isn't far below today's prices.  The bad news: enough technical damage has been done that it may take a good amount of time for the metal to set up for its next advance if it is going to do so.

Of course, all the charts above bear watching within the context of this week's Fed meeting and statement-- never a dull moment!

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