Hello. This is Ashraf Laidi and welcome to this edition of CantosCharts.

Today we're going to go deep, deep into the commodities world. We're going to take you to not only one, not two, not three, but we're going to take you to four charts.

So the Baltic Dry Index, is an an index of shipping costs of commodities that are dry. So basically everything except fuel, except energy and basically would be metals, copper, cement and everything that goes into the factors of production into raw materials.

So basically it could be seen, and I say it could be seen as a signal, or the leading indicator for subsequent demand for commodities.

However, we have to be careful here. We have to be careful because the cost of shipping costs, or an index of shipping costs, is not only a factor, it's not only a reflection of the demand for commodities, but also the availability of ships.

So basically, if you have 70 or 80 ships available then all of a sudden, some ships are stuck in the water or some of them are not able to come into shore right on time, that would also impact. That would be the supply reason for impacting the BDI, or the Baltic Dry Index.

But a lot of people have heard about this and a lot of people have strong opinions about it that it doesn't work, that it's not a good leading indicator and others do.

So without really touching on both ways, we're going to have to mention it because there are some relationships that the Baltic Dry Index has, as far as the leading indicator on other commodities, that are really worth looking at.

This is the Baltic Dry Index, a daily chart, the first chart and this one here, what we've done here we've overlaid gold (which is in yellow), copper and we've got crude oil, which is the WTI.

Basically, what this shows you here is that as we took this all the way back to 2007 and what is important, ladies and gentlemen, there is something going on here, is that the Baltic Dry Index has a tendency to reach a top or to peak approximately one month before a peak in copper and gold and oil.

So we would see a peak basically in the Baltic Dry Index and I said the tendency, so not all the time, around four weeks before these guys down here would reach a peak and then they would eventually come down.

So basically, in here, in this top right here, that happened in the third quarter of 2007. When you see this double top here, it actually did not. It did not happen one month before, but it actually happened around the same time as we had the top in gold and in copper.

But the very important one, which is the big record high, in summer 2008 when oil went to $147, when copper went to all time high, when China was buying everything in sight that is remotely related to oil and oil itself, here is what happened.

We all know that the EUR topped in July '08, oil topped in July '08, but the Baltic Dry Index, the first top here happened in June 2008. It happened in June 2008 and then it collapsed, but it started to fall. It actually peaked one month before these guys did and look, the proximity of gold, copper and oil (actually crude which is oil) and it did have a double top before it starts to come down.

But if you look at this, the top in here happened one month before and then we had the same thing. In June '09 there was no material leading signal. It happened around the same time.

But what is important ladies and gentlemen is in November 2009, if you remember, in November 2009... well actually if you remember gold reached a peak in December 2009 at $1,225 but a month before that, November 2009, the Baltic Dry Index reached the top here and it reached a top and it happened one month before the December '09 top in gold which is $1,225 and then later we had copper and we had crude they also reached their own peak and then they started to come down.

What happened here ladies and gentlemen is in March 2010 - actually it was around March 15th 2010 - that's where the last peak happened in the Baltic Dry Index. The Baltic Dry Index we had a peak around March 2010. Actually it was March 15th.

Four weeks later, April 16th, gold reached a top. Actually, it was that week, not exactly April 16th, but it was April 14th. Gold reached a top. It came down. Oil reached that top around $86 and change. And copper reached a top around April 8th or the 9th I believe at $7,000 per tonne. And April 16th was that famous Friday April 16th when the Securities and Exchange Commission in the United States came out with that ruling on Goldman Sachs and the markets came down. Even though markets came back to hit a new high, not an all time high but a new one year and a half high on Friday, 23rd, oil did not regain its highs. Gold did not regain those highs. Copper did not regain those $7,000 per tonne highs.

So could this signal still be effective? That's what we have to watch out.

Now we're not saying that this is the end of the commodities rally, but what we have to watch out for is that China is a big player. There is a lot of evidence that China's actual demand for copper could be related to stockpiling and not really integrating copper into the construction process.

There is something else. China just had a trade deficit for the first trade deficit in March, the first one since 2004 as a result of skyrocketing imports. Could it be that China is going to come in and is going to temper its demand for imports and if it does, could that actually weigh on the commodities?

That's why we have to watch out here for the Baltic Dry Index which actually topped right below $3,700. Right not it is hovering around $3,000. It is hovering here, but we have to watch out for gold, for copper. Will copper regain $7,000? Will oil regain $87? That is the big question.

Ladies and gentlemen, this is Ashraf Laidi from CMC Markets. We hope you enjoyed this commodities-driven version of CantosCharts. Thank you.