Even though August gold closed up a little more than $11.00 per ounce, the Fed’s talk of fighting inflation may mean gold has made its last high run for now.
Precious metalsAugust gold closed at $581.70 per ounce, up $11.40 after trading as high as $583 during the session (chart). Technicians are looking for an interim bottom after the recent price decline from the $720 plus area. We view it as the beginning of the end for gold and would sell into any attempts at a rally based on the continued “perseverance” of the U.S. Federal Reserve to fight inflation, which is a position we do not agree with. In a declining economy the need for inflationary hedges such as gold are unnecessary, and while the U.S. dollar may decline, the usual relationship between gold and the dollar will once again be tested. Stay out for now. July silver closed at $10.13 per ounce, up 16¢ with July platinum losing $16.30 to close at $1,144.60. September palladium, the only metal in the group that warrants my attention, gained 25¢ to close at $306.05 per ounce.
Interest ratesSeptember Treasury bonds closed at 106-21, down 11/32 on better than expected consumer sentiment provided by the University of Michigan. Better consumer sentiment implies additional consumer spending and that bodes ill for interest rate instruments. The potential for another rate increase beyond the June 28 meeting is back in the minds of traders. The passionate concern about inflationary pressure was accentuated by two Federal Reserve Governors: Randall Korszner and Donald Kohn. Their hawkish remarks about inflation prompted selling in the Treasury instruments and equities. The actions of the Federal Reserve in “expectation” of inflationary pressure will be overdone and could lead to expanded use of the “R” word in market circles. Buy the dips in bonds.
Stock indexesThe Dow Jones industrials closed at 11,014.55, down 0.64 tied to Federal Reserve official’s statements on the necessity to curb inflation. The S&P 500 closed at 1,151.54, down 4.62. Nasdaq lost 14.20 to close at 2,129.95. For the week the Dow gained 1.13%, the S&P 500 lost 0.06% and the tech heavy Nasdaq lost 0.24%. We continue to favor stringent application of hedging strategies.
CurrenciesThe September U.S. Dollar Index closed at 8552, down 12 points on Friday after recent strength tied to the better-than-expected economic data. The September euro gained 34 points to close at 127260 and the Swiss franc gained 16 points to 8212, but the Japanese yen lost 12 points to 8800 on reports that the Bank of Japan would leave interest rates near zero. We continue to prefer the sidelines while the only possibility for the long side remains with the Swiss franc.
EnergiesAugust crude oil closed at $70.20 per barrel on Friday with aftermarket trading posting an additional 11¢ gain to $70.31 per barrel. August heating oil ended at $1.9730 per gallon while unleaded gas traded at $2.0458 per gallon. The other markets tended to shrug off the trading action in energy prices in favor of concern about the Federal Reserves future action on rates. We prefer the sidelines.
CopperJuly copper closed at $3.2915 per pound, up 7.65¢, partially recovering from Thursday’s sharp sell off. The ongoing strike at Grupo Mexico’s two large copper mines continues unresolved and could impact the supply/demand picture for copper. Technicals are putting the support level right at $3.00 and if that breaks we could see another steep sell off in copper. We continue to favor the short side and the decline in demand for homes and autos in the U.S. are the major deterrents to higher copper prices. Hold on to those puts. Grains and oilseedsJuly corn closed at $2.35-1/2 per bushel, up 2-1/2¢ as traders covered shorts in front of the weekend. Rain forecast for the weekend was a key factor as to the trading action for Monday. We prefer the sidelines in corn for now but would look to buy on dips. July wheat closed 2-1-2¢ lower per bushel at $3.59, but September closed up 1/4¢ to $3.76-3/4¢. Rollover longs from July to September and December were the main feature in the market. We prefer the sidelines in wheat. July soybeans closed at $6.001/4 per bushel, up 7-3/4¢ on short covering, but weather will remain a factor throughout the next few days. July soybean meal closed at $180.90 per ton, up $1.80 while July soy oil closed 4 points higher at 24.86¢ per pound. We like the long side of beans from here but would use the November contract, which closed at $6.27 per bushel, up 6-1/2¢. Coffee, cocoa and sugarJuly coffee closed at 95.25¢ per pound, down 1.3¢ with September losing 1.25¢ to 97.70¢ per pound. We prefer the sidelines. July cocoa closed at $1,525 per tonne, down $2.00 as September gained $2.00 to close at $1,539 per tonne on spreading. Currency considerations are a factor during the session with trading in a narrow range. We prefer the sidelines. July sugar closed at 15.01¢ per pound in technically oriented trading. We prefer the sidelines once again.
CottonJuly cotton closed at 52.07¢ per pound, down 37 points in a trading range of 51.47¢ to 52.50¢. This kind of sideways action keeps us on the sidelines. Stay out for now but look to buy against support around 49¢ to 50¢ per pound.
John L. Caiazzo(951) 693-9600 (951) 693-3170 firstname.lastname@example.org
Information provided is from sources deemed reliable but not guaranteed. Futures and Options trading involve a high degree of risk and may not be suitable for everyone. John Caiazzo is a registered commodities broker with over 40 years experience. These opinions are his own and not those of the futures commission merchants to whom he introduces his clients.