August gold falls more than $10 an ounce even as the U.S. dollar falls and crude climbs.
The continuing hostilities between Israel and Lebanon and the possibility of Iran and Syria becoming involved prompted hectic trading and speculation during the week. The bottom line is Israel was attacked and while it is unfortunate that innocent civilians are being killed along with the Hezbollah attackers, I see no chance of a cease fire or peaceful negotiations at this point. Markets will continue to sway.
Precious metals
My usual interpretation of the precious metals markets: a strong dollar means weak metals, and a weak dollar means strong metals, is not working. Even with the dollar selling off through the past few sessions, the hostilities in the Middle East, higher crude prices, etc. — all factors that should have led to higher prices in gold have all failed. August gold closed at $620.20 per ounce, down $12.30 while September silver lost 22¢ per ounce to $10.845. October platinum, affected to some degree by the weak auto industry where platinum pellets are used in catalytic converters, closed at $1,220.50 per ounce, down $5.80. September palladium lost only 20¢ per ounce to $311.80 and remains the only metal on my “metal shopping list” due to its similar applications to platinum. Otherwise avoid the group. I strongly suggest you do not listen to the ever expanding rhetoric on the television suggesting you buy gold for your portfolio. Those days are gone unless you have your eye on a Rolex.
Interest rates
September Treasury bonds closed at 107-23 on Friday, up 6/32 tied to concern about U.S. economic health, and as a potential safe haven against the fighting in the Middle East. Stay long the bonds and add on any dips.
Stock indexes
The September Dow Jones Index closed at 10,906 on Friday, down 72 points but up 1.2% for the week in a recovery of the previous week’s declines. The S&P 500 basis the September contract lost 9.50 to 1,244.70 but was up 0.3% for the week. The Nasdaq lost 16.00 to 1,461.25 and did in fact continue to lose ground giving up 0.8% for the week. The Middle East conflict concerns the marketplace as any disruption of the energy complex could further exacerbate the economic situation in the United States. This coming week there will be a myriad of economic data such as existing home sales, durable goods orders, new home sales, consumer confidence and the second quarter GDP results. We continue to suggest the implementation of hedging strategies.
Currencies
The September U.S. dollar index closed at 8567, down 27 points against the basket of currencies while the euro gained 50 points to 127370 basis the September contract and the Swiss franc gained 47 points to 8137. The September Japanese yen gained 45 points to close at 8674 on the expectation that the U.S. Federal Reserve may decide to pause in its rate increase program. It all depends on the data emanating from Washington in the coming weeks. Stay out or look to the long side of the Swiss franc.
Energies
Once again crude oil is above $74 per barrel tied to the escalating hostilities between Israel and Lebanon, but mostly due to the possibility of Iran, a major oil producer, supporting the Hezbollah in Lebanon, whom they have been secretly supplying with weapons and rockets. Stay out for now.
Copper
September copper closed at $3.3230 per pound, down 8.65¢ on Friday. During the session copper traded as high as $3.46 but long liquidation ran into commission house sell stops. News that Union members met with company officials at the Escondida mine to negotiate a new contract was viewed as a negative for copper. Another negative is what we have been stating for some time now: The demand for copper, aside from that from the Chinese, is declining due to the weak U.S. auto and housing markets. Stay with the puts.
Grains and oilseeds
September corn closed at $2.37-1/4 per bushel, down 5-1/4¢ on bearishly construed weather forecasts in the Midwest. Funds were prominent sellers in the pit on Friday. Stay out for now. The talk of “corn for ethanol” is an old story already factored into the marketplace. The “bumper crop” expected should more than suffice for any ethanol application. September wheat closed at $4.07-1/4 per bushel, up 3/4¢ on fund and technical buying. No new fundamentals are on the horizon. Stay out. November soybeans closed at $5.98-1/2 per bushel, down another 7¢ and 26-1/2¢ for the week. We had suggested using dips to buy beans, but the decline was more than we expected. The weak dollar should have attracted buyers to U.S. grain and bean markets but failed and that leaves us on the sidelines for now. We would look to enter the long side on any move above $6.12 basis the November using buy stops.
Coffee, cocoa and sugar
September coffee closed at 95.60¢ per pound, down 20 points with December also losing 20 points to close at 99.60¢ per pound. The sharp decline took prices to 20-month lows, but buying from European and U.S. industry members brought short covering into the market towards the end of the day. We prefer the sidelines until a “breakout” above $1.18 occurs basis the December. Otherwise we see further price deterioration. September cocoa closed at $1,502 per tonne, down $12 and remains range bound and uninteresting. October sugar closed at 15.36¢ per pound up 5 points and seems to have formed a technical bottom. Of course my basic philosophy is “today’s market action provides for tomorrows lines on charts.” I would like to see the October break above 16.80¢ per pound before I would even think of jumping in for what could be another “assault” attempt on the 20¢ resistance level.
Cotton
December cotton closed at 55.46¢ per pound, up 1.27¢ after trading as low as 53.86¢. Speculative short covering and local buying pushed prices higher but trade was noted as selling into it on the way up. The possibility of lower yields and continued good demand could mean higher prices, especially in the face of a declining U.S. currency. Buy the dips but put stops in place.
