Geopolitical events and economic data prompted wide price swings in various commodity markets again this past week with the emphasis on the Mid East tension. Gold continues to be affected by everything.
Precious metals
Gold has no mind of its own. It is directed price wise by other factors. The least of which is the technical consideration. Rather than chart gold, one should chart those markets that cause the directional price movements of gold. December gold closed at $621.70 per ounce, down $3.60 with December silver gaining 3.5¢ per ounce to close at $12.03. The decline in crude oil prices and the recent dollar strength was the main feature in metals trading. October platinum lost $9.70 per ounce to close at $1,223.60 while September palladium lost $2.85 to $333 per ounce. Once again we prefer the sidelines.
Interest rates
December Treasury bonds closed at 109-30, up 11/32 on tepid inflation data and indications that the U.S. economy is indeed slowing. The possibility that the Federal Reserve may once again leave the 5.25% rate alone at its September meeting was a positive for Treasuries. We could gain some insight into what the Fed may do this Friday when the Fed Chairman Ben Bernanke addresses an economic forum in Wyoming. Stay with the bonds and Eurodollars.
Stock indexes
The Dow Jones industrials closed at 11,381.47, up 46.51 with the S&P 500 gaining 4.82 points to close at 1,302.30. The Nasdaq gained 6.34 points to close at 2,163.95. For the week the Dow gained 2.65%, the S&P 500 gained 2.81% and the Nasdaq gained 5.16%. The news of Microsoft’s progress in its multibillion dollar stock buyback program was a major positive, but the Federal Judges ruling in favor of Altria Group (the Philip Morris case) was also a factor in the short covering and new enthusiasm. The equity market is displaying “irrational exuberance,” a phrase coined by the previous Fed Chairman Alan Greenspan. We urge prudent investors to apply hedging strategies. We are extremely close to a major setback for equities based once again on our assumption that the U.S. economy will be in sharp decline for at least 10 to 14 months down the road.
Currencies
The December U.S. Dollar Index closed at 8461 on Friday, up 5 points after early selling tied to the University of Michigan Consumer Sentiment Index, which came in lower than expected and gave rise to ideas that economic growth is slowing. The December euro closed at 12916, down 1 point, the Swiss franc closed down 4 ticks to 8210, and the yen gained 8 points to 8774. China raised interest rates in an attempt to slow the burgeoning economic growth and that created a defacto decline in U.S. relative rates.
Energies
September crude oil closed at $71.14 per barrel, up $1.08 after trading below $70 early in the session. September natural gas closed up 4.2¢ at $6.731 per mBtus. September heating oil closed at $1.9895, up 2.45¢ per gallon, while September natural gas gained 3.53¢ to $1.9669 per gallon. With the tension in the Middle East we prefer the sidelines.
Copper
September copper closed at $3.4345 per pound on Friday, up 7.7¢ tied to the ongoing strike at the Escondida copper mine in Chile after talks between the union and management broke down. With our expectation that the U.S. economy will show increased signs of stagnating and with the diminishing demand for copper by weak U.S. auto and housing sales, we fully expect a sharp decline in copper prices. Stay with the puts.
Grains and oilseeds
December corn closed at $2.35-3/4 per bushel, up 1/4¢ on short covering after recent weakness. Corn was still showing the signs of strain after last week’s USDA crop production report and the continuing favorable weather. Stay out. September wheat closed 1¢ per bushel higher at $3.64-1/2. Commercials and funds were buyers but much of the gains were attributed to the Kansas City Board of Trade market. The commercial buying was thought to be a prelude to increased exports. We could see continued buying early in the week but we prefer the sidelines. November soybeans closed at $5.60-1/2 per bushel, down 4¢ on bearish crop conditions and ample world supplies. While we favor the long side of beans, we would not add to positions at this time.
Coffee, cocoa and sugar
December coffee closed at $1.0715 per pound, down 35 points tied to increased global production estimates. We would remain sidelined for now. December cocoa closed at $1,545 per tonne, down $28 and remains on our “no interest” list. Stay out. October sugar closed at 12.18¢ per pound, down two points on spec sales, which offset early short covering. Russia and China have been absent from the market and traders have been marking time waiting for something to happen. We don’t subscribe to the “coin flip” trading method so we remain sidelined for now.
Cotton
December cotton closed at 54.52¢ per pound, down 34 points and remains range bound. Speculator and local back-and-forth-trading was just about the only feature. For the week December lost 1.22¢ per pound, some of which was tied to the stronger early week dollar. We would only consider cotton basis the December down around the 50¢ to 51¢ per pound level and even then would want better fundamentals. Stay out for now.
