December Gold prices shot up more than $10.00 per ounce after heavy buying in India and Dubai.
Friday the 13 was unlucky for some, but lucky for others. Because commodity trading is a zero sum game, for every winner there is a loser and sometimes a big winner against many small losers, but there is always a balance. On Friday there were wide price swings in many commodities, so much so that following a trend was not enough to make money. “The trend is your friend,” did not apply during the last few sessions, as trends in some commodities were broken, then re-established.
Precious metals
December gold closed at $592.70 per pound, up $12.40 per ounce with December silver gaining 30¢ per ounce to close at $11.68. Heavy buying from India and Dubai was reportedly the main feature with funds also buying on chart considerations. Another dominant factor was the strong showing in the grain market, which some consider inflationary. We do not like this market and view Friday’s action as a correction in what has become a bear market in precious metals tied to the strong dollar. Once again, there is no point in charting metals when the U.S. dollar determines the direction. Stay out. January platinum closed at $1,083.30 per ounce, up $8.70 with December palladium gaining $8.05 per ounce to $315.95, which was a greater percentage gain than the other white metal and our only favorite in the group.
Currencies
The U.S. Dollar Index continued to move higher closing at 8687, up 16 points basis the December contract. Expectations that the recent positively construed U.S. economic data may cause the Federal Reserve to raise rates one more time prompted the flight to the dollar. The December euro lost 34 points to close at 12558. The December Swiss franc, our favorite in the group, lost 23 points to 7904. The December yen lost 13 pints to close at 8433. Stay out for now, but any negative news for the U.S. economy will prompt the selling of dollars. We prefer the Swiss franc is that should occur.
Interest rates
December Treasury bonds closed at 110-11, down 11/32, pushing yields higher. The benchmark 10-year note rose to 4.81% on Friday. Once again, the specter of inflation outweighed the concern for a recession that is imminent based on talk from the various Fed committee members. This coming week various reports will determine the market direction in rates. On Tuesday, the Producer Price Index will be released at 8:30 a.m. (EST). The industrial production report will be following at 9:15 a.m. and the capacity utilization will be issued too. On Wednesday, we will see the Consumer Price Index for September and September housing starts. So this week will give us an indication of what the Fed “might” do in the October meeting. We still like the long side of bonds and Eurodollars on the basis that the U.S. economy will slip into recession with or without rate cuts.
Stock indexes
“What goes up must come down,” but when and how far are the main questions. On Friday, as it had all week, the Dow Jones industrials posted another record high in both intraday and closing prices. The Dow closed at 11,960.51, up 12.81 points while the S&P 500 gained 2.79 points to 1,365.62. The Nasdaq gained 11.11 points to close at 2,357.29. A positively construed retail sales report helped the equity markets across the board even though September retail sales fell tied to a sharp decline in gasoline sales. Removing gasoline sales from the index actually showed retail sales posting a 0.6% gain mostly on department store sales. Sharply lower crude oil and product prices throughout the past few sessions was also a positive factor for equities as it provides for more consumer spending. We expect prices to moderate — unless OPEC, Venezuela or Iran significantly cut production, in which case prices would move higher once again. We continue to view equities as overbought and expect the correction to be deeper and longer than previously estimated. Apply hedging strategies before it is too late.
Energies
November crude closed at $58.57 per barrel, up 71¢. November heating oil up rose 3.01¢ per gallon to close at $1.7178 while November unleaded gasoline rose 1.75¢ per gallon to $1.4685. Early snowstorms in the Northeast prompted concerns that the current surpluses in heating oil could easily disappear. November natural gas however lost 1.23¢ to $5.659 per mBtu. We prefer the sidelines.
Copper
December copper closed at $3.4135 per pound, up 2.7¢ on fund buying and in line with strength in other commodities especially gold. Any further decline in U.S. home and auto sales will create a sharp sell-off in copper even in the face of possible Far East demand. Stay short or roll over put positions.
Grains and oilseeds
December corn closed at $3.14-1/2 per bushel, up 16-1/4¢. Lower U.S. production and ending stocks reported on Thursday prompted heavy short covering and new buying. We like corn but would only buy on setbacks. The trend has turned positive for corn. December wheat gained 10¢ per bushel to close at $5.25-1/2 on concern about world supplies exacerbated by the drought in Australia and sharp production cuts. Export demand and sales also showed improvement. Also, we have turned bullish in wheat. November soybeans closed at $5.91-1/2 per bushel, up 11-3/4¢, and has been on our buy list for some time. Speculative buying in conjunction with the buying in grains along with technicals prompted the buying. The crush report on Monday could determine overall demand and prompt either new buying or a moderate setback. We could see interim corrections in these markets but the trend has turned definitively higher.
Coffee, cocoa and sugar
December coffee closed at $1.0405 per pound, up 75 points, but origin selling kept prices from moving higher. Funds bought early and pushed prices through resting buy stops and prompted short covering by specs. Brazilian weather is a factor. We prefer the sidelines in coffee. December cocoa closed at $1,416 per tonne, up $3.00. The trading range for the last few weeks has been $1,415 and $1,540 per ton until Thursday when prices fell to a new contract low running sell stops along the way. Once again, we have no interest in sideways markets. March sugar closed unchanged at 11.13¢ per pound while May managed a 2-tick gain to 11.32¢. Trade was an early buyer but selling from producers kept prices from moving further. We have no interest in sugar at current levels with its current sideways trading.
Cotton
December cotton closed at 48.97¢ per pound up 4 points after trading in a narrow range between 48.75¢ and 49.28¢. Speculators and locals were on both sides with some buying prompted by the USDA weekly export sales report. Otherwise, there is no current discernable feature to this market. We would prefer the buy side on any increase in volume.
