Now that the final bell was rung for the year 2010, we look forward to 2011 with guarded enthusiasm for the markets we watch, specifically commodities. We hope all our readers were able to survive the tumultuous events of the past year and look forward to a Healthy, Happy, and prosperous 2011. Now for some actual information..
Interest Rates: March Treasury bonds closed at 12204, up 104 pushing yields lower on shortcovering after a mostly weak December. Volume was light as traders prepared for the New Year celebrations. We continue to expect treasuries to react to any economic data and view this markets as a trading affair.
Stock Indices: The Dow Jones industrials closed at 11577.51, up 7.80 in lackluster trading as traders prepare for the celebrations marking the end of 2010 and the beginning of 2011. The S&P 500 closed at 1257.64, down 0.24 on light volume while the Nasdaq posted a loss of 10.11 points to close at 2652.87. We are cautiously pessimistic since our overall view of the U.S. economy remains negative.
Currencies: The March U.S. dollar index closed at 728.8, down 51 points even as better than expected U.S. economic data should have prompted stability for the dollar. However, with money moving to higher yielding currencies after the recent dollar runup, the dollar suffered going into the close. The March Euro gained 82 points to close at 13364. The March Swiss Franc gained 18 points to 10714. The March British pound gained 174 points to 15581. The March Japanese yen gained 50 points to 12328. The March Canadian dollar gained 56 points to 10044, and the Australian dollar gained 74 points to 10141. We continue to prefer the sidelines for now.
Energies: Crude oil gained 15% during 2010 tied to growing optimism for the global economies. February crude oil closed at $91.40 per barrel, up $1.56 on continued strength on positive U.S. economic data. February heating oil closed at $2.5482 per gallon, up 4.83c while February gasoline gained 4.75c to close at $2.4323. Natural gas lost 21% in 2010 and on Friday closed at $4.392, up 54 points. We prefer the sidelines.
Copper: Copper gained almost 33% in price during 2010 and closed Friday at $4.470 per pound, up 8.45c, setting a new record close. The high on Friday was also a record at $4.4520. The weak dollar and the continued almost "frantic" buying of commodities this year along with the positively construed economic data from the U.S. the main reasons. Our overall view remains bearish for the U.S. economy and copper. Reports that one group holds between 80 to 90% of the 377,550 metric tons of copper held at the LME approved warehouses is reminiscent of the 1980s attempt to control Silver and soybeans by the Hunt family. We could see a major correction that would be exacerbated by the potential liquidation of those holdings, as occurred in the 1980s.
Precious Metals: Gold gained 29.7% for the year and expectations are for continued strength going into 2011. However, it is not our view as we suggested some time ago based on the 1980 high of $875 per ounce which took investors nearly 25 years to break even. Not a good rate of return. It could happen again. February gold closed at $1,421.40 per ounce on Friday, up $15.50 on year end booksquaring. March silver closed at $30.937 per ounce, up 42.4c and for the year surged 84%. Silver’s performance eclipsed that of gold percentagewise and as an industrial commodity could do the same in the first quarter of 2011. April platinum gained $28.90 per ounce to close at $1,778.20 while March palladium gained $17.10 per ounce to close at $803.30. We prefer the sidelines coming into the new year.
Grains and Oilseeds: Corn and soybeans ended the second half of the year with the best performance in nearly 50 years on reduced inventories and weather related threats to South American crops. March corn closed at $6.29 ¾ per bushel on Friday, up 13 3/4c while March soybeans gained 27c to close at $14.03 per bushel. March wheat managed a gain of 9 1½ to close at $7.94 ¼ mostly tied to heavy buying in corn and beans. We prefer the sidelines for now.
Coffee, Cocoa, Sugar: Coffee gained 77% in 2010 as the Arabica beans traded as high as $2.4225 per pound, its highest since 1997 on Brazilian crop concerns. March coffee closed at $2.4050, up 4.2c per pound. March cocoa closed at $3,035 per tonne, up $35 while March sugar closed at 32.12c per pound, up 1.74c after heavy fund selling on Thursday. We prefer the sidelines for now.
Cotton: Cotton closed up 92% for the year after reaching a record high of $1.5912. Chinese buying was one of the main features to the phenomenal gain in cotton prices. March cotton closed Friday at $1.4481 per pound, up 1.97c. We are on the sidelines coming into the new year.
John L. Caiazzo
Information provided is from sources deemed to be 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 in investments and opinions are his own and not of the Futures Commission Merchant to which he introduces his clients.