Commodities retreat after Fed-induced margin calls

Currencies:

The September U.S. dollar closed at 82.55, up 45.4 or 0.6% on Friday and was the only "green" commodity on a "sea of red" on my quote screen. Every commodity we watch was lower on Thursday and Friday thanks to the Bernanke statement. We believe that statement was unwarranted on the basis of our view that the U.S. economy is too fragile for the Fed to scale back its quantitative easing program, especially not this year. We have been bullish for the dollar for some time and see no reason to change our view but taking some profits "off the table" is never a bad idea. Once again we hear from Greece that its unstable governing coalition could "break down" and sent its yields on bonds sharply higher Friday. The 10-year Greek bond yield was up 49 basis points at 11.046% and remains a serious problem for the Euro currency. The "news" has overlooked the ongoing debt problems within the Eurozone, which we expect will re-emerge in the near future. Other currencies that lost against the dollar were the Euro at $1.3133, down 68 points, the Swiss Franc $1.0715, down 73 points, the Japanese yen $01024, down 45 points the British Pound $1.5419, down 50 points and the Canadian dollar .9546 down 55 points. The only other currency posting a gain Friday was the Australian dollar posting a 61 point gain to .9177. Stay with the dollar.

Energies:

August crude oil closed Friday at $93.69 per barrel, down $1.45 or 1.5% adding to Thursday’s loss and ending a two week winning streak. July crude had dropped 2.9% on Thursday, the biggest one day loss in seven months tied to the gain in the U.S. dollar in which it is denominated. Adequate supplies and recent sales by Russia to China of 365 million tons of crude are also a factor in the weakness. The ongoing Middle East concerns where the U.S. is backing the Syrian rebels, a fact we disagree with, and Russia backing the Assad Government could gain momentum. While we maintain a bearish posture toward crude and products, we prefer the sidelines for now. Too many variables could cause extreme price movement. No reason for my clients to have to "wade through" news that could move the market in the near term. Stay out for now.

Copper:

July copper closed at $3.0955 per pound on Friday, up 3.35c on short covering after recent heavy losses. Copper "bounced" off 20-month lows and investors took profits, and reduced margin requirements due to the losses in other commodities. We see no change in demand from either China or the U.S., the two major users of industrial commodities. Our expectation for reduced demand from China and our view of a weak U.S. economic recovery keeps our bearish view intact. Hold put positions but once again, taking profits "off the table" is not a bad idea.

Precious Metals:

August gold closed at $1,293.40, up $7.20 or 0.6% on Friday on short covering but still posted a loss of $95.60 per ounce for the week. During the session gold traded as low as $1,268.70, its lowest price since September of 2010. We continue to suggest the sidelines in gold. September silver closed at $20.03 per ounce, up 16.5c but broke below $20 during the session trading as low as $19.365 per ounce. We had expected that $20 would be an interim bottom for silver and had suggested purchases at that level in recent weeks. We would hold any longs in silver barring any break in price to $18.70 per ounce. At that point we would abandon the position and once again stay sidelined. October platinum closed at $1,379.20, up $11.50 per ounce while September palladium gained $10.35 per ounce making our long palladium/short platinum spread benefit our subscribers. Platinum gained 0.8% against palladium’s 1.6% gain. Hold that spread.

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