Markets swinging to the Bernanke two-step

Currencies: The September U.S. Dollar Index (NYBOT:DXU13) closed Friday at 82.93, up 23 points but for the week lost 1.7% tied to a speech by Fed Chairman Bernanke on Wednesday. The September Euro (CME:ECU13) closed at $1.3096, down 37 points after Fitch downgraded France’s credit rating. Other currencies also weakened on Friday and we continue to suggest that while our view of the U.S. economy is negative, relative to those of its trading partners is worse. The Fitch downgrade of France’s debt is only the beginning or actually a continuation of the debt crisis in the Eurozone. We expect further declines in currencies with the corresponding dollar strength. Add to long U.S. dollar positions either with futures or call options.

Energies: September crude oil (NYMEX:CLU13) closed at $1.0555, up $1.36 or 1.29% tied to continuing concerns over geopolitical events such as Syria and more importantly Egypt, which controls the Suez Canal through which much of the world’s crude oil is shipped. We remain on the sidelines but with a bearish bias tied to our estimates of adequate near term supplies. 

Copper: September copper closed at $3.1550 per pound, 1.95c or 0.7% after recent shortcovering from its lows. Some long liquidation came after indications that the economy of China, the world’s largest consumer of industrial metals, might expand less than earlier government forecasts. The Chinese Finance Minister stated on Thursday, that expansion would be 7% in 2013 after original government goals of 7.5% were announced. The weakness in GDP would be the ninth such in 10 quarters according to analysts. We retain our bearishness towards copper once again based on our expectation of global economic deterioration. Inventories at the London Metals Exchange declined by 2.9% which was the largest reduction since October of 2012. Hold put positions.

Precious Metals: August gold closed at $1,277.60, down $2.30 on Friday after four straight session gains but for the week still managed to gain 5.4%. The weekly gain was the best since October of 2011. We remain bearish for gold since the usual impetus for gold, inflation, remains tame internationally. Our global assessment is for continued economic deterioration and ongoing debt crisis. One of the major buyers in the past has been the Far East and that seems to have diminished. India remains a strong buyers but not enough to offset the negativity associated with global economic concerns. September silver closed at $19.79 per ounce, down 16c on profittaking after the 4.1% gain on Thursday. For the week, as with gold, silver posted a 5.6% gain. We remain on the sidelines but once again, for those that “must have” precious metals in their portfolio, we prefer silver on a percentage gain basis against gold. October platinum closed at $1,406.90 per ounce, down 70c while September palladium gained $4.70 per ounce to close at $722.90. Both white metals posted over 6% gain for the week tied to the recent strike by South African mine workers. We prefer the sidelines but once again as stated in prior commentaries, our choice is palladium over platinum.

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