Markets grapple with realities of a “jobless recovery”

Currencies: The September U.S. Dollar Index (NYBOT:DXU13) closed at 82.685 on Friday, down 27 points tied to lower yields in Treasuries. Interest rate declines detract from dollar investments. We had suggested recently taking profits on long dollar positions after having been bullish on the dollar for some time. We prefer the sidelines for now since the inconclusive determination of rates by the U.S. Federal Reserve continues to confound the markets. The September Euro (CME:E6U13) gained 38 points on Friday to close at $1.3143, the Swiss Franc gained 49 points to $1.0634. Other currencies gaining against the dollar on Friday included the Japanese yen 15 points to 0.9971, the British Pound 55 points to $1.5266, the Canadian dollar 15 points to 96.32c and the Australian dollar 24 points to .9155c. Stay out for now.

Energies: August crude oil (NYMEX:CLQ13) closed at $1.0835 per barrel on Friday, up a mere 31c after recent sharp gains. A decline in U.S. crude supplies along with the ongoing tensions in Egypt and Syria had prompted end users to add to stockpiles to avoid shortfalls should any interruption of shipping through the Suez Canal take place. We continue to prefer the sidelines but our expectation is that the “fear premium” is much too high and we expect prices to decline sharply once stability returns to the region. Stay out for now but consider some puts.

Copper: September copper closed Friday at $3.1460 per pound, up 1.45c against the weak dollar but continued reports from Peru indicating higher production could impede any further rallies. We have been bearish for some time based on our expectation of renewed recessionary trends throughout Europe and with a less than exemplary economic recovery in the U.S. and China, the world’s two largest users of industrial metals. Take profits and stay out for now.

Precious Metals: August gold (COMEX:GCQ13) closed at $1,292.90 per ounce, up $8.70 against the weak dollar on Friday. The sharp decline in gold to below $1,200 on an intraday basis was bound to find support amid bargain hunters and traders covering short positions. We see no reason to get “excited” about gold since the usual “suspects,” i.e. geopolitical concerns and inflation are subdued and the fact remains the heavy financial losses by gold “bugs” leaves investors in a quandary as to the pundit and media pushing of gold during the sharp decline. Buyers that pushed gold above $1,900 per ounce have suffered substantial financial loss and on such investor John Paulson has seen his gold fund lose more than 60%. We have been “reminding” our readers that in 1980 when gold first touched $875 per ounce, those buyers waited more than 25 years just to break even. A poor return to say the least. We suggested when gold touched $1,900 that we could see a repeat of that scenario and we have. We could see some additional buying of gold by bargain hunters but as an investment the benefit does not outweigh the risk. Stay out for now but with an “eye” toward the Middle East for any actions that could enhance the preference for gold. That being the case our preference would be silver based on its historic percentage benefits against gold. October platinum gained $16.40 per ounce to close at $1,431.20 while September palladium gained $2.25 to close at $749.75 per ounce.

Grains and Oilseeds: September corn closed at $5.43 per bushel on Friday, up 2c tied to concerns over damage from the hot dry weather. Some analyst estimates have been cut for U.S. production as well as the Societe Generale caution over a downgrade. We prefer the sidelines for now pending additional fundamentals. September wheat closed Friday at $6.63 ¾, up 3 1/4c against the weak dollar and on short covering after the recent weakness. Additionally the USDA reported a weekly export sale of 996.600 tonnes of wheat, higher than market expectations of 400,000-800,000 tonnes. China purchased 442,000 tonnes after a disappointing domestic harvest impacted by late rains. We prefer the sidelines in wheat as well. November Soybeans closed at $12.74 per bushel, up 8 1/4c tied to the weak dollar and shortcovering after recent sharp declines. We had been bullish for beans for some time but now prefer the sidelines. The wide price swings in grains and beans does not provide the kind of “potential’ I prefer for my clients.

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