The September U.S. Dollar Index (NYBOT:DXU13) closed Friday at 8199.5, down 43.2 points after having gained on Thursday tied to the jump in manufacturing activity and the reduced first time unemployment claims which fell to the lowest level since early 2008. Expectations are that the U.S. Federal Reserve will slow its bond purchases later this year indicating their assessment of an economic improvement that would cause higher rates and improve dollar investment attraction. The Institute for Supply Management’s manufacturing index rose to 55.4% in July from 50.9% in June over expectations for a 52.0% reading by analysts. We have been positive toward the dollar for some time not based on U.S. economic improvement but only relative to the greater problems within the Eurozone community. Other currencies gaining against the dollar were the Euro up 68 points closing at $1.3284, the Swiss Franc 83 points to $1.0764, the Japanese yen 67 points to 0.010118, and the British Pound, 1.64c to $1.5279. Losses against the dollar were the Canadian dollar 41 points to .9614c, and the Australian dollar 33 points to .8878c. The dollar rally on Thursday was prompted by the ECB’s policy decision to hold the key lending rate at 0.5%. The Australian dollar has declined tied to the Chinese decline in manufacturing. China is Australia’s largest export market. We prefer the sidelines for now.
September crude oil (NYMEX:CLU13) closed Friday at $1.0679 per barrel, down $1.10 tied to the lower than expected growth in the July U.S. non-farm payrolls. The two day 4.7% rise in crude prices to a two week high on concerns over the Egyptian strife that threatens the Suez Canal through which most crude is transported prompted the recent rally in prices. The overall supply/demand situation however, remains stable and we continue to expect a correction to a price level more conducive to sustaining economic viability in the Western importing countries. I think put positions are in order.
September copper closed Friday at $3.1665 per pound, up 5 points but remains near recent lows after recent reports of reduced Chinese manufacturing. Friday’s U.S. jobs data was also a determining factor in the slight "bounce" even as concern over U.S. and China demand plays a defining role in future pricing. We had been extremely bearish for some time and recently suggested taking profits "off the table." We are on the sidelines here but expect a resumption of selling pressure as our expectation of weakening economic data from the U.S. and China continues to suggest a global recessionary trend.
October gold (COMEX:GCV13) closed Friday at $1,307.50 per ounce, down $3.30 after having traded over $25 per ounce lower early in the session. The U.S. July jobs report and the dollar decline prompted the recovery in gold before the weekend. Barricks, the world’s largest producer of gold posted an $8 billion loss after the recent sharp price declines in gold. We have been suggesting to investors the feasibility of trading in gold futures and bullion rather than in mining companies since whatever the price of gold does, is not necessarily translated into mining company stock prices. My report on precious metals relative to stocks was that if gold goes up, the logic of buying gold mining company stock is not necessarily reflected in stock prices. The companies’ performance, labor unrest such as strikes etc. could cause the stock to trade adversely against the actual metal so my report entitled "The tail does not wag the dog" could be helpful in understanding that relationship. It is available upon request. September silver closed at $19.7950 per ounce, up 17.1c on short-covering after its recent decline, which exceeded on a percentage basis against gold. Markets usually move in tandem but over time silver has outperformed gold on a percentage basis and would be our choice for those that "insist" on owning a precious metal in their portfolio. For the week gold lost 0.9% whereas silver gained 0.7%. October platinum closed Friday at $1,4470 per ounce, up $3.20 while September palladium lost $1.80 to close at $730.05 per ounce. Overall we prefer the sidelines in precious metals.