QE taper expectations driving markets to new highs


The December U.S. Dollar Index (NYBOT:DXZ14) closed at 81.10 on Friday, down 17.1 points tied to the U.S. economic data as well as the dovish testimony by Yellen. Her statement that she felt it was "too early to end the stimulative economic program" sent the stock market up and the dollar down. Bond purchases send yields lower and affect dollar investment attraction. We like the dollar from here due to our expected deterioration of the Eurozone economies, which could attract dollar buying against currencies of the U.S. trading partners. The December Euro closed at $1.3493, up 36 points, the Swiss Franc $1.0931, up 8 points, the British Pound $1.6088, up 46 points the Canadian dollar 9546, up 37 points and the Australian dollar 9299 up 57 points. The Japanese yen lost 16 ticks to 9986.


January crude oil (NYMEX:CLF14) closed at $94.36 per barrel, down 5c and has lost ground for six weeks, its longest losing streak in 15 years tied to supply gains in the U.S. Crude inventories were up more than triple expectations as reported by the Energy Information Administration and added to the pressure of reduced global demand. Statements by Yellem that she felt it was too early to taper the stimulus program could prompt continued weakness in the dollar and possibly a correction in crude oil. We prefer the sidelines.


December copper closed at $3.1810 on Friday, up 90 points on shortcovering after recent weakness tied to "double counting" of copper at the Shanghai warehouses. The "inflated" numbers from China facilities prompted the year-long selling in copper may end and we could see a significant rally in prices tied to demand by China, the largest user of industrial metals. The Chinese economy, however, has become "overheated" and some retraction of intentions by the Chinese could offset the news of the "overestimated" supplies. We are on the sidelines after having been bearish for some time.

Precious Metals:

February gold (COMEX:GCG14) closed at $1,287.90 per ounce, up 60c on shortcovering after recent weakness. The gain was tied to the Yellen statement of continued economic stimulus, which pressured the dollar from its highs. The two week loss in gold was calculated at 5.1% and a corrective shortcovering was to be expected. We remain on the sidelines in gold, but further gains may be in order tied to pressure on the dollar. December silver closed at $20.727 per ounce and was up 1.3% but for the week lost 2.8%. For those that "must have" a precious metal in their portfolio, we prefer silver over gold. The demand for silver coins is exceeding expectations and is an indication of investor concern over U.S. economic developments and the ongoing impact of "Obamacare" implications. January platinum lost $5.20 per ounce to close at $1,438.90 while December palladium lost $7.15 to close at $732.65 per ounce. Platinum lost 0.3% for the week but palladium slipped by 3.3% for the week.

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