The day began with a robust rally in commodities- across the board - on Monday. Stimulated by the string of better than expected corporate earnings, investor's risk appetite appeared more like a major case of hunger (for speculation and profits). As a result, out they went overnight and this morning, and bought up pretty much everything in sight. Everything, that is, but the dollar.
Traders left the US currency by the side of the road this morning, and it promptly lost 0.50 points on the trade-weighted index - sinking to the 78.87 mark. The greenback is now trading at a month-and-a-half low against the euro. At least one analyst surveyed by Reuters sees the dollar/euro move capped at 1.46 and envisions a lifespan for this euro rally as short as this week.
The hit parade of rising commodities in the wake of the aforementioned background, appears pretty complete as of this morning: Iron inched past $90 for the first time this year, copper climbed to a nine-month peak, black gold blasted higher by almost 2% (reaching $64.75 per barrel), and nickel, aluminium, zinc, and lead were all showing gains of between 1.5 and 3.25 percent on the day. The precious metals complex, therefore, was no exception.
Gold prices rose 1.50% in early trade, after having reached overnight five-week highs of $955.50 per ounce. The yellow metal is once again bumping up against resistance at the upper reaches of its recent range. Participants remain divided as to whether bullion can make a successful upside break this time around, but there is something to be said for the spring in gold's step - and the swiftness with which it bounced off of the $905 area in just one week's time.
New York spot dealings opened at $952.70 per ounce for gold. Players remained focused on the dollar/oil gyrations and were further emboldened in going long gold and other commodities by the overnight private sector rescue of lender CIT. News such as Germany's producer prices falling by the largest amount in 40 years did little to dampen the spirit of speculation that appears to have taken hold of investors since last week.
Silver gained 25 cents on the open, quoted at $13.66 per ounce. Platinum rose $11 to $1183 and palladium added $3 to open at $250 per ounce. Swiss bank UBS increased its platinum price outlook for the coming month to $1225 per ounce - a $50 allowance from previous forecasts. Palladium was seen at $240 for the upcoming period.
In our view, the euphoria and related munchies for commodities might prove to be transitory, as speculators find themselves bidding some prices up beyond the tolerance limits of particular value envelopes. As we have learned several times during these past two years, bad economic news is but a couple of strata down below the currently glowing daily economic headline flows. In other words, it does not take much for sentiment to turn on a dime and risk aversion to rise yet again. The focus for the week, after earnings have been paraded in the markets, will be Ben Bernanke.
The Fed head has been urged to spell out how (if not when) he will perform a feat to outdo Penn & Teller - when it comes to taking out giant mop in order to dry the decks of the money-flooded economy. At the same time, Mr. B.B. cannot make the liquidity rabbit head for the hat and disappear too quickly. Indeed, an act that requires much talent and timing skills. Nevertheless, we do expect at least a portion of the currently bubbly inflationary expectations to be doused with cautionary words by this central banker. Please take your seats.
Happy Day to All,