Our belief that we should think long-term and forget about any short-term implications of staying long our positions in light of the possibility that the Fed moved to cut their monthly purchases appears to have been the correct decision. Further, it seems that we were correct in believing that the decision would be to not taper, something we have discussed over the last few weeks. There was the fear that the market had painted the Fed into a corner using their own words and data against them, but Bernanke but the bond vigilantes in their place and has paved the way for the Fed to dictate when rates will rise and by how much.
This shall be quite bullish for commodities in the short-term and most likely the long-term as the world's economies build up steam with this added liquidity and the Fed continuing to push investor money into riskier assets from the safer fixed-income securities markets.
Chart of the Day:
Palladium is finally breaking to the upside again and taking out the $725/ounce level. We have watched the metal as bulls and bears fought one of their epic battles around the $700/ounce level for the past month or so. Let's see if this rally can hold, because the other ones did not.
Commodity prices this morning are as follows:
- Gold: $1365.60/ounce, up by $58.00/ounce
- Silver: $23.18/ounce, up by $1.616/ounce
- Oil: $108.40/barrel, up by $0.33/barrel
- RBOB Gas: $2.7513/gallon, up by $0.0092/gallon
- Natural Gas: $3.736/MMbtu, up by $0.023/MMbtu
- Copper: $3.3455/pound, up by $0.068/pound
- Platinum: $1473.30/ounce, up by $48.10/ounce
The copper market continues to perform well and yesterday's Fed news only hastened its rise, and that of Freeport-McMoRan (NYSE:FCX) which saw shares rise over 3% on strong volume of 21.1 million shares to close at $34.55/share. We have been bullish of this name for a while now and the gains are beginning to get more impressive. Initially the bullishness was due to the company's recent energy purchases, but as we pointed out early we thought that the copper exposure would be the next commodity in the company's portfolio to pay off with gold being the last to kick in. It seems that we are seeing the progression into the second phase of our prediction happen right now as the world economy improves, but we do want to see what management has to say during their next conference call before moving towards a more bullish stance.
The three month chart of Freeport-McMoRan is a thing of beauty. We like the outlook for their energy assets and copper is gaining momentum. There continues to be value here for long-term investors.
Source: Yahoo Finance
Both AK Steel (NYSE:AKS) and U.S. Steel (NYSE:X) rose yesterday with AK Steel leading the way with its shares 10% higher. Our opinion has long been bearish in regards to AK Steel and bullish U.S. Steel for those who wanted to have exposure to the steel names. We still do not like AK Steel, but with many beginning to think that China will avert a slowdown as previously anticipated and traders turning bullish on the commodity names which build economies we feel the need to be of a neutral opinion on AK Steel. There is still considerable risk there, but if the economy is turning it is the bad names which tend to outperform as traders look to gain leverage. We would still prefer readers who want to be invested in the space were long U.S. Steel instead as the risk is much lower with that name and it still has some decent upside.
Look for AKS to continue to outperform X, but readers need to beware of the additional risk they are assuming. We would prefer simply to be neutral AKS and long X if we needed exposure to the steel makers.
Source: Yahoo Finance
Gold and the gold miners faired quite well yesterday as the big money guys had to quickly adjust their positions and go long what they had previously been short. With the Fed signaling that they are willing to provide easy money until they are sure the economy can sustain a respectable growth rate on its own it changes the outlook for precious metals. With that understood we still want to stick with what has worked and kept risk to a minimum in the space. So although it appears that now would be a good time to go long the junior gold miners, we disagree. Our view is to stick with what was purchased on the pullback and if readers listened to U.S. it would be physical gold, most likely via the SPDR Gold Shares (NYSEARCA:GLD), and big name miners such as Barrick Gold (NYSE:ABX) which have less volatility than smaller names in the space. Precious metals traders have a free pass until the end of the year, but it might not be a bad time to look at taking profits into the rally.