Today in Commodities: Strength vs. Dollar Weakness

I believe the 2.5% move higher in Crude oil today was more of a dollar weakness story than an oil strength story. Will it continue?? We expect $76.50 and $81 to contain prices on the December contract in the short run. As we said in our commentary this morning, we prefer to be a buyer from lower levels for clients. We’re advising clients to buy 50 & 75 cent bull call spreads in January natural gas. Though prices printed a new low it appears prices will close higher on the day.

As of this post the Dow is higher by 200 points and the S&P by 22, the largest 1 day swing we’ve seen in several weeks. This carries the Dow to a new '09 high and we should see further appreciation. The S&P should trade up to 1100 this week if not next. We may look to get clients short but not yet.

Gold and silver continued their march higher with prices being helped by a dollar that traded to 15 month lows. We’re in uncharted waters in gold so it is difficult to have upside targets, as for silver a trade above $18 is expected. The question is if we get a sell-off before that happens?

Agriculture was well bid ahead of tomorrow’s USDA crop report. We’ve suggested long corn exposure and a KCBOT/CBOT wheat spread which are both showing profits at this time. We will have some soybean trade ideas in the coming sessions. We suggest buying February live cattle futures and call options at these levels.

It was a massacre today in the dollar as 75.00 becomes the pivot point in the December dollar index. We may have some short suggestions in the Cable and Euro, stay tuned for levels.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

Comments

[Matthew Bra...:]

UPDATE: As of this post the KCBOT/CBOT spread was showing a slight profit, as of settlement today clients are now slightly down on the trade. We bought KCBOT at 4 cent premium to CBOT wheat expecting a 14 cent premium to KCBOT.

Nov 09 04:09 PM

[RayBay:]

Last sentence of article: Cable? Real maybe?

Nov 09 04:21 PM

[bigbear4511:]

Could see oil prices drop a bit this week as the IEA would release the report showing demand for oil will not be a strong. 76-77$

online.wsj.com/article...

Everyone says demand is in the emerging markets yet the EU and the states account for more oil than the next 8 countries (which include China and Japan). Oil use is cyclical throught the year. Usage is higher in the Summer and lower around February. In the last 20 years oil has been more expensive in June than the following February 80% of the time.

Nov 09 05:25 PM

[LilBob:]

With unemployment being so high and pump prices hedging the $3.00/gallon mark I expect to start seeing Threshold of Elasticity and Burnt Finger Effects coming into play again. Consumers are still harboring resentments about the run up in gas prices in the summer of '08 and we're likely to see the mainstream media jump on the "use less gas" band-wagon again. Expect sidebars in the newspaper on car-pooling and Park and Ride programs. I'm actually a little more bearish than Big Bear as I believe weak employment will lead to a progressive decline in the Threshold for 87 octane unleaded.

I'm also very skeptical of metals right now. We're seeing a lot of "Bubble-Style" pro-gold jingoism in the investment presses right now and that to me is a sure-fire sign of an impending and massive price crash.

Nov 09 06:23 PM

[boden11:]

We heard the same argument and then same (Peak Oil) for crude and yet that's only at like 1/2 its highs and that stuff is burned as soon as its refined...

Is this just the next bubble? A combination of nowhere for money to go and a hedge against the USD?

Nov 09 07:50 PM

[rick12345:]

Oil/petrol has extremely inelastic demand, depending on the state of the world economy of course. The average price of oil will hit $85 by the end of the year and remain there indefinitely.
Gold is about to go "pop" in the next week or two and like all bubbles, the larger they get, the bigger the explosion. The main catalyst will be a stronger USD as investors reach their price target of 0.75 Euro.
Stock markets are advancing nicely as the world returns to normal growth. Small/Mid caps are still only trading at less than half their fair value, indicating risk aversion. This situation will change very shortly.

Nov 09 08:44 PM

[TonyNed:]

I think you can get long Nat Gas right here for a strong profit. It has set a short term bottom technically. Everything else (oil, gold, silver) is a mess chartwise and you fellas can opine all day long and try to justify your guesses. I personally don't like guessing. Right now, Nat Gas is the only play in town.

Nov 09 08:53 PM

[Past Tense:]

Do I not get gold?

It doesn't do anything, you can't fill your car with it, you can't eat it, live in it. It just is! People describe it as a 'store of value' whatever that means, the focus should be on the word 'store' because it certainly doesn't doing anything in its own right.

Having siad that, yes I'll tag along with the crowd and buy Gold ETFs and miners, and I'll take the profit but deep down the only real use I can see for it is wedding rings, jewellery and fillings. 400 tonnes of fillings...

Nov 09 11:19 PM

[thotdoc:]

Gold might be defined as a measure of anxiety. You can call this anxiety: inflation, deflation, or whatever the name of the economic issue is that causes people to want to protect their assets..

Noone knows what is going to happen. People are less trusting that those in charge really know what they are doing, in the way one would expect an expert to be able to read their environment and predict what will happen next. So, anxiety is increasing. So, holding gold is increasing.


On Nov 09 07:50 PM boden11 wrote:

> We heard the same argument and then same (Peak Oil) for crude and
> yet that's only at like 1/2 its highs and that stuff is burned as
> soon as its refined...
>
> Is this just the next bubble? A combination of nowhere for money
> to go and a hedge against the USD?

Nov 09 11:30 PM

[rick12345:]

I know one thing is for certain - you won't see anywhere near the level of inflation that current gold prices are implying. At $1100 gold bugs would have you believe the cost of living is about to rise by 25% - 30% over the next year. Give me a break ; The USD has only lost around 5% of its value since the beginning of the economic slowdown, with places like Europe injecting just as much cash into their economy as the US. Even if a March bottom is used as the low, dollar depreciation is only 15%, compared to gold's rise of more than 45% since Oct 2008.

Nov 10 01:05 AM