Awaiting Further Strength in Commodities

With the recent strength of the American dollar, I am ambivalent toward commodities in the short term. Longer term, I remain a steadfast bull. If you look at the Bloomberg Commodities Chart, you note that commodities recovered nicely after their dip and have dipped slightly again. If, as everyone believes, the U.S. dollar continues to rally, then commodities will suffer. In my view, however, the important signpost is what happens as we enter the second half of the year. Is the worst truly behind us, or does the worst remain ahead of us?

My own view is that we have yet to experience the worst. If I am correct, we should see further strength in commodities, particularly precious metals as well as oil and gas.

The severity of this recession is difficult to anticipate. On one hand, the jobs numbers do not look too bad yet. On the other hand, economic weakness persists because of all the headwinds of high energy prices, falling house prices, tight credit markets, and increased uncertainty. So we just need to let events unfold and react accordingly.

Given my ambivalence toward commodities, have I lightened up on oil stocks? I probably should but have not yet. While oil prices are coming off their recent highs, I remain bullish on oil and remain unconvinced that oil will fall much further. With regard to gold and silver, I am keeping my gold and silver related stocks. In short, I am in a holding pattern.

Comments

[richjoy:]

Recession...what recession? As you wrote on May 2nd, you (should) know we are in a slowdown, and not yet in a recession (and may even escape without a recession)...unless of course, you define the word differently than the accepted definition -- in which case, you should have so stated.

As for commodity prices, I generally agree (I disagree on gold, which seems to react more to 'unknown forces' than logic, thus I hold some gold, but not enough to significantly influence my portfolio unless it goes sky high or falls like a rock). Materials, metals, oil natural gas, and the like, have (perhaps) started a correction. However, given worldwide demand, I expect them to resume their upward trend.

In fact, if the present rising stock market is a signal of an improving economy just over the horizon, I feel even more comfortable in owning them through a hopefully mild correction.

2008 May 02 08:16 AM

[Ker:]

Kevin, watch for the $USD, when it reaches 200DMA you may start looking to get long in futures, but not now.

2008 May 02 08:27 AM

[richandmer:]

You may be right about everything, but while you have been holding gold, you have lost 15-20% of your money. That is a lot to lose in such a short period of time. Makes me wonder about everything else you say.

2008 May 03 02:27 PM