Commodities have taken a back seat to other areas of the market as central banks have taken a breather from their impressive news flow rate of the past month or so. We are also at a standstill in Europe with that continent actually putting their bailout funds to use. It honestly reminds us of the kid who collects something like pencils and refuses to use them even when they are needed to complete a homework assignment or test. We went to school with children like that, and it never turned out well for them, yea they had nice shiny pencils and lots of them, but by not utilizing them for their use they accumulated many zeros for uncompleted assignments.
That is the path Europe is traveling down, and an incomplete at this level is not only unacceptable but could be detrimental to not only their economies but the global economy. The global repercussions in the commodity market and the general market are tremendous and it currently all rides on Germany's insistence that Spain wait to request a bailout until after their elections. Politicians … sadly they are the same in every country, and sadly the world is now being held hostage by the Germans as one political party attempts to maintain control for another few years.
Gold broke down below the $1775/ounce level yesterday, but this morning we see it tracking higher and once again moving towards the $1780/ounce level this morning. It is actually holding in quite well considering the price action of other commodities and that is due to its ability to be used as a store of value. We are beginning to have some doubts about the economic outlook for the world, which is why we are growing tepid about our silver bullishness. If oil is down on world economic concerns, and rightfully so with Europe and China facing issues, then it is likely that gold will outpace silver because of silver's ability to be used as an industrial metal. Silver is pretty much where it was yesterday morning at this time but the trade is feeling "toppy." We are long-term traders here, but for those who like the short-term dealings we recommend paying close attention around the $35/ounce level.
With the first Presidential debate tonight we could see the start of a continuous news cycle on the differences between the candidates and their plans for creating jobs in America. One of the sectors they disagree on is the coal industry and whether that should be a power generating source moving forward. Governor Romney is pro-Coal while President Obama is obviously against its use as the keystone of American power generation. Much could be made of the differences, but if the coal lobby started advertising and this story jumped to the front of the headlines we could see sentiment change around names such as Peabody Energy (BTU) and Alpha Natural Resources (ANR) which both produce large amounts of coal here in the US. At this point America does not know the difference between thermal or metallurgical coal and it is all viewed as dirty, but we think that power becomes a very serious topic this cycle and coal shall be one at the forefront.
Mosaic (MOS) disappointed yesterday and fell accordingly. Shares finished at $55.76/share after falling by $2.25 (3.88%) yesterday. The company blamed weather in the Gulf and factory shut downs for affecting production which caused the company to be unable to meet demand from their customers. The news dragged down shares of Potash Corp (POT) as well, but Agrium (AGU) managed to outpace the sector once again. It remains obvious that Agrium has become the standard bearer for the industry and that during rough patches their diversified model serves investors better than the pure-play models that Mosaic and Potash employ.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.