Time for a commodity rally?
With the twin U.S. fiscal cliff and euro debt crisis worries out of the way, commodities get another boost as investors are now freer to focus on growth stories in economies such as China.
But I don't see the dollar weakening, Jim.
- "UUP" (US Dollar Index bullish) has been on the up trend in the last 10 days.
- The Euro versus the Dollar ("EURUSD") is stuck in a range (same time frame) and is threatening to fall and break down (it fell today).
Also, the rally on China seems to be overbought at this time.
- Your colleague columnist on MSN Anthony Mirhaydari is even shorting China and recommended today the ETF "YANG" (short , x3), but to be fair he has tended to be wrong in the last couple of months.
Tomorrow will tell if this rally has legs ...
There is NO commodity rally because of a weakening Dollar.
In fact, the Dollar is strengthening and the Euro is tumbling, as the short term (10 days) trends were already indicating yesterday (Wednesday).
Further the US Dollar Index has clearly broken upward from its 6 weeks slide down, suggesting that the Dollar is now on an uptrend path. Also the 6 weeks rising Euro has tumbled today below its support line, suggesting also further decline.
The results are that GG, AUY and TC tumbled between 4% to 5% today, and just have or are about to break down below their own longer term support lines...
We may argue that the Fed Meeting minute reveals that there is no real guarantee that the last QE and current monetary policy (long term cause of inflation and favorable to Precious Metals) is going to be sustained as long as expected (therefore the tumble in PM and the rally in the Dollar) and that the technical could not know about that turn of event.
Was it coincidental or did the market anticipated it ? Could it have sensed what was coming up ?
But we cannot say it is completely unexpected. So I'll stick with the technical first, as my primary guide for investment.
And if the Dollar wants to weaken tomorrow, sure we'll look again at what commodities are doing.
I do have some nice long term holds on some 5%+ large cap dividend stocks. With that approach, I can weather the storm, and bank on those dividends. I am holding 40% cash, and will pounce, when the storm starts to rock. For now, just coast and watch. New money is flowing into the markets now, and managers in my opinion are taking large risks with clients money.. I am my own manager, and hanging on the side of caution.
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