Record Commodities
Crude Oil – Oil extended its gains yesterday to all-time highs near the $103 mark, but the market is slightly lower this morning as traders begin to lock in profits ahead of the weekend. A weak U.S. Dollar and inflationary figures in the CPI, PPI and Chain Deflator reports were the main driving factors in the market this week. Crude Oil supply and demand fundamentals remain bearish, but the market has been driven by heavy commodity and hedge fund buying on expectations that the Fed will continue to lower rates and let inflation run wild, decimating the value of the already weakened greenback. News that the largest U.S. pension fund, CALPERS, will be diverting roughly $7 billion to buy commodities set a bullish tone for commodities in general, and is a prime example of a large institutional investor pulling money out of stocks and bonds – which tend to perform poorly in inflationary times – and diverting those funds toward raw materials. It's hard not to mention geopolitical tension when talking about the energy markets, but it has been a relatively quiet week on that front. Traders held their breath after Turkish troops crossed the Iraqi boarder, but supplies have not been disrupted thus far. There has been an eerie calm after an election commission confirmed Nigerian election results, but no major violent actions by militants. The April Crude chart remains bullish – if a bit top heavy – at the moment, suggesting the possibility of a profit-taking correction or consolidation. Momentum continues to outpace the RSI, hinting at further strength in the near term. Support comes in at 100.01, 97.43 and 95.95, while resistance can be found at 104.07, 105.55 and 108.13.
Gold – Like Oil, Gold set all-time highs yesterday on the tumbling greenback and inflation concerns. April futures are almost 5 dollars higher as of this report, mainly on expectations that the U.S. economy will continue to struggle. Gold traders seem to have shrugged off the bearish news earlier this week that the IMF will be selling a portion of its reserves of the precious metal. Precious metals and energies – rather than the traditional treasury market – have become the safe havens for traders diversifying their portfolios, as many begin to fear that government debt instruments may not be worth the paper they are printed on in light of the record low exchange rate of the Dollar. The April Gold chart looks a bit top heavy and the RSI indicator is now showing overbought levels, but the market may not consolidate or correct until the $1,000 mark is tested. Support comes in at 957.00, 946.50 and 937.50, while resistance can be found at 976.50, 985.50 and 996.00.
Soybeans – Bean futures continue to rally on the falling greenback and expectations that global production may not meet demand. The weak exchange rate of the greenback has benefited the grain markets greatly over the past year and indications are that this trend will continue. China has not come close to meeting their domestic demand and been forced to import Beans, Bean Oil and Corn from the U.S. The record high prices of diesel fuel has also benefited the Soybean market, as it would likely increase demand for Bean Oil. Biodiesel can be produced from many different sources, including animal fats, but Bean Oil heated to the proper temperature on the delivery truck can begin the reaction process much more quickly and is considered the ideal choice for manufacturers. The July Bean chart remains bullish, but extremely overbought, which may make the market susceptible to profit-taking. Momentum continues to scream higher, outpacing the RSI indicator and indicating continued strength. Support comes in at 1495.75, 1467.75 and 1452.25, while resistance can be found at 1539.25, 1554.75 and 1582.75.
Rob Kurzatkowski, Commodity Analyst
