Fire Sale
Gold – Gold futures are sharply lower once again on a broad commodity sell-off, which has been as swift as it has been brutal. Commodity markets may have gotten ahead of themselves, with prices driven up by speculation that supplies for raw materials will be tight and inflation will remain high, but without enough concrete evidence supporting these opinions. One also has to weigh the Bear Stearns meltdown into this mess, as Bear was a large player in the derivatives markets whose client base included many hedge funds, which may now be liquidating positions and adding fuel to the sell-off. The timid rate cut this week disappointed Gold traders and has led to a recovery in the Dollar Index, which is still not out of hot water. This week's Commitment of Traders (COT) report may clear up whether this is simply a long liquidation or if new shorts are indeed entering the market. Yesterday’s sell-off did some chart damage for the April contract, tumbling through support at 960 and 950. The market's ability to hold above 900 – the next relative low – after testing this area is somewhat encouraging. The market is now very oversold, which could bring some value buyers into the market and may result in some short covering.
Wheat – Wheat futures are sharply lower once again after finishing yesterday’s session limit down. The rebound in the Dollar has made Wheat more expensive to importers of U.S., which may slow demand. Commodities have lost their appeal as an inflation hedge, especially if a global slowdown looms. Fundamentally, not much has changed in the grain markets on the supply side or expected acreage figures, which are both price-supportive. Yesterday’s weak close signals a double top formation on the daily chart, suggesting the possibility that more downside lies ahead. A solid close below the $10 mark in the May contract would offer further confirmation.
Rob Kurzatkowski, Commodity Analyst
