Market Update 9 Aug 2013: Commodities Surge
The markets were mixed this week, with bonds and currencies little changed, stocks generally lower, and commodities mostly higher. The HUI gold stocks moved up with the commodity complex; crude oil was the only commodity to close down for the week.
Currencies were mixed, with the Euro and Japanese Yen gaining 0.8% and 1.7% respectively, while. the Canadian Dollar and Bitcoin fell 0.8% and 1.8%. Bitcoin trading was very quiet, with an average 29 kg changing hands each day on Mt Gox.
The USD was unchanged at 23.8 mg, but rose to 52.9% above its half-life curve, as the curve continues to fall every week. The "expected price" of the USD is now 15.5 mg, which is equivalent to a gold price of $2,001 – up from $1,995 the previous week. At some point, I expect the USD to "revert to the mean", falling rapidly to the 15.5 mg level and probably overshooting considerably to the downside. I recommend taking advantage of the strong USD now to purchase precious metals, select mining stocks, and other real assets – before the mean reversion crash.
Bonds were quiet, with the short term SHY unchanged, in sync with the underlying USD, while the long term TLT added 0.7% to close at 2.55 g. Once again, TLT is staying very near its support and resistance levels.
Most stocks were lower, led by the Nikkei, which retreated 4.3%, giving up much of last week's gain, and making the Nikkei this week's worst performing asset class overall. The Dow Jones Industrials lost 1.5%, while the S&P 500 dropped 1%. The HUI Gold Bugs Index was the only equity index to gain ground, rising 2.3% to close at 5.7 g. Last week's comments on playing the gold stocks still apply; we are waiting for confirmation of the market's next move.
With the exception of crude oil, commodities were all sharply higher. Crude pulled back 0.9%, pausing for breath after last week's 3.8% surge. Copper just kept on rising, however, adding another 4.5% to last week's 3.7% gain. Over the last few months, copper has been in a rising channel, making a series of higher lows and higher highs, but it remains well below its long term average price of 213 mg.
Silver and cotton were almost as strong, gaining 4.4% each. Silver bounced smartly off its lows to close at 0.483 g/oz, about where it was trading a month ago. Platinum added 3.9% to close at 35.5 g/oz, now 14% above gold parity.