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FEAR FACTOR

The commodities markets have been on a wild bull run for the last few months and the dollar has been in steady decline. I warned all of you, who are CW subscribers, about this on Monday. We took the remainder of our gains on our June gold option spread and overall bagged around 117% profits, not too shabby. Timing is everything in these volatile markets as Tuesday gold plummeted -$40, and at the same time the dollar rallied significantly.

Now do I think this trend will last, well it may for awhile but I believe strongly in the old saying that “if nothing changes, nothing changes. In other words the Obama administration continues to keep the spending spigot open and the Fed keep printing money hand over fist with little regard for future hyper-inflation. China’s move to raise rates on Tuesday, in order to cool their economy, should be a big warning sign to the U.S., yet the Fed is likely to do absolutely nothing, except decimate the greenback further.

Already hard hit Americans are feeling the pain in their wallets when they go to the gas pump or the grocery aisle. Meanwhile the core inflation numbers remain low, and that’s all well and good as long as you don’t eat or need energy. We are only kidding ourselves with the idea that these commodities will remain cheap and that $3.80 is as high as gasoline can go, hardly. Europeans have been paying $8 and higher per liter in most of Europe for a very long time, so can we. We may as well start paying European prices for things, after all we just about have the same tax system now. The new socialist America.

So the dollar surged after China’s unexpected increase in interest rates discouraged demand for assets related to economic growth. It had absolutely nothing to do with support or protection form the Fed, God forbid!

So on this sudden Dollar rally, some of the currencies we are looking at shorting are the Australian dollar, which was the biggest loser against the greenback Tuesday, falling within a cent of parity as traders speculated China’s move will curtail commodity demand.

Canada’s dollar was also impacted hard and extended its drop after the central bank cut its growth forecast. South America wasn’t spared either as Brazil’s continued its strong decline against the U.S. dollar ever since the country raised taxes on foreign inflows for the second
time in a month.

Bloomberg quoted Soc Gen
Trader Carl Forcheski stating,

“Anything that China does that could possibly damp demand, especially for commodities, is going to hurt the commodity currencies like Aussie and Canada. We’ve had a relentless move higher for many currencies and downward for the dollar, so the dollar was due for a corrective move.”

Amen I say. However I don’t expect that to last too long and we plan to take full advantage of the downside move. CW readers added a short position in the high flying wheat market and as the dollar rallied the wheat fell. All and all it was a good day to be a member of Commodities watch. You can too.

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