TechnoMental Q2 Overview – Q3 Outlook 2021 PDF

TechnoMental Q2 – 2021 Quarterly Commodity Spreadsheet


TechnoMental Commodity Report PDF-07.28.2021

Weekly Commodity Report Spreadsheet 07.28.2021

  • Stocks moved higher in choppy trading since July 21 – The VIX was virtually unchanged since last week – Bonds continue to post gains
  • Bitcoin and Ethereum recover and post impressive gains – Precious metals continue to decline, while copper and base metals rebound since July 21
  • Ethanol declined, while oil, oil products, natural gas, and coal post gains since the previous report
  • Corn, wheat, and soybean prices fall – Live and feeder cattle moved higher, hogs slip – Coffee moves to a seven-year high – Cocoa, FCOJ, sugar, and cotton prices post gains
  • The dollar index slips lower as it runs into selling above the 93 level

TechnoMental System Update

The TechnoMental System provides subscribers with eight separate potential trend following portfolios in all of the sectors covered in the weekly report including:

  • Stocks and Bonds
  • Precious metals
  • Base Metals
  • Grains and Meats
  • Soft Commodities
  • Currencies
  • Energy

Subscribers can use any of the portfolios, all of them, or select the ones they wish to use for investment and trading purposes. Automatic execution is available for all of the portfolios for subscribers. The benefit of automatic execution is that buy and sell orders are compiled and executed as soon as the signals come out. 

See PDF for the results of the futures portfolio and ETF as of the close of business on July 23:

Watch for daily emails on rolls and reversals.

Summary

On Thursday, July 22, the Russell 2000 fell 1.52%, while the other indices crawled slightly higher. The NASDAQ was up 0.36%, the S&P 500 gained 0.20%, and the DJIA moved 0.07% to the upside. The VIX edged slightly lower to the 17.83 level. The September long bond futures were 0-18 higher to the 164-19 level. The September dollar index gained 0.071 to 92.830 as the index ignored the bearish reversal on July 21.

Wheat, soybean, and corn prices fell on Thursday, with the CBOT wheat futures declining below the $7 per bushel level. November beans were just over $13.60, with December corn at over $5.60 per bushel. September crude oil was up another $1.61 to $71.91 per barrel, with gasoline and heating oil prices following on the upside. The product prices outperformed the raw crude oil price action, pushing crack spreads higher on the session. The EIA reported that natural gas inventories rose by 49 bcf for the week ending on July 16. The August futures contract closed above the $4 level for the first time since late 2018. Natural gas was up 4.4 cents to $4.003 per MMBtu.

Gold, silver, platinum, palladium, and copper prices moved higher on Thursday. August live and feeder cattle posted gains, and lean hogs edged higher on the session. Coffee continued to be the top story in the soft commodity arena. The frost in Brazil pushed the price of Arabica coffee futures to the highest price since 2014 at $1.9550 per pound. Coffee futures for September delivery settled at $1.9365 per pound, up 17.65 cents on the session. The next upside target sits at the 2014 $2.2550 high. Coffee’s rally turned parabolic this week. I became a light scale-up seller of JO on Thursday. Sugar futures were only 0.05 lower to settle at 17.62.

December cotton traded to a new high at 90.59 and settled at 89.86, up 1.17 cents on the session. September cocoa futures gained $52 to settle at $2,317, and FCOJ was 3.45 cents higher to the $1.35 per pound level. September lumber rose $63 to the $647 per 1,000 board feet level after reaching a bottom at $500 on July 19. Bitcoin was at the $32,300 level, up around $700, while Ethereum gained $90 to the $2,030 level on Thursday.

On Friday, stocks posted across-the-board gains with the tech-heavy NASDAQ leading the way on the upside, with a 1.04% gain. The S&P 500 rallied 1.01%, the DJIA was 0.68% higher, and the Russell 2000 was up 0.46%. US 30-Year Treasury bonds were at the 164-01 level, down 0-18. The dollar index settled at 92.928, up 0.98 on the session. Corn led the grains lower, while soybean and wheat futures also declined. September crude oil settled at $72.07 per barrel, up 16 cents, while products followed, and crack spreads were steady. Natural gas rose to another new high at $4.071, with the August contract settling at $4.06, up 5.7 cents on Friday.

Gold, silver, platinum, and palladium prices fell, while copper moved higher to settle at $4.40 and was higher in the aftermarket. September copper was above $4.45 per pound late Friday. Live and feeder cattle prices moved higher along with lean hogs for August delivery.

Coffee continues to soar, with the price reaching $2.0950 per pound before pulling back to $1.89 in volatile conditions. Coffee futures reached the highest price since October 2014.

Sugar was higher and back over 18 cents per pound. FCOJ and cocoa posted gains while cotton was marginally lower. Lumber futures settled at the $634 level after finding a bottom at $500 on July 19. Bitcoin was at $32,200, with Ethereum at $2,017 as Ether outperformed Bitcoin. After a wild and bearish start to the week in markets across all asset classes, markets came storming back.

On Monday, the stock market edged higher with the Russell 2000 up 0.33%, the S&P 500 gaining 0.24%, and the DJIA moving 0.24% higher. The NASDAQ edged only 0.03% to the upside. The VIX was around the 17.60 level, only marginally higher on the session. The September US 30-Year Treasury bond futures were 0-06 lower to 163-27. The September dollar index futures contract fell 0.277 to 92.651.

The grain and oilseed futures arena were quiet, with slight gains in corn and soybeans, while CBOT wheat futures slipped lower. September NYMEX crude oil futures fell only 16 cents to 71.91 per barrel. Gasoline and heating oil futures posted gains, pushing crack spreads higher on the session. Natural gas rose to another new high at $4.187 per MMBtu before settling at the $4.1020 level.

Gold edged lower to settle below $1,800, but silver, platinum, and palladium futures posted slight gains. Copper exploded higher to settle at $4.5850 after trading to a high of $4.6025 on Monday. Copper had traded to below $4.17 on Monday, July 19. Live and feeder cattle prices posted impressive gains of around two cents per pound on the August contracts and on the October contracts. August lean hogs were marginally higher, while the October hogs rallied 0.475 cents per pound. Sugar was up 0.25 cents to 18.42. Frost concerns in Brazil continued to power coffee higher, to a peak at $2.1785 per pound. September futures settled at a new seven-year high at $2.1070 per pound. September cocoa futures were $71 high to $2,392 per ton.

December cotton slipped only 0.06 cents to 89.60, while FCOJ for September delivery was 0.45 cents lower to settle at $1.3690 per pound. September lumber was down $10 to $624 per 1,000 board feet. Bitcoin experienced an explosive recovery, rallying around $6,500 per token to the $38,800 level after probing above $40,500. Ethereum gained over $300 to the $2,330 level after trading at over $2,400 per token on Monday.

On Tuesday, stocks reflected nervousness over the upcoming Fed gathering in Jackson Hole and the rising number of COVID-19 delta variant breakthrough cases showing up in vaccinated people. Selling in Chinese stocks likely had an impact on US stocks. The Russell 2000 dropped 1.13%. The NASDAQ fell 1.21%, while the S&P 500 lost 0.47%. The DJIA declined by 0.24% on Tuesday. The VIX popped 1.28 higher to the 18.86 level after trading to a high of 20.44 during the session. September US 30-Year Treasury bond futures rose 0-28 to the 165-00 level. The September dollar index fell 0.215 to 92.436.

Corn and CBOT wheat futures edged marginally lower, while soybeans were slightly higher on the session. September NYMEX crude oil futures drifted 26 cents lower to $71.65 per barrel, while gasoline was higher and heating oil slipped. Gasoline cracks rose, but distillate refining spreads were marginally lower on the session. Natural gas fell 13.1 cents per MMBtu to settle below the $4 level at $3.971.

Gold was up 60 cents and was sitting at just over the $1,800 level, while silver fell 66.9 cents to $24.649. Platinum fell $20.50 to $1,049.50, and palladium was $71.40 lower to the $2,606.70 level. September copper futures backed off to settle at $4.5445, down 4.05 cents on Tuesday. August and October live, and feeder cattle prices fell. August lean hogs were slightly higher, while the October hogs were marginally lower. Sugar futures posted a small loss to settle at 18.35 cents.

Coffee fell 6.05 cents on the September contract but remained above the $2 per pound level. September cocoa was up only one tick to $2,393 per ton. December cotton gained 0.63 cents to settle at 90.23 cents per pound. FCOJ exploded 5.6 cents higher to settle at $1.4250 per pound, the highest price since October 2018. Bitcoin was $1,300 lower to the $38,200 level, and Ethereum dropped $125 to $2,250 per token.

On Wednesday, at the July Fed meeting, the central bank left the Fed Funds rate unchanged at zero to 25 basis points. The FOMC said the economy made progress towards goals and will assess the progression over the coming meetings. There was no change to quantitative easing, which continues to buy $80 billion in Treasuries and $40 in mortgage securities each month. Risks remain in the economy, and the Fed dropped the line that vaccines have reduced the spread of COVID-19. The central bank continues to wait for the economy to meet its goals for employment and inflation.

The bottom line is the status quo in monetary policy remains in place. The consensus is that the delta variant to COVID-19 will give the Fed more time to keep monetary policy unchanged. Last August, the Fed us they wanted higher inflation. They got a higher dose than they bargained for in 2021. The Fed Chair reiterated that the central bank is waiting for full employment and price stability. The July Fed meeting was another stall session for the central bank as the dovish status quo remains. Stocks were mostly higher in a muted response to Wednesday’s Fed meeting. The Russell 2000 led the way on the upside with a 1.64% gain. The NASDAQ moved 0.70% higher, and the S&P 500 edged 0.02% to the downside. The DJIA was the laggard with a 0.36% loss on the session. The US 30-Year Treasury bond futures were at the 164-28 level, down 0-04 on the session. The September dollar index fell 0.119 to the 92.317 level in a sign the market interpreted the latest Fed meeting as dovish. CBOT wheat prices led the gains with a gain, while corn and beans moved only slightly higher. September NYMEX crude oil futures were up 74.0 cents to settle at $72.39 per barrel after bullish inventory data from the API and EIA. Oil products edged higher.

Gasoline and distillate crack spreads declined as products underperformed crude oil. September natural gas was 2.5 cents higher to the $3.967 per MMBtu level.

Gold settled only 10 cents lower on the session but was slightly higher in the aftermarket after the Fed meeting. Silver, platinum, and palladium rallied. September COMEX copper futures fell 6.25 cents to settle at $4.4820 per pound. August live cattle edged higher, while the August feeders slipped lower. August lean hogs fell 1.775 cents to $1.0570 per pound. Sugar, cocoa, and cotton prices moved to the upside, while coffee and FCOHJ corrected. September coffee was just over the $2 per pound level, while FCOJ slipped below $1.40. Sugar settled near the highs over the past months, and cocoa powered above $2,400 per ton. Cotton was just above 90.50 cents per pound. Bitcoin was at the $40,500 level, up over $2,600 per token. Ethereum rallies around $90 to over $2,320 on Wednesday.

Stocks and Bonds

The stock market came steaming back after the selling on July 19 turned out to be a one-day wonder. By the end of last week, we were back at new highs. The higher markets climb, the wider the potential for price variance. The trend in stocks remains higher, but we should expect lots of two-way price action as the equity’s asset class faces more than a few issues over the coming weeks and months.

Over the past week, the S&P 500 rose 0.96%. The NASDAQ moved 0.89% higher, while the DJIA posted a 0.38% gain. The VIX was at the 17.98 level, 0.78% above last week’s level. The VIX traded to a high of around 25 on July 19 as selling hit all of the leading indices on the back of an increase in COVID-19 delta variant cases. Meanwhile, as variants to the pandemic spreads, it could cause the Fed to pause on tapering QE or increasing the Fed Funds rate. The market expects some word from the Fed in August, but any changes now depend on the status of the virus, which is a day-to-day affair.  The message from the latest Fed meeting on Wednesday was mostly dovish.

The bond market moved higher over the past week. The bearish action in the US bond market since August 2020 reflected a robust economic rebound in the US, but the pressure of central bank buying and liquidity caused the bond market to reach at least a bottom at the 153-29 level in March. The long bond has made higher lows and higher highs since the mid-March 2021 low. Over the past week, the moved to almost the 165 level after exploding higher to over the 167 level on July 19.

The next significant event for the bond market will be the August Fed gathering in Jackson Hole, Wyoming. The market had expected the Fed to outline plans for tapering QE and short-term interest rate hikes in 2023. The Fed was debating tapering using MBS or treasury bonds in the minutes from the June meeting released on June 7. The latest meeting may have poured some cold water on those expectations.

The Fed controls short-term interest rates via the Fed Funds rate. However, market forces determine rates further out along the yield curve. The price action in the ten and thirty-year treasury bonds for almost a year had been a sign that the market is concerned about rising inflation. The Fed manages monetary policy like a captain of an ocean liner. Changes occur slowly so as not to cause any sudden economic turbulence. The latest Fed meeting caused some turbulence even though the central bank made no definitive changes besides increasing the reverse repo rate by a minimal five basis points.

However, the Fed set the stage by managing expectations that rate increases are on the horizon. It will take years for interest rates to return to appropriate levels. The legacy of accommodative policy will impact the US and the global financial system for the coming years. The stock market has shrugged off the prospects for tighter Fed policy and rising taxes as the leading indices continue to power higher. The stock market is only one of many examples of asset inflation in the financial system. The June CPI data is a significant input for the central bank as it decides what to tell markets in August.

However, increasing virus variant cases remains a threat to the economic recovery. The trick is for the Fed is to eventually return to normal monetary policy with higher interest rates without roiling markets and causing excessive volatility. The Fed is walking a tightrope at this critical juncture, but the amount of fiscal stimulus flowing into the US economy continues to be highly inflationary. The trillions in government stimulus is a spending bonanza that rising taxes are not likely to cover. If the Fed becomes hawkish and the government keeps spending, inflation is likely to continue growing. The rise in the number of delta variant cases could provide the Fed with a reason to prolong the status quo, which would be even more inflationary.

Chinese stocks fell while US stocks rose. The underperformance of the large-cap Chinese stocks is a significant event over the past weeks and months. The risk discount for Chinese companies continues to be high as President Xi took an aggressive stance towards the US. The latest DIDI IPO that reached a high of $18.01 on June 30 and was trading at the $8.87 level on Wednesday is an example of investors shunning Chinese stocks over the past weeks. DIDI was $2.63 lower than the level on July 21 as the Chinese government is considering sanctions or worst against the ride-share company. DID is a falling knife, which is a microcosm of the overall Chinese stock market. DIDI fell to a low of $7.16 during the week.

Source: BarChart

The China Large-Cap ETF product (FXI) settled at the $41.52 level on Wednesday, as it fell 5.03% since July 21 and was a couple of pennies lower in the aftermarket. Technical support was at $42.72, the recent July 8 low, but FCI fell below that level to a low at $38.24 on July 27, the lowest level since May 2020. The FXI product remains far below the all-time peak at $73.19 back in 2007while US stocks are making new record higher. The most recent significant high came on February 17 at $54.52, the technical resistance level that continues to fade into the distance. China is the demand side of the equation for commodities as it is the world’s second wealthiest and most populous nation.

As I have been writing:

“Chinese stocks carry significant political risk given the government’s heavy hand and role in business and international investments.”

September US 30-Year bonds moved higher since July 21. The bond market faces opposing forces as inflation is rising and the Fed continues to purchase $120 billion in debt securities each month. The Fed Funds rate remains between 0% and 0.25%, but the central bank only determines short-term rates. Medium and long-term interest rates are a function of the supply and demand for bonds. The quantitative easing program attempts to push bond prices higher but rising inflationary pressures have had more of an effect, pushing bonds lower and interest rates higher. The trend in the bond market and technical break on the downside was a sign that the Fed was losing control of the market on longer-term interest rates. The FOMC said they are prepared to adjust monetary policy with market conditions, and there was finally some scent of tapering or tightening at the latest FOMC meeting.

The bond market has rejected the central bank’s actions since last August by declining with each new debt security purchase. The latest inflation data was a warning sign for the Fed. The FOMC appeared to signal the start of a shift in the central bank’s policy path. The June CPI data was a confirmation that the Fed will need to pivot monetary policy soon. Time will tell how quickly and decisively they are willing to act. Last year the central bank changed its inflation target from 2% to an average of 2% in August, which seems to be the time of the year when the Fed becomes more transparent about its plans and the course of monetary policy.

The market expects the Fed to outline its plans at the August meeting in Jackson Hole. However, the progress of the delta variant could change the Fed’s decision on rates in a few weeks. If the past actions are a guide, the central bank could be happy to find a reason to maintain the status quo.

Even the most aggressive tax hikes in history will not pay for the trillion in stimulus and other initiatives over the past year and those coming before Congress in the immediate future. The US Treasury Secretary is working with other G-7 nations to establish a 15% minimum corporate tax structure. The initiative could be more about moving the US towards globalism than taxes.

On Wednesday, July 21, the September long bond futures contract was at the 164-28 level as it moved 0.67% higher over the past week. The September 30-Year Treasury bonds futures made a low at 153-29 on May 13. Technical support is at 161-06, the July 13 low. Technical resistance is at 167-04, the July 20 high on the September futures contract. Upward pressure on rates further out on the yield curve over the past months has been an inflationary signal for markets. The Fed now finds itself closer to raising the Fed Funds rate and tapering its asset purchases than over the past months. Ironically, the bonds rallied as the Fed signaled the start of the shift at first. The move was likely because of short covering in the futures market, which had become overly bearish. The explosive move on July 19 was a flight to safety when selling hit the stock market.

With Chairman Jerome Powell at the head of the central bank and former Chair Janet Yellen, the Treasury Secretary, the doves have their hands firmly on the wheel of the US financial system. Do not expect them to move too fast. The Fed stated it is prepared to tolerate rising inflation over the coming months, but the May and June CPI data were a warning shot across the bow of the US economic ocean liner. The bond market has battled the Fed and Treasury over the past months. It is unprecedented that the level of economic growth in 2021 had not prompted an adjustment in monetary policy sooner. The Fed remains behind the eight ball when it comes to a monetary policy path that reflects economic conditions.

The Fed was encouraging inflation, but up until recently, it ignored the evidence in raw material markets and other asset markets that could lead to a far larger dose of the economic condition than it is bargaining for over the coming months. Once a ball begins rolling, it could pick up momentum and becomes more challenging to stop. Energy, agricultural, metal, and mineral prices had been trending higher over the past months. Bull markets rarely move in a straight line. Commodities can be highly volatile; they rise higher than most believe possible, and corrections can take prices far lower than logical levels. However, the trends since the 2020 lows remain very bullish despite the recent corrections. Many commodities moved substantially higher over the past weeks and months, and the trend in the long bond remains lower since August. April and May were bullish months in the commodities sector, with more than a handful of raw materials rising to new multi-year highs and some reaching record levels. June was a corrective month in most, but energy commodities bucked the trend. Coffee rose to a new multi-year high along with natural gas over the past week. While the weather conditions in Brazil and the US are impacting the soft and energy commodities, the trajectory of price appreciation remains a sign of inflationary pressures. The tidal wave of liquidity and tsunami of stimulus comes with a price tag that will not be satisfied with a gradual shift towards tightening monetary policy. The stock market’s rise over the past year could be a mirage as it may reflect a decline in money’s purchasing power instead of bullish fundamentals for many companies.

Meanwhile, even the most aggressive bull markets rarely move in a straight line. Periodic severe selloffs are the norm, not the exception. Bull market corrections can be sudden and brutal, as we have witnessed in more than a few markets. The overall trend in raw materials and other asset prices, including stocks, remains higher, a clear sign of inflationary pressures.

When it comes to the prospects for rising taxes, corporations are likely to pass along hikes to consumers, adding to inflationary pressures. Global tax agreements are a move towards supranational governing. The US has enough problems breaching the divide between political policies on issues and initiatives. Cross-border agreements would raise far more cultural, political, and economic issues. What seems ideal to politicians is often unachievable in the practical world.

A capital gains tax hike could eventually cause selling in the stock market as investors cash in on significant profits and need to sell more shares to pay the government more at tax time. Moreover, higher corporate taxes trickle down to the consumer, so all Americans from rich to poor will be paying more to the government either directly or indirectly. Higher inheritance taxes could increase selling. Over the past years, retirement accounts have provided the stock market with consistent and natural buying, making the path of least resistance for stocks higher. Rising taxes could interfere with the phenomenon and balance buying and selling or even create periods where selling overwhelms buying, adding to stock market volatility and creating more significant downdrafts. The administration has been signaling that some of the tax hikes could be retroactive to at least part of 2021. US government remains divided even though Democrats have majorities in the House of Representatives and the Senate. However, the majorities are razor-thin, and the midterm elections are coming closer each day.

Open interest in the E-Mini S&P 500 futures contracts moved 0.06% lower since July 20. Open interest in the long bond futures moved 2.07% lower over the period. Over the long term, fighting the Fed has been a losing battle, but the last year has been an exception. The VIX at 17.98 on July 28 was only 0.78% higher since July 21 after trading to a high at the 25-level last week. Taxes and regulations will increase, which is not bullish for the stock market. I expect price variance in the stock and bond market to continue. We may have to wait for the fall, which is historically the time of the year for speedbumps in the stock market. I had been buying VIX-related products as they fall and selling them on rallies, trading for small profits while adjusting risk-reward expectations according to market conditions.

Commodities and bonds have been significant barometers of inflationary pressures over the past year. In 2021, the bond market told us that the Fed policies have significant inflationary side effects. A correction in stocks causes the bonds to bounce higher, as we witnessed on July 19.

Meanwhile, China is a substantial holder of US debt. As the tensions between Washington and Beijing remain elevated, any Chinese selling could push rates much higher further out along the yield curve. Financing the US debt through the bond market could cause the Treasury to issue bonds with longer maturities to pay for the trillions in stimulus packages, but they better hurry. Even though yields have increased, they remain historically low. Higher yields over the coming months and years could close a window of opportunity for one-hundred-year US debt securities to fund the deficit, which makes sense at today’s rates.

Meanwhile, the increasing number of computer hacks could create problems for the stock market if they impact critical infrastructure areas. Moreover, the frenzy of speculation in GameStop, AMC, Bed Bath and Beyond, and other stocks in the crosshairs of the Reddit crowd is a bubblicious sign for the stock market. Some analysts believe there is a substantial change in investor and trader behavior, while others attribute the phenomenon to bubblicious activity in the stock market. I believe it is not a question of if the stock market will suffer a substantial decline, but when it will occur.

The administration is looking to raise tax rates and take advantage of the growing wealth. Markets remain more than bubblicious. We are either in a bubble, or fiat currencies are losing value at an accelerating pace. Higher interest rates and rising taxes are not a bullish cocktail for the stock market.  However, TINA or there is no alternative to stocks for capital growth, and tax-advantaged retirement accounts continue to push money into the stock market. As of July 28, the stock market trend remains mostly bullish, but the price action on July 19 was a warning sign. The trend in bonds is also bullish.

As I wrote over the past weeks, hedging stock portfolios at or near all-time highs could be the optimal approach given the uncertain future of markets. Markets reflect the economic and political landscapes, creating high odds for lots of volatility over the coming months. The market became choppy over the past weeks. I believe a very volatile period is on the horizon, and we will see lots of two-way price action in markets across all asset classes sooner rather than later. We could look back at July 19 as the day that the stock market sent a significant signal. However, so far, the event turned out to be a one-day wonder that resolved in another set of new record highs.

Currencies

The September dollar index futures contract declined over the past week and was at 92.317 on July 28, down 0.48% from the level in the previous report. The dollar index reached a new high on July 21 at 93.195, the highest level since April 1. The dollar had been working its way higher despite a bearish reversal on the daily chart on July 21. The dovish Fed meeting was not bullish for the dollar index.

The index’s continuous contract made a high for 2021 on March 31 at 93.47 but fell to a low of 89.515 on May 25, just above the early January 2021, 89.165 low. It had been trading on either side of the 90 level before it broke higher after the June FOMC meeting. The dollar index made higher lows and higher highs from early January through early April. The world’s reserve currency switched back into the bearish trend that has gripped the dollar since March 2020. The prospects for higher interest rates created a higher low and pushed the dollar index higher. Technical support is at 91.955. Below there, it is at 89.515, 89.165, and 88.150, the continuous contract low from February 2018. The high at 93.195 on July 21 on the September contract and the March 31 continuous contract peak at 93.47 are the short-term technical targets and resistance levels. Open interest in the dollar index futures contract rose 10.64% over the past week as the bullish sentiment continues. The prospects for higher US interest rates put upward pressure on the dollar’s value versus other leading world currencies from January through the end of March 2021. However, dovish monetary policy and stimulus that increase the money supply have been a bearish factor. A pivot towards tightening credit at the Fed is bullish for the US dollar. If the Fed does not act, the index will likely fall.

Daily historical volatility in the dollar index was 2.94% on Wednesday, far lower than on July 21. The weekly volatility measure stood at 5.36% on Wednesday, marginally higher than last week’s level. The February 2018 low at 88.15 is critical support for the dollar index, but it moved away from long-term support over the past weeks as interest rates are likely to rise.

Selling in the stock market and other asset classes or rising US interest rates would likely lift the dollar as the US currency is the world’s reserve foreign exchange instrument and a haven for safety in troubled times. The dollar’s bullish price action ran out of steam at the 93.47 level during the week of March 29, 2021, creating lower highs in the dollar. The short-term chart broke out to the upside; a move over the 93.47 level would end the pattern of lower highs that has been in place since March 2020.

The September euro currency was 0.31% higher against the dollar. The euro is the other world reserve currency and accounts for 57.6% of the dollar index. Open interest in the euro futures fell 0.74% from July 20. Expectations for a more globalist approach to foreign policy by the Biden administration had been bullish for the euro. The euro versus the dollar currency relationship was at the $1.18495 level on the now active September futures. Support is at $1.17465, the March 31 low with resistance at $1.19945, the June 25 high.

The September pound moved 1.39% higher against the dollar since the previous report as the pound outperformed the dollar and the euro over the past week. The number of COVID-19 variant cases declined in the UK, which likely pushed the pound higher. Open interest in the pound futures fell 1.81% over the past week. The US is likely to favor Europe over the UK as the Democrats support more globalist policies. All signs are that the Biden administration will embrace Europe over the coming months and years. The global corporate tax initiative is another sign that globalism is rising. All seemed very friendly between Europe’s leaders and US President Biden at the last G-7 meeting.

The dollar had been falling since March 2020, but the price action since early January threatened the bearish pattern. Currency markets rarely move in a straight line. Trends can continue for years with plenty of rebounds in bear markets or dips in bull markets. Governments manage the currency market via coordinated intervention to provide “stability.” Price spikes are rare, but trends can last for long periods. A correction in stocks and other markets could cause the dollar to break higher over the coming weeks and months. Treasury Secretary Yellen is likely to follow a strong dollar policy in a departure from the former administration. The short-term trend in the dollar index is now higher, but the medium-term trend remains lower with lower highs. Meanwhile, the long-term trend dating back to 2008 is bullish, creating a confusing picture for the dollar’s future path.

Since July 21, Bitcoin exploded higher to $40,371.56 on July 28. The leading digital currency powered 26.67% higher over the past week. The leading cryptocurrency fell to a low of $28,800 on June 22 before recovering. News that Amazon is looking to accept cryptos helped turbocharge the recovery. Government’s control of the money supply remains the primary stumbling block facing Bitcoin and the cryptocurrency asset class.

Christine Lagarde, the President of the European Central Bank, and Janet Yellen, the US Treasury Secretary, continue to express concerns about the nefarious uses of cryptocurrencies. However, both are most likely more concerned about Bitcoin and the other digital currencies because they reflect a rejection of central banks and governments’ control of the global money supply. While I believe in the future of the asset class, central banks and governments could cause lots of volatility in the cryptos as they seek to regulate the asset class. I have been writing the risk of regulation and rejection of digital currencies will rise with the token’s values. The comments from the ECB President and US Treasury Secretary in 2021 have been warning shots over the bow for the asset class. There is a distinction between digital currencies that governments will issue and cryptocurrencies reflecting a libertarian view of the global money supply.

In hindsight, the parabolic price action was more than bubblicious, but Bitcoin ushers in a new era of financial technology to be embraced rather than rejected. Blockchain technology is both revolutionary and evolutionary for finance. It is also a disruptive technology that threatens the status quo and institutions. At last week’s B-word conference, Jack Dorsey, CEO of Twitter and Square, called cryptos the currency of the internet. Elon Musk admitted to “pumping but not to dumping” cryptos which likely cause government lawyers to scurry around in a frenzy, accomplishing Mr. Musk’s likely goal.

Meanwhile, China is rolling out its digital currency, which could have a significant impact on the world’s foreign exchange markets. China is far ahead of the US and Europe, which could change the dynamics of reserve currencies over the coming years. China’s ban on Bitcoin is likely in anticipation of the digital yuan. Chairman Powell said that it is critical not to rush and get a digital dollar “right.” Regulation of the asset class in one the horizon in the US. China regulates with a sledgehammer while the US and Europe take a much different path.

On May 3, the CME rolled out a new micro Bitcoin futures contract that is one-tenth the size of one token. The margin requirement for a micro Bitcoin future is around the $2,500 level. The micro could increase interest and trading in the Bitcoin futures arena as the volatility is a magnet for speculative interest. The larger standard contract experienced a 5.81% decrease in open interest over the past week, and the micros also saw the metric edge lower. Keep an eye on the total number of open long and shorts in the micros, which could evolve into a sign of critical mass in the futures arena.

Gary Gensler, the SEC head, taught a course on Fintech after his stint at the head of the CFTC. He is likely to attempt to regulate the market with a pragmatic approach, which could cause broader acceptance of digital currencies. However, the philosophy of the asset class runs contrary to any government rules or controls, which creates a fundamental problem for the new head of the SEC. We will likely see the US and Europe work together to develop a regulatory framework.

 The Coinbase listing was a huge success, but like many initial listings, the stock dropped below the $250 reference price after trading to nearly $430 per share. COIN was trading at $241.75 on Wednesday, up $10.88 since July 21. The platform’s stock reached a low of $208 on May 19, well below the pre-listing $250 per share reference price. COIN is likely to reflect the ups and downs in the cryptocurrency asset class as it could become the best proxy for the asset class’s market cap until other products emerge.

In previous reports, I wrote:

“COIN could be a candidate to add to portfolios now that it is below the $250 reference price level as it is a pick-and-shovel play on the digital currency asset class.”

COIN will profit from trading volume rather than prices. While bull markets tend to increase interest in markets, wild price swings can also lead to more speculative participation.

In the previous reports, I wrote:

“I view COIN as a pick-and-shovel play on the asset class and will look to buy shares on a scale-down basis below the $230 level.”

COIN shares are still below the reference level, and I rate the stock a buy on a scale-down basis for the long term, leaving room to add on further weakness.  

ETF products would increase the addressable market for the asset class, which could push prices to even higher highs. Futures on Bitcoin and Ethereum caused rallies in the cryptos. As the access to the market expands, the price action has been bullish. ETFs would likely turbocharge the asset class. Coinbase’s listing as the leading crypto exchange and future ETFs are likely to open the door for regulations, which would be a compromise between the asset class and the European and US governments. The US and Europe are likely to increase efforts to roll out digital dollars and euros, given China’s plans for a digital yuan. However, national digital currencies will still be different than the cryptocurrencies that embrace defi or decentralized finance. The ideological divide is a stumbling block for regulators looking to strike a balance for the asset class.

The Colonial oil pipeline hack is a reminder that cybersecurity and hacking pose a threat to the asset class. Custody also remains a serious security issue. Tesla’s about-face on accepting Bitcoin makes carbon and energy requirements another of many stumbling blocks for coin mining.

The volatile digital currency asset class’s market cap rose over the past week. Ethereum rallied 18.15% since July 21. Ethereum made a new all-time high at $4,406.50 on May 12. Ethereum was at $2,315.52 per token on July 28. The market cap of the entire asset class rose by 20.37% over the past week. Bitcoin outperformed, and Ethereum underperformed the asset class since the previous report. Ethereum is a faster and more efficient protocol which led to the recent outperformance compared to Bitcoin, which corrected a bit over the past week.

Market participants had been looking for the next Bitcoin, Ethereum, or other tokens that have provided spectacular rewards. However, many will wind up as dust collectors in those wallets in cyberspace. The number of tokens increased by 89 to 11,085 since the previous report as the market remains hot. Some analysts believed the next milestone for Bitcoin is the $100,000 level or higher, while others are looking for it to drop to $10,000 or lower. Parabolic markets can reach highs few believe possible, but gravity is a potent force once the furious buying stops and sellers become more aggressive, as we learned in May. As we witnessed in April, Bitcoin’s risk rose with its price. It seems that Bitcoin reached a bottom below the $29,000 level.

On Wednesday, the market cap was around $1.561 trillion. The market cap means a severe selloff is unlikely to cause any systemic disturbance to markets, but that may not be the case over the coming years if it continues to grow at an exponential rate. President Biden’s proposed capital gains tax rate hike could have weighed on values as many newly minted crypto millionaires and billionaires could face a massive tax bill. The proposal more than doubles the rate from the current level. Short-term technical support for July Bitcoin futures remained at $28,840, the June 22 low, with resistance at around the $41,405 level the June 15 high on July futures. Continue to expect volatility in digital currencies, and you will not be disappointed. A robust US-based ETF product that addresses custody would continue to add even more bullish fuel to the asset class.

The higher the Bitcoin price and market cap of the asset class rises, the more likely governments will seek to regulate and control or even ban the cryptos, which is the leading risk for digital currencies. Governments control the money supply, and digital currencies threaten that power, a warning and potential stumbling block after the recent explosive price action. So far, they are hoping that the market corrects, and they got their wish on Wednesday. Fighting an aggressive bull or bear has left more than a few market participants trampled over history. Be careful in the digital currency arena that has been one of the most aggressive bull markets in history. The asset class offers lots of opportunities, but risk is always a function of potential rewards. While the prices have moved higher with each innovation, we should expect events that trigger massive selling in the blink of an eye, so caution is critical when approaching the asset class. Only invest capital that you are willing to lose as risk is always a function of potential rewards.

The Canadian dollar moved 0.25% higher since July 21. Open interest in C$ futures fell 7.72% since the previous report as market participants likely exited risk positions. The C$ is highly sensitive to commodity prices as Canada is a mineral-rich nation that produces significant quantities of energy and agricultural products. Keep an eye on the oil and grain futures market for clues about the Canadian dollar, as it often acts as a proxy for commodity prices.

The Australian dollar is also a commodity-based currency with a high degree of sensitivity to China’s economy. The A$ edged 0.15% higher since July 21. Open interest in the A$ futures was 2.54% higher since July 20. The geographical proximity to China makes the Australian dollar sensitive to events in China. The A$ is a proxy for both China and raw material prices. Economic strength or weakness in China often determines the path of the Australian economy. Australia has had a rough time with vaccinations as the country did not secure enough earlier this year. The government shut down Sydney over the past week as the number of COVID-19 cases increased.

Meanwhile, China has been threatening Australia, which could be weighing on its currency. In the long-term, the stimulus is bullish for commodities prices and both the Australian and Canadian currencies. Over the coming months and years, we could see significant gains in the C$ and A$ as commodity prices rise because of inflationary pressures caused by the increase in the global money supply. I believe the price action in 2020 in all markets was similar to 2008. In the years that followed, commodity prices soared because of the stimulus, taking the Australian and Canadian currencies appreciably higher against the US dollar because of their sensitivity to raw material prices. Over the long term, buying the A$ and C$ during periods of weakness could prove to be the optimal strategy. I have expressed a bullish opinion for the two currencies that I view as proxies for commodities prices over the past year.

I had been writing:

“I believe that any price weakness is a buying opportunity for the A$, and C$ over the coming weeks and months.”

I continue to favor the commodity-sensitive currencies because of their implied backing by natural resources. At the current levels, the A$ and C$ are back in the buy zone. While fiat currencies are likely to continue losing value, I view the A$ and C$ as unique cases. They have implied backing from raw materials produced in Australia and Canada and exported to the world. The two nations produce far more commodities than they need to sustain their citizens. As such, they are supermarkets to the world and should reflect the bullish trend in commodity markets. The A$ and C$ have been steadily rising over the past months, so the technical picture also supports the higher values against the US dollar. Both currencies remain in solid bullish trends, with the C$ leading the way. The A$ has Chinese risk exposure and problems with the virus, accounting for its lagging the C$ in appreciation over the past months.

Over the past week, the volatile September Brazilian real futures contract rose 1.65% against the US dollar. The July Brazilian currency was trading at the $0.19440 level after failing at the $0.20 level. The real is a critical factor when it comes to the commodities that the South American nation produces and exports to the world. Coffee, sugar, oranges, and a host of other markets are sensitive to changes in the direction of the Brazilian real. Brazil has seen a significant number of infections and fatalities because of coronavirus, which could weigh on its currency value. I am bullish for the real because of Brazil’s commodity production. The nation is a supermarket to the world for many products, just like Australia and Canada. However, Brazil has a far less stable political system and a poor economic track record given the many scandals over the past years and decades. The Brazilian currency is likely to continue to be far more volatile than the A$ and C$, but the same principles apply as raw material production underpins the value of the leading South American currency.

Meanwhile, the US’s political shift should put pressure on the Bolsonaro government, which will find itself isolated from other countries because of policy and ideological differences. President Bolsonaro is up for reelection in 2022. He could face formidable opposition given the suffering created by COVID-19. Brazil’s response to the pandemic has been criticized because of the President’s controversial leadership. Weather in Brazil has caused lots of price action in coffee over the past week as a frost threatens the crop.

In the aftermath of the global pandemic, the price tag for liquidity and stimulus could cause inflationary conditions that would provide support for the A$, C$, and the Brazilian real. A rise in commodity prices helps to bolster the value of the real. I am a buyer of the real on weakness against the US dollar. Technical resistance is at $0.2073, the June 2020 high, which is a critical target that could be a technical launchpad for the real.  

The dollar index faces short-term bullish and medium-term bearish trends. Currency trends tend to be slow as governments manage the level of their foreign exchange instruments using coordinated intervention. Meanwhile, I continue to believe that all fiat currencies are losing value. Watching one currency against another often masks the strength or weakness of the currencies that derive value from the faith and credit of the countries that issue legal tender.

The medium to long-term trend in the dollar remains lower until it can take out the 93.47 level, the resistance level on the continuous contract. Governments intervene and coordinate buying and selling in the currency markets to achieve stability, making the currency arena a highly manipulated asset class. The growing US national debt erodes the dollar’s value and position as the world’s reserve currency. Digital currencies and Fintech are likely to change the global nature of the foreign exchange market.

However, regulators and governments will not capitulate until cybersecurity, custody, money supply, and carbon issues are addressed. I think we will eventually see a bifurcation that separates cryptocurrencies from digital currencies and stable coins. However, that may be a long way down the road. The dollar index is threatening to challenge the medium-term bearish trend, but the July Fed meeting did not cause buying in the dollar. Increased volatility in all markets could cause the index to eclipse the 93.47 level.  

Precious metals continued to drift mostly lower over the past week, but they were edging higher in the aftermarket on July 28 after the Fed meeting.  

Precious Metals

All of the precious metals edged lower over the past week with platinum and rhodium posting the most significant losses. Gold edged lower, while palladium and silver prices declined.

August gold settled at $1,799.70 on July 28, down 0.21% over the past week. The price traded down to a low of $1,750.10 in the weeks following the June Fed meeting, with the low coming on June 29. Technical resistance for June gold is at the $1,835 per ounce level, the high from July 15. Support is at $1,789.10, the July 23 low.

Support for September silver moved lower to $24.515, the July 27 low, with resistance at $26.575 per ounce, the July 14 high. Silver came close to putting in a bullish reversal on the daily chart on July 21 but fell just short by one penny. September silver settled at $24.877 on July 28, 1.50% below the price on July 21.

If the price action from 2008 through 2011 is a guide, gold will eventually head for much higher prices, and silver should make higher highs. However, the road higher is rarely a straight line. Silver is a very different asset than a stock with a large, short interest. However, the many conspiracy theories surrounding the silver market make the metal a logical target for the herd of traders and investors on social media platforms. They took the price to a new high at the start of February, but silver corrected the very next day. I continue to believe that price weakness is a buying opportunity for long-term investors. We could see the Reddit crowd and other speculators have another try at pushing silver higher over the coming weeks and months after wild success with AMC, GME, and other stocks.

Gold and silver mining shares outperformed the metals since the previous report, which could be a timing difference as the Fed meeting’s decision came after the precious metals settled on Wednesday. The metal prices edged higher in the aftermath of the meeting. The GDX was 1.70% higher, and the GDXJ moved 1.01% to the upside. The SIL and SILJ silver mining ETF products that hold portfolios of producing companies moved 2.29% and 2.26% higher since July 21.

Gold outperformed silver since the previous report. The silver-gold ratio edged higher. The ratio reached a new modern-day high as risk-off selling hit the silver market last March, taking the price below the $12 per ounce level. The ratio moved steadily lower over the past months. I continued to add to long physical positions in gold, silver, and platinum during periods of price weakness. I will continue to trade leveraged derivatives and mining stocks on a short-term basis with tight stops. While gold mining stocks and derivatives follow the price of gold, they are not the metal and could experience significant periods of price deviation if risk-off conditions return to the stock market. I hold long core positions but will employ tight stops on any new positions that increase exposure to the two leading precious metals.

October platinum was 1.60% lower since July 21 and was at the $1,058.10 level. Platinum rose to a new multi-year high in February 2021. The green Biden administration’s green agenda is supportive of platinum as its high melting point makes it a perfect metal for catalysts, but platinum fell in sympathy with all of the precious metals and many other commodities over the past week. The critical level on the upside stood at the August 2016 peak at $1,199.50. The move above that level sent July platinum futures to a high of $1,351.20 on February 16. Platinum corrected since the mid-February high. Support on the October platinum futures contract is at $1,026, the June 21 low. Short-term resistance is at $1,145.20, the July 15 high. Platinum has the potential to explode if it follows the patterns in the palladium and rhodium markets over the past years. Waiting for a bullish recovery has been painful. Rhodium is a byproduct of platinum, and the price of the metal had been in a bull market since early 2016. The price of rhodium was sitting at a midpoint price of $18,200 per ounce on July 28, down $300 or 1.62% since the previous report. Rhodium lost over one-third of its value over the past weeks as the price fell from $30,000 to below $18,000 per ounce. Profit-taking likely hit the illiquid rhodium market. September palladium moved 1.22% lower since the previous report. Palladium reached a new record high at $3,019 per ounce on May 4. Support is at $2,565.50 on the September contract, the July 20 low, with resistance at $2,883, the July 6 high. September palladium settled at the $2,622.60 per ounce level on Wednesday, July 28.

Open interest in the gold futures market moved 1.97% higher over the past week. The metric moved 2.98% higher in platinum. The total number of open long and short positions was 1.65% higher in the palladium futures market. Silver open interest dropped 0.63% since July 20. The prospects for higher interest rates prompted long liquidation in precious metals since the FOMC meeting. They are likely waiting for further guidance from the Fed in August. The July meeting was not bearish for the precious metals.

The silver-gold ratio edged higher over the past week as gold outperformed silver.   

Source: CQG

The daily chart of the price of August gold divided by September silver futures shows that the ratio was at 72.25 on Wednesday, up 0.97 from the 71.28 level on July 21.  The ratio fell to a low of 63.88:1 on February 1, when July silver rose to the $30.015 level. The ratio traded to over the 124:1 level on the high on March 18, 2020. The long-term average for the price relationship is around the 55:1 level. The ratio rose to the highest level since futures began trading in 1974 as the price of silver tanked in mid-March. The move lower since then has been a supportive factor for the two metals. In 2008, the ratio peaked during the risk-off selling and then fell steadily until 2011.  The ratio moved over the 70:1 level for the first time since late January, which could be another bearish sign for the precious metals. The ratio tends to move lower during bullish periods in the gold and silver markets. The price action in the ratio since March 2020 is historically a bullish factor for the precious metals.

Platinum fell 1.60%, while palladium was 1.22% lower over the past week. September Palladium was trading at a premium over October platinum, with the differential at the $1,564.50 per ounce level on July 21, which slightly narrowed since the last report. July platinum was trading at a $741.60 discount to June gold at the settlement prices, which widened since the previous report based on settlement prices. Platinum and rhodium led the sector on the downside.

The price of rhodium, which does not trade on the futures market, was down 1.62% or $300 since last week at the $18,200 per ounce level. Rhodium is a byproduct of platinum production. Rhodium was highly volatile in 2020 and moved at a new record high in early 2021. The price moved higher from a low at $575 per ounce in 2016. The bid-offer spread in Rhodium remained at $2,000 per ounce. The spread is at a level that makes any investment in the metal irrational. Rhodium is an untradeable commodity, but it can provide clues about the price path of the other PGMs.

I continue to favor buying physical platinum as well as gold and silver during corrective periods. In gold and silver, the GLD, IAU, BAR, and SLV ETF products hold physical bullion and are acceptable proxies for the coins and bars. In platinum, PPLT and PLTM are the proxies. Leave buying scales wide during the current sell off as it is impossible to pick bottoms. Since a NYMEX platinum futures contract contains 50 ounces of metal, purchasing a nearby futures contract on NYMEX and standing for delivery is a way to avoid significant premiums for the metal. At $1,058.10 per ounce, a contract on NYMEX has a value of $52,905. Platinum continues to offer the most compelling value in the precious metals sector. Platinum had been underperforming all other precious metals for over half a decade.

The GLTR ETF product holds a portfolio of physical gold, silver, platinum, and palladium for those looking for diversified precious metals exposure. I continue to believe that gold will head a lot higher, but the route will not be in a straight line. The stimulus in the US and Europe continues to be highly supportive of gold and silver prices. Platinum is inexpensive from a historical perspective compared to gold and palladium. Palladium and rhodium continue to trade in bullish patterns, but both are sensitive to global economic conditions.

We should continue to see volatility in all of the precious metals with a bias to the upside. I continue to favor investing in physical gold, silver, and platinum on price weakness. I hold long core positions. When it comes to trading, I am going with the flow with very tight stops.

As I have written in the past, the long-term ascent of gold marks the descent of fiat currencies that rely on the full faith and credit of the governments that print legal tender. Central banks and governments worldwide continue to hold and be net buyers of gold, which is the ultimate currency. The conditions creating a risk-off period are only likely to increase liquidity and stimulus levels in what could eventually be a vicious bullish cycle for gold and silver prices. The most bullish factor for precious metals is the loss of purchasing power for fiat currencies.

While countries can print legal tender to their heart’s content, the gold stock can only increase by extracting more from the crust of the earth. If 2020 turns out to be anything like 2008, even higher highs in gold are on the horizon, and the precious metal has the potential to surprise and even shock market participants on the upside in the coming months and years. Gold moved to a record high in dollar terms, and it reached new highs in virtually all other currencies over the past two years. Silver broke a four-year resistance level over the past months. The price action in silver had been explosive after the metal created a blow-off low below $12 per ounce in March 2020. The trend is always your best friend in markets, and it is higher in the precious metals.

I have been writing:

“The odds of significant corrections rise with the prices, so be careful and remember to take some profits on the way up.  I am a buyer on dips but would leave plenty of room as price swings could be wide.”

The Fed and other central banks’ approach to monetary policy continue to weigh on currency values. As the value of the dollar, euro, and other currencies decline, it creates an almost perfect bullish storm for the world’s oldest means of exchange, gold and silver. I would only buy or add to long positions during significant corrections. We could be in for a bumpy ride in precious metals, but the price action remains bullish, and higher highs are likely on the horizon.

The economic impact of the coronavirus is prompting the Fed to add even more liquidity to the financial system and will encourage the US government is putting new stimulus programs in place. The increasing money supply is bullish for precious metals prices. The falling bond market had weighed on gold. Platinum corrected after its surge earlier this year. Production from South Africa declined because of platinum’s poor price performance over the past years.

As I have written over the past months:

“I continue to believe platinum is the metal that has the highest odds of a shocking price move to the upside.”

I expect the precious metals bull to charge higher later this year, but it is likely to be a bumpy road, as we witnessed over the past weeks. The bull market in gold began at the start of this century and continues as we head into its twenty-first year. However, there have been long periods of price consolidations and occasional downdrafts. Bull markets often suffer severe selloffs on the route to higher prices. Silver is the barometer for investment demand as it attracts the most speculators, as we witnessed recently. Meanwhile, demand from electronics and solar panels for silver and green technologies for PGMs continues to provide industrial support for the prices.

We have seen significant price appreciation in the digital currency asset class. Many “experts” believe that Bitcoin and other digital currencies are attracting investors that would typically purchase gold and silver. I continue to think that this is a short-term phenomenon. The sudden sentiment shift could produce rallies in the leading precious metals. Gold and silver have been a means of exchange for thousands of years, while cryptocurrencies have only been around for the past decade.

Moreover, since the digital currency asset class threatens the central bank and governmental control of the money supply, the risk of investing in many of these products is elevated given the recent parabolic gains. While I believe in the future of digital currencies, they are likely to experience lots of volatility as central bankers like Christine Lagarde’s call for regulation to stop the “speculative” price action. US Treasury Secretary Janet Yellen’s comments are also cautionary for the asset class.

In an environment where the faith in governments is declining along with creditworthiness, gold and silver are likely to continue to attract investment demand. PGMs clean toxins from the air. A greener policy path in the US and worldwide to address climate change increases the demand for platinum and palladium. I continue to hold precious metals and add to physical positions on price weakness. Look to buy on weakness and avoid paying up for the metals during rallies. Sudden price spikes tend to be selling opportunities.

Meanwhile, I will retain a core long position for the long term. I believe gold will find a bottom sooner rather than later. Gold was in the buy-zone at the lowest price of 2021, below $1,700 per ounce. It failed at the $1,900 level. Critical support is all the way down at the $1,450.90 level, the 2020 low. I believe the long-term bull market trend will reawaken the gold and silver markets in 2021.

Over the past weeks, I wrote:

“I have begun buying more gold mining stocks via GDX and GDXJ as I believe they will eventually outperform gold when the price of the metal begins to climb. I am using wide scales but believe we will see gold and silver at higher prices over the coming weeks and months.”

I remain bullish on precious metals, given the inflationary environment in markets across all asset classes. However, I will be using wide scales over the coming sessions. Every significant dip in gold has been a buying opportunity over the past two decades. I remain a committed and cautious precious metals bull.

I continue to buy and add to physical long positions on price weakness. The low in gold on June 29 could be a significant bottom. If the price remains above the $1,750.10 level on the August futures contract, I will maintain a bullish stance. Nothing changed since last week, even though prices edged lower. The precious metals sector is sleeping.

Energy

The price action in the crude oil market on July 19 turned out to be a short-term correction that gave way to higher prices. Over the past week, Brent and WTI futures, oil products, and crack spreads rallied. Natural gas rose to new highs over the $4 level. Coal is near the highest price since 2008. Ethanol swaps pulled back, but that had more to do with corn than energy prices.

September NYMEX crude oil futures rose 2.97% since July 21 to settle at $72.39 per barrel after reaching a new short-term high at $76.98 on July 6 on the August contract, the highest price since 2014. September crude oil futures put in a bearish reversal on the daily chart on July 6 and fell to a low of $65.01 on July 20, where they found a bottom. NYMEX crude oil had been making higher lows and higher highs since April 2020 and moved marginally above technical resistance at the $76.90 per barrel level, the October 2018 peak. Crude oil fell on the back of OPEC+’s compromise to taper production cuts and the increase in the number of delta variant COVID-19 cases. However, the selling was short-lived. While crude oil took an elevator lower on July 19, it stopped on a much higher floor before rising again.

OPEC and Russia are the beneficiaries of changes in the US regulatory environment. OPEC’s mission is to optimize returns for petroleum producers, which is bullish for the global petroleum markets. As I had been warning, the pricing power in the crude oil market has passed from the US to the oil ministers and Russia as the shift in US energy policy means less output from the country that was the world’s leading producer. The changes in global petroleum dynamics are a significant event with ramifications for the coming years. Rising tensions between President Biden and the Russians and Saudis only add to OPEC+’s desire to extract as much as possible from US consumers. The potential for much higher prices remains a clear and present danger. An inflationary environment only increases the potential for higher oil prices. The administration ended oil and gas leases on federal lands in Alaska, which is not bearish for the prices of the traditional energy commodities.

September Brent futures outperformed September NYMEX WTI futures, as they moved 3.45% higher since July 21. The critical technical resistance levels in Brent is at $77.84, the July 6 high, and $86.74, the October 2018 peak. Brent for September delivery was trading at the $74.74 level on Wednesday. September gasoline rose 4.01% to the $2.2820 per gallon level after reaching over $2.33 on the continuous contract. The gasoline processing spread in September increased by 7.73% since the previous report. The active month September gasoline crack spread was at $23.42 per barrel after the continuous contract traded to a high of $27.30 on May 10 on the back of the Colonial pipeline issues and shortages along the US east coast. The hack is a sign of what could happen to parts of the US’s infrastructure over the coming weeks, months, and years. Gasoline crack spreads tend to exhibit strength during the summer driving season in the US and weakness during the fall and winter months.

As I wrote in earlier this year:

“We are now moving towards the 2021 driving season, which could take the gasoline crack higher over the coming weeks and months.”

Gasoline could eventually head for the $3 per gallon wholesale level with the shift in US energy policy. September heating oil futures moved 3.31% higher since the last report. The active month September heating oil crack spread was 4.18% above the July 21 level. Heating oil is a proxy for other distillates such as jet and diesel fuels. Economic growth and increasing air travel demand boosted distillate prices over the past months.

The September distillate crack spread closed on Wednesday at $18.20 per barrel after the continuous contract reached a high at $21.28 on May 12. Distillates received support from increased demand for air travel over the past months. The crack spreads are a real-time indicator of demand for crude oil as well as barometers for the earnings of refining companies that process raw crude oil into oil products.

I pointed out that:

“The crack spreads could be a significant indicator of demand over the coming weeks and months.”

Vaccines are bullish for energy demand the latest outbreaks are bearish. Stimulus and a stricter regulatory environment in the US under the Biden administration support the price of crude oil as US energy policy takes a greener path. The selling after the OPEC+ conflict was not a surprise as members could increase output at the current high price levels. However, demand is booming, and the correction ended with a higher low so far. The progress of the COVID-19 variant is likely the most significant factor for crude oil and product prices over the coming weeks.

Crude oil and product prices suffered sharp pullbacks in mid-March but bounced back to make new and higher highs. OPEC+ and US energy policy are not bearish for the crude oil market. We saw another sharp decline, but it found a low at a much higher level. The measure of daily historical volatility in NYMEX crude oil was at 48.30% on July 21, slightly lower than the level on July 21. The price variance metric was at over 64% in March when the market corrected.

Since crude oil tends to take the stairs higher and an elevator lower, volatility tends to move lower during bullish periods and vice versa, which is a reason for caution over the coming trading sessions. Daily historical volatility peaked at nearly 40% on May 24 and has almost halved since crude oil rose to a new multi-year high on July 6. It exploded higher as crude oil fell by over $10 per barrel from the high and then snapped back over the $70 level.

US energy policy is the most significant factor in the oil market in 2021. Daily production reached an all-time peak of 13.1 mbpd in March 2020. A more restrictive regulatory environment is likely to make that peak unattainable over the coming months and years.

As the vaccines create herd immunity to the coronavirus, the demand for crude oil is likely to rise. With OPEC and Russia in a more influential position when it comes to supplies, higher prices could be on the horizon. Worsening US-Saudi relations that push the KSA towards Russia could exacerbate the rift and drive oil prices higher. Goldman Sachs is looking for higher highs and the $80 level over the coming months.

Crude oil posted gains over the past five consecutive quarters. A close over $73.46 on September 30 is necessary to extend the streak to six quarters. Nearby futures have not traded below $50 since January 6. The price fell below $60 in March, and the level had become a pivot point for the energy commodity. Over the past weeks, it remained well above the $60 level, made a higher high and higher low, and is still just over $72 per barrel.

Meanwhile, the Middle East remains a potential flashpoint for the crude oil market. The area is home to more than half the world’s crude oil reserves. Any hostilities that cause supply concerns could send the price of crude oil for nearby delivery appreciably higher in the blink of an eye. The Middle East could provide surprises to the oil market, but global demand remains the primary factor for the price over the coming weeks. Iran remains a turbulent factor in the area that is home to over half the world’s crude oil reserves. Even though the Biden administration seeks to move back into the nuclear nonproliferation treaty with Iran, tensions between the two nations remain high. Meanwhile, the dramatic shift in US production policy increases OPEC and Russia’s influence in the crude oil market, which is ultimately bullish for the price of the energy commodity.

Crude oil open interest moved 3.72% higher over the past week. NYMEX crude oil moved 2.97% higher since the previous report. The energy shares underperformed crude oil since July 21, which I view as a buying opportunity. The XLE fell 2.22% since last week’s level. When it comes to the energy-related shares, we should continue to see consolidation in the oil business over the coming months.

In previous reports, I wrote:

“I would only consider those with the most robust balance sheets like XOM and CVX in the US. Exxon and Chevron could stand to pick up lots of production assets at bargain-basement prices over the coming months as the number of bankruptcies rises in the oil and gas sectors. Both companies pay substantial dividends and have yet to cut or eliminate payments to shareholders. XOM and CVX are the two leading US integrated oil companies. I would only purchase these companies during corrective periods using wide scales.”

After buying the leading companies on weakness, I had taken profits on a scale-up basis. I added to long position positions over the past week on price weakness. The spread between Brent and WTI crude oil futures in September moved higher to the $2.35 per barrel level with a premium for Brent on July 28, up 40.00 cents since last week. The Brent premium tends to move higher during bullish periods in the oil market and vice versa.

However, in the first months of 2020, it was the carnage in the price of WTI futures that drove the spread to higher levels. Brent crude can travel by ocean vessel to consumers around the globe, while WTI is a landlocked crude oil. The lack of storage capacity was responsible for the price action in the spread and outright prices in late April that took nearby NYMEX futures into negative territory. Meanwhile, any problems with Iran could cause the Brent premium to spike higher.

A decline in US production could cause significant volatility in the Brent-WTI spread. Before 2010, WTI often traded at a $2 to $4 premium to Brent. The WTI grade has a lower sulfur content making it the preferable crude oil for processing into gasoline, the world’s most ubiquitous fuel. If US output continues to decline significantly and demand returns to the market, we could see it impact the Brent-WTI differential and cause periods where WTI returns to a premium to the Brent, which is better suited for refining into distillate products. The spread also reflects the political risk in the Middle East as the region uses the Brent price for its output. The USO and BNO ETF products replicate the short-term price action in WTI and Brent futures, respectively. While both do an adequate job tracking the futures in the short-term, neither are particularly effective for medium or long-term positions because of the volatility of the forward curves in both crude oil benchmarks. The path of least resistance of the oil market will be a function of the ups and downs of the global pandemic and the stock market over the coming months. Iran and the pandemic continue to be factors that could prompt price volatility.

Term structure in the oil market experienced a significant shift as the price of crude oil tanked in March and April 2020. The flip from backwardation to contango in the spread reflected the flood of supplies in the crude oil market. Oil traders filled tanks and storage all over the world to take advantage of the wide contango with financing rates at historic lows. Cash and carry trades in the oil market became one of the only profitable areas of the market as demand evaporated back in February through April. The cash and carry trade put upward pressure on freight and storage rates. The forward curve had moved to the widest contango in years. The contango caused the price of May futures to plunge to an incredible low of negative $40.32 per barrel. As prices moved higher since late April 2020, the contango declined and moved into backwardation.

Since July 21, crude oil for delivery in September 2022, minus September 2021, moved from a backwardation of $6.73 to a backwardation of $7.63 over the period, tightening by $0.90 per barrel over the period.  The backwardation traded at a new $8.86 high on July 6. In 2021, the September-September one-year spread had been in backwardation in a range from flat to $8.86 premium for the nearby contract. The backwardation moved away from the high on July 21. Rising contango is a sign of a glut in the oil market, while falling contango and backwardation signifies tighter supplies.

Last year, the capacity for crude oil storage around the globe fell dramatically as well-capitalized traders purchased nearby crude oil, put it in storage, and sold it for futures delivery. The widening backwardation likely triggered profit-taking on the spread, which opens up more capacity on the storage front.  Falling production caused the spread to tighten.

Production declines and declining inventories over the coming months would result in significant profits for well-capitalized crude oil traders who continue to store crude oil against deferred short positions. The rally in crude oil since the lows in early November drove the one-year spread into backwardation, which was a sign of tightening supplies. Any problems in the Middle East could cause lots of volatility in the term structure for crude oil as they would likely push nearby prices higher compared to deferred levels. Dominant market participants in the petroleum arena manage the forward structure to create backwardations, making consumers pay the highest possible price for the energy commodity.

The number of rigs operating in the US was seven higher over the past week. According to Baker Hughes, on July 23, the number of rigs in operation was at 387, 206 above the level last year at the same time. While US energy policy will cause drilling activities to decline, the number of rigs operating dropped precipitously last year as the pandemic caused industrial activity, mining, and drilling to grind to a halt. Higher prices are causing rig counts to rise in the US, but not at the same rate they would given the regulatory environment under the Biden administration.

US daily production stood at 11.20 million barrels per day of output as of July 23, according to the Energy Information Administration, down 200,000 bpd since the previous week. As of July 16, the API reported a rise of 806,000 barrels of crude oil stockpiles, while the EIA said they increased by 2.10 million barrels for the same week. The API reported a rise of 3.307 million barrels of gasoline stocks and said distillate inventories decreased by 1.225 million barrels as of July 16. The EIA reported that gasoline stocks fell by 100,000 barrels and said distillate stockpiles moved 1.30 million barrels lower. The inventory data was neutral for the crude oil market.  As of July 16, US production dropped by 1.90 million barrels per day or 14.50% since the March 2020 record high in output.  

OIH and VLO shares continued to fall since July 21. OIH was down 4.19%, while VLO edged 0.55% lower over the period. OIH was trading at $193.61 per share level on Tuesday. I am holding a small position in OIH. We are long three units of VLO at an average of $63.81 per share. VLO was trading at $67.30 per share on Wednesday. The shares should follow the crude oil and stock market over the coming days and weeks. I am bullish on both and have added to long positions.

September NYMEX natural gas moved higher to $3.967 per MMBtu or 0.74% above the price on July 21. US energy policy considerations could cause price volatility over the coming weeks and months as a shift to address environmental concerns may limit production.

Support in September natural gas futures is at $3.572 per MMBtu, the July 16 low. Technical resistance is at $4.165, the July 26 new multi-year high. August natural gas reached the highest price since December 2018 over the past week at $4.187 per MMBtu. Natural gas futures put in bullish reversals on the daily chart on April 22 and 26 and followed through on the upside. It put in another bullish reversal on June 4.

Natural gas put in a bullish reversal on the weekly chart on the week of June 21 and followed through on the upside. The price traded to the highest level since late 2018 when the energy commodity reached over $4.90 per MMBtu.

Source: EIA

The EIA said stocks rose by 49 bcf to 2.678 tcf for the week ending on July 16. Stocks moved 16.6% below last year and 6.2% below the five-year average. The EIA will report inventory data for the week ending on July 23 on Thursday, July 29. The market expects a 47 bcf injection into stockpiles as hot weather increases the demand for power, and natural gas has only been trickling into storage.

Stockpiles peaked at 3.958 tcf before the beginning of the peak season. Baker Hughes reported that a total of 104 natural gas rigs were operating in the US as of July 23, unchanged from last week and 36 above last year’s level. LNG shipments to destinations outside the US are an expanding demand vertical for the natural gas market, pushing the number of operating rigs higher.

However, US energy policy that increases regulations on fracking could weigh on further increases and supplies and support the price of the energy commodity.  At the end of the 2019/2020 withdrawal season, stocks reached a low of 1.986 tcf. We declined below that level on February 19. The low in the 2020/2021 withdrawal season was 1.750 tcf, 236 bcf lower than the 1.986 tcf at the start of last year’s injection season. If production declines because of the regulatory environment in Washington, DC, we should expect injections to flow into storage at a slower pace in 2021 than in 2020, which could put upward pressure on the natural gas price. We have seen that trend develop over the past weeks. Increased demand because of hot weather and a booming LNG export market are only feeding the bullish natural gas futures market.

Open interest moved 0.79% lower in natural gas over the past week. Price momentum and relative strength on the daily chart were above neutral territory on Wednesday. I continue to expect the natural gas market to reflect the shift away from fossil fuel production under the Biden administration. Lower production could lead to higher base prices for the energy commodity. The trend turned higher on January 22 and lower on February 18. The short-term trend turned higher again on April 6 at $2.639 per MMBtu on September futures and has not looked back. The price made the latest new high on July 26. The shift in US energy policy is clearly bullish for oil and gas. The risk of a correction rose with the price of the volatile energy commodity sending it back below the $4 level on Tuesday and Wednesday.

September Chicago-swap ethanol prices were 3.70% lower since July 21, with the price at $2.080 per gallon wholesale. The price of October thermal coal futures for delivery in Rotterdam moved 4.50% higher since last week after significant gains in previous reports. The demand for metallurgical coal for steel making had been robust over the past months. Coal traded to the highest price level since 2008 over the past week.

On Tuesday, July 27, the API reported that crude oil inventories fell by 4.728 million barrels for the week ending on July 23. The API said gasoline stockpiles dropped by 6.226 million barrels, and distillates decreased by 1.882 million barrels for the week. The EIA reported a decrease in crude oil inventories of 4.10 million barrels on Wednesday, July 28. They said gasoline stocks fell 2.30 million barrels, and distillate stockpiles were 3.10 million barrels lower. The latest API and EIA reports were bullish for the price of the energy commodity.

Weather, US energy policy, geopolitical events, the stock market, and the US dollar will guide the price action in the crude oil market over the coming weeks and months. Natural gas is in the injection season. While natural gas typically displays weakness during the injection season, changes in US energy policy could support the price as production will decline. US relations with Iran and Saudi Arabia could add to price volatility in the oil market over the coming months and years.

I have been taking profits quickly and stopping losses looking for a 1:2 risk-reward ratio on forays into the crude oil futures market. UCO and SCO products can be helpful for those who do not trade futures.

In natural gas, I have been using the BOIL and KOLD products, which offer some leverage on the long and short sides. We are holding a long position in PBR, Petroleo Brasileiro SA. At $11.07 per share, PBR edged 0.90% lower since July 21. I have a small position that I will hold as a long-term investment.

As I wrote when the shares dropped below the $8 level:

“I believe PBR is at a level that offers compelling value at below $8 per share.”

Tight stops continue to be the key when approaching energy commodities in the futures or ETF arena. When it comes to share prices, I have been a seller of the leading oil companies on price strength that I bought scale-down over the past weeks. I had sold 80% of the long positions that were in place when crude oil hit its low in early November. I am now building long positions again, leaving room to add on further weakness. I am only buying the top companies and ETFs, including, XLE, CVX, XOM, OIH, VLO, TOT, BP, RDS-B, and PBR.  

Energy powers the world, and demand is critical throughout the rest of 2020. A sudden drop in the US stock market would likely weigh on crude oil prices. I am trading natural gas from both sides of the market with very tight stops. I have only been trading in the crude oil and natural gas markets with very tight stops on futures and ETF products. I am a buyer of leading oil companies. Keep an eye on events surrounding Iran as they could cause sudden price spikes. When taking risk positions home overnight or over weekends, keep the potential for Iranian retaliation in mind. The theocracy in Teheran may want to further test the US as they look for an edge in nuclear talks.

Meanwhile, at the $72 per barrel level, the medium and long-term trends over the last year remain higher. In natural gas, US energy policy could be the most influential factor in 2021. Warren Buffet made a $10 billion investment in natural gas infrastructure in mid-2020, which was a vote of confidence for the future price action. Natural gas rose to close to triple its price from the June 2020 low at $1.432 per MMBtu at its most recent high. I believe the base price for natural gas will continue rise over the coming months and years. In the short term, the risk of a correction is rising with the price.

Rising inflationary pressures support the prices for all energy commodities. However, any risk-off periods in markets could cause a sudden correction in the oil market, as we witnessed on July 19. I believe the move to new highs after probing below the $60 level in March was constructive, and we will see higher lows and higher highs in both crude oil and natural gas over the coming weeks and months. The bounce from $65 to over $72 was another validation of the bullish trend.

Expect the unexpected in the energy sector. Crude oil will be watching the developments surrounding COVID-19 variants. Natural gas remains in a bullish trend. Ethanol and coal prices continue to point to higher energy prices so long as demand remains robust and the pandemic does not reemerge with a vengeance.

Grains

After moving higher last week, the volatile grain and oilseed futures markets corrected lower since July 21 during the heart of the growing season. Prices move higher and lower with the weather reports. The higher level of corn, soybean, and wheat prices in 2021 only exacerbates the daily price moves.

November soybean futures dropped 2.07% since July 21 and were at $13.6100 per bushel on July 28. The price of new crop soybeans reached a new high of $14.80 on June 7. The continuous contract reached $16.7725 in May, an over eight-year high. Support on November futures stands at $13.005, the July 6 low. Technical resistance at $14.18, $14.80, $16.2350, $16.7725, and $17.9475 per bushel, the all-time 2012 high. Soybeans are now in the heart of the 2021 growing season in the northern hemisphere, where the weather conditions will dictate the path of prices.

Open interest in the soybean futures market moved 3.54% lower since July 20. Daily price momentum and relative strength indicators were below neutral readings on Wednesday.

The December synthetic soybean crush spread was 0.50 cents higher since July 14 to $1.2425. The December crush reached a high of $1.5025 on June 30 and a low of 91.25 cents on January 19, 2021. Volatile conditions in soybean futures translated to high price variance in the crush spread. Keep an eye on the processing spread as it is a barometer of demand for soybean products. Port and logistical issues in Brazil caused supply shortages. Chinese demand for soybeans and soybean products remains robust. Soybean oil futures reached a new record high in June on rising demand for biofuels and cooking oil in China.

December corn futures were trading at $5.4900 per bushel on July 28, which was 3.43% lower since the previous report in highly volatile trading conditions. The continuous corn futures contract rose to a new high of $7.75, which is a new chart point for the coarse grain. Open interest in the corn futures market fell 0.77% since July 20. Corn’s new high at $7.75 on May 7 was the highest price since October 2012. Expect lots of price volatility in the corn futures market over the coming weeks and months. While the weather is the primary factor driving corn prices, rising energy prices are bullish for corn.

Technical metrics were at neutral readings in the corn futures market as of Wednesday. Support on December corn futures is at the $5.07 level, the July 9 low. Resistance is at $5.73, the July 21 high. Corn will continue to be sensitive to the price path of gasoline. Ethanol production in the US accounts for approximately 30% of the annual corn crop.  The price of the illiquid September ethanol swaps moved 3.70% lower over the past week to the $2.0800 per gallon level. The spread between September gasoline and September ethanol swaps was at 20.20 cents per gallon on Wednesday, with gasoline at a premium to ethanol. The spread moved 16.79 cents higher since July 20. The prospects for ethanol prices are a function of gasoline, crude oil, and corn prices over the coming weeks.

Nearby CBOT wheat futures rose to a new high at $7.73 per bushel in late April, the highest price since February 2013. September CBOT wheat futures fell 3.10% since July 21. The September futures were trading at the $6.8875 level on July 21 after failing at over the $7 level. Open interest increased by 2.07% over the period in CBOT wheat futures. Technical resistance on September is at $7.1800 per bushel, the July 20 high, $7.73, and $9.4725, the 2012 peak. Support is at $6.095, the July 9 low. Price momentum and relative strength in CBOT wheat were still over neutral readings on Wednesday.

As of July 28, the KCBT-CBOT spread in September was trading at a 29.25 cents per bushel discount, with KCBT lower than CBOT wheat futures in the September contracts. The spread moved 12.75 cents lower since July 21. The long-term norm for the spread is a 20-30 cents premium for the Kansas City hard red winter wheat over the CBOT soft red winter wheat. The CBOT price reflects the world wheat price, and it is the most liquid wheat futures contract. The KCBT price is often a benchmark for bread manufacturers in the US who purchase the grain from suppliers.

As I have been writing:

“at a discount to CBOT, consumers are not hedging their requirements for KCBT, which is a sign that they continue to buy on a hand-to-mouth basis.”

Any sudden problem in the wheat market that causes consumer hedging to increase could dramatically change the spread between the hard and soft winter wheat futures contracts. We may see consumer hedging increase if wheat prices continue to make higher highs over the coming weeks and consumers get nervous. The potential for a continuation of even higher prices could cause consumers to hedge their requirements. Consumers tend to panic when the price moves higher. However, the correction could be causing an increase in consumer hedging after they watched wheat prices soar over the past weeks. The KCBT-CBOT spread moved towards the long-term norm over the past week. Keep an eye on the spread as it could be an excellent barometer of hedging activity and panic buying by consumers over the coming weeks and months. Wheat production from Russia and a new tax or even a ban on exports could push wheat higher this year. Deteriorating US-Russian relations could impact the wheat market over the coming weeks and months if the crops in the US or Russia provide an opportunity for one side to squeeze the other when it comes to exports. As always, the weather conditions will be the most influential factor during the 2021 crop year.

Spring MGE wheat was at $9.0375 per bushel on the September contract on July 28, up 6.0 cents over the past week. Hot and dry conditions in the Pacific Northwest had caused explosive price action in spring wheat futures. The rise of MGE wheat futures is an example of how the weather conditions can wreak havoc with the agricultural commodities during the critical growing season. MGE wheat moved over the $9 level. Over the past week, coffee futures offered another example of the wild price action that can occur on the weather as a frost in Brazil pushed the price to a seven-year high.

I expect elevated volatility to continue over the coming weeks as the 2021 crop year is now in the all-important growing season. I had been a buyer of grains in the futures and ETF markets over the past months.

Over the past months, I have written:

“From the 2008/2009 lows through 2012, the prices exploded higher in the aftermath of the global financial crisis, which could be a model for 2020 and the coming years.”

As always, the weather conditions determine supplies and are the most significant fundamental factor each year. Bull market corrections can be severe. I will be following trends in the grain sector at this critical time of the year.  

The weather in July and August will be the most significant factor for the grain futures. Expect lots of volatility that come with the ever-changing weather reports. Approach the grains with a clear risk-reward plan on all positions over the coming week. The weather is far more significant for the grains than the USDA reports, which are only a snapshot of the supply and demand fundamentals, which will be ever-changing over the coming weeks and months. Mother Nature and the fickle nature of the weather conditions will create lots of excitement in grain and oilseed futures as prices remain at multi-year highs. A whiff of drought could cause explosive rallies in the current environment, as we have seen in the MGE spring wheat futures market.

Base Metals & Industrial Commodities

Base metals prices moved higher since July 21, with all of the metals that trade on the London Metals Exchange posting gains. Iron ore for December delivery and uranium edged lower, but the Baltic Dry Index and lumber prices moved to the upside. Uranium edged lower but yellow cake prices moved higher.  

COMEX copper rallied 4.92% since July 21. The red metal hit a new all-time peak on May 10 as the continuous contract reached $4.8985. September futures settled at $4.4820 per pound on July 28 after trading to a high of $4.8840 on May 10 and a low of $4.0940 on June 21. Three-month LME copper was 5.24% higher to $9,728.50 per ton on July 27. Open interest in the COMEX futures contracts was up 5.77% over the past week. Short-term technical support for the copper market is at $4.1665, the July 19 low. The next significant levels on the downside are $4.0880 and $3.8760, the low from early March. Technical resistance moved higher to $4.6010, the June 11 high.

Chinese demand and output from South American producers will continue to be the most significant factors in the path of the price of copper over the coming weeks and months. Meanwhile, increased demand from green technologies is increasing copper requirements while supplies are not keeping pace. It takes nearly a decade to bring a new copper mining project online. A US infrastructure program will increase copper demand.

The trend in copper remains bullish, but as I wrote, when copper was on the way up, the risk of a correction rose with the red metal’s price. Goldman Sachs expects copper to rise to a new all-time high calling the metal the “new oil.” Jeff Currie, Goldman’s commodity analyst, pointed out that the inflation-adjusted high in the LME copper forward market came in the 1960s at over $14,000 per ton. Goldman expects the price to rise to the $15,000 per ton level in 2025. The investment firm’s 2011 target is the $11,000 per ton level. Other analysts are calling for even higher prices for the red metal. Bull markets can take prices higher a lot faster than analysts believe possible, but they also suffer periodic corrections, which can be brutal. Catching a falling knife is dangerous.

Copper is a leader in the base metals and industrial sector. The red metal is also a barometer for the global and Chinese economies. Copper’s ascent to new highs was a sign for all commodity prices. Inflationary pressures are bullish for the red metal and the asset class. Copper made higher lows and higher highs since March 2020. However, increasing interest rates makes the cost of carrying inventories higher and can weigh on the red metal’s price. Inventories of copper on the LME and COMEX moved in opposite directions over the past week in a continuation of the recent trend of rising LME stocks and falling COMEX inventories. LME stocks stand at over 225,000 tons are at the highest level since 2020. Expect lots of volatility in the copper futures arena over the coming weeks and months. I remain bullish on the base metals and shares of producing companies for the medium to long term.

The LME lead price moved 1.97% higher to $2,351.00 per ton on July 27. The rise in demand for electric automobiles around the world had been supportive of lead in the long term as the metal is a requirement for batteries. Since late April 2020, the prices of crude oil, gasoline, and lead moved higher. Meanwhile, a lead surplus has been building in China, but the price is rising because of the magnetic impact of copper and the other base metals that trade on the LME. $2,000 per ton was a pivot point for the three-month lead price. The price remains well above that level.

The price of nickel forwards moved 4.29% higher since the previous report. Elon Musk encouraged nickel production as he issued a plea to “any mining company in the world to mine more nickel.” The message turned out to be a very bullish message for the volatile metal over the past months. Musk is working on a supply deal with BHP, the Australian commodity giant. He is also in negotiations with other Indonesian producers. Mr. Musk, one of the world’s wealthiest people, is looking for supplies of “clean” nickel. Do not discount the potential for him to purchase a nickel producer to guarantee supplies for his business as his Tesla and other franchises, including SpaceX and the Boring Company, grow. SpaceX received a contract from NASA. The nickel price continues to trend higher, but it is a highly volatile base metal. Mr. Musk’s net worth recently rose to a level that is higher than BHP, the Australian mining giant that is one of the world’s leading nickel producers. Growing nickel demand for both stainless steel and batteries is likely to continue to underpin the price of the nonferrous metal.

Tin was 3.14% higher since July 20. Aluminum moved 2.03% to the upside since the previous report as of July 27. The price of zinc rallied 0.25% since July 20. Zinc was at the $2,962.00 per ton level on July 27.

September lumber futures were trading at the $608.20 level on July 28, 4.14% higher since the previous report, after plunging from a new record high at $1,711.20 per 1,000 board feet on the continuous contract on May 10. The July lumber price ran out of upside steam at over the $1,700 level, plunged, with the price not at less than one-third the value at the May high. Lumber can be a leading economic indicator at times. Lumber began falling before selling hit other commodity markets. The potential for an infrastructure building project by the US government could support gains in lumber futures.

Home improvement projects during the shutdown contributed to higher demand and prices for wood. Supplies have been a problem because of mill closures. The lumber futures market suffers from minimal liquidity, which makes it a highly volatile commodity. Lumber is often a leader and barometer for the commodities asset class. I never trade lumber but watch the price action like a hawk as it is a valuable guide for trends and trend reversals in the industrial commodity asset class. The winter months tend to be a weak period for the lumber market as construction activity declines, lowering the demand for wood. Lumber was very strong throughout the last winter season. The US infrastructure rebuilding package will likely support wood’s price. Lumber had been explosive over the past months. Before 2018, the all-time peak was $493.50.

As I wrote over the past weeks:

“The price action in lumber is a warning for all commodities that have experiencing substantial rallies.”

Lumber sent a signal that turned out to be significant. Lumber found support at the $500 level, the July 19 low. The price of uranium edged 0.92% lower since July 21 at $32.30 per pound. The yellowcake price was at $272.50, up 4.81% over the past week. CCJ shares closed at the $17.68 level, up 2.26% since July 21. I continue to believe CCJ shares offer value and rate the stock as a buy at the current price level. The volatile Baltic Dry Index rose 3.70% since the previous report. The BDI was at the 3,166 level on July 28. Higher fuel prices have taken the freight index higher over the past months. December iron ore futures moved 1.22% lower compared to the price on July 21. Supply shortages of iron ore from Brazil have supported the price for more than a year. Rising iron ore and metallurgical coal prices have been a sign of strength in the global economy. Open interest in the thinly traded lumber futures market fell 7.00% since the previous report. The illiquid markets like lumber can become roach motels when a trend reverses, creating gaps that can cause significant financial pain for those on the wrong side of a move.

Never trade lumber, just watch the price action. The rise in lumber is a sign of demand for framing wood, a primary ingredient in new home construction. The plans for rebuilding infrastructure will increase lumber demand. The price plunge is the result of illiquidity. The Fed and others are pointing to lumber’s plunge as validation that inflation is “transitory.” What they do not cite is lumber’s liquidity makes the price volatility wild. Lumber appears to have found a bottom at the $500 level.

LME copper inventories edged 0.19% lower over the past week after double-digit percentage increases over the past weeks. LME stocks of the red metal stood at 225,225 tons as of July 27 and were 425 metric tons below the July 20th level. LME copper inventories had been steadily declining over the past months until they reached bottom below the 75,000-ton level and began to climb. The amount of copper in LME warehouses it at a new high for 2021. Copper stocks are often manipulated by dominant market participants. Since a Chinese company owns and operates the LME, the potential for manipulation to achieve price goals is always a factor for the red metal. I always view substantial and sudden changes in inventory data with a grain of salt. COMEX copper stocks fell 1.38% since July 20th and stood at 44,729 tons.

Lead stockpiles on the LME fell 7.76% over the past week. Lead experience huge inventory builds in March, but stocks have been falling over the past weeks. Aluminum stocks were 2.25% lower after a massive increase of nearly 50% in March. Aluminum LME warehouse stocks stood at the 1,408,000-ton level on July 27. Zinc stocks edged 0.35% lower since July 20 to 247,000 tons. Tin inventories were up 10 tons or 0.43% since July 20 at 2,315 metric tons.

Nickel inventories were 1.02% lower compared to the level on July 20. Infrastructure rebuilding in the US and Chinese economic growth support the base metals. Stockpile data can reveal supply and demand trends, but traders often use the inventories to influence perception and prices. Rising interest rates could attract more metal into exchange warehouses.

FXC moved higher with copper over the past week and was trading at $36.68 on Wednesday, up $2.03 per share or 5.86% since the previous report. I continue to maintain a long position in FCX shares. FCX tends to move higher and lower with the price of copper. FCX reached the highest price since February 2012, when it traded to $46.10.

As I have been writing:

“I remain long FCX at $11.37 and will use a stop on close above that level to protect capital. I would increase the level of the stop as FCX moves higher to protect profits.”

This position is up over 222%, so I would move stops higher to guarantee a substantial profit while riding the trend higher for the potential of more gains. There is nothing wrong with selling half the position and riding the balance for free with no capital risk.

Keep stops tight on all positions in this sector that is highly sensitive to macroeconomic trends. In the medium to longer term, the stimulus and potential for a US infrastructure rebuilding program are bullish for industrial commodities. Short-term bouts of risk-off periods could cause sharp selloffs. A falling dollar is likely to support higher prices; a rising greenback has the opposite effect.

We are long PICK, the metals and mining ETF product. We bought PICK at the $23.38 per share level, and it was trading at $47.18 on July 28, up $2.18 or 4.84% over the past week. PICK hit a new high of $52.39 on May 10, the highest level since February 2012. I continue to rate this metals and mining ETF that holds shares in the leading producing companies in the world a long-term hold. I would raise stops to guarantee a profit if a correction occurs as PICK has moved over 101% higher. Base metals and industrial commodities prices should continue to follow crude oil and stocks over the coming weeks. The strength in industrial commodity prices over the past months is a sign of inflationary pressures on the global economy.

Keep those stops tight on short-term positions. Do not allow a short-term foray into the market to become a long-term investment. More stimulus early this year, and the potential for an infrastructure project in the US is bullish for industrial commodity prices. Protect profitable long positions with stops.

As I wrote over the past weeks:

“The bullish trend in the sector continues during the first months of 2021. The price action in base metals continues to be constructive, but the higher prices rise, the greater the potential for a correction.”

Industrial commodity prices had been on bullish fire since March 2020 in a sign of rising inflationary pressures. After the dramatic rallies, there was room for substantial corrections that would not alter the long-term trends established over the past months. I remain bullish on the sector, but we could experience a bumpy ride after the latest Fed meeting. It is impossible to pick tops or bottoms in markets. Approach all risk positions with a plan for risk and rewards and stick to it! The price action over the past weeks that followed the June Fed meeting was a sign that buyers stepped into the base metals on the dip. The summer is a slow time in the base metals arena as Europe often shuts down in August.

Meats

Cattle prices moved higher since July 21, with the fat edged out the feeders. Lean hog futures edged lower but the price for August delivery remained above the $1 per pound level. We are now entering the final month of the 2021 peak grilling season, so prices will adjust to offseason conditions over the coming weeks as roll to the next active months and the market anticipates declining demand over the coming months.

August live cattle futures were at $1.23075 per pound level, up 2.52% from July 21. Technical resistance is at $1.239750 per pound on the August contract, the July 27 high. Technical support is at $1.18850 per pound level, the July 9 low. Daily price momentum and relative strength indicators were above neutral readings and rising on Wednesday. Open interest in the live cattle futures market moved 0.46% lower since the last report. The disconnect between cattle prices in the futures market and consumer prices at the supermarket created dislocations in the market in 2020. Beef and pork markets are now coming into the late part of the 2021 grilling season. Live cattle had made higher lows and higher highs from October 2020 until early April. Markets rarely move in a straight line. I was a buyer of cattle during the weak price in April and May. I remain cautiously bullish despite softer prices since mid-June.

August feeder cattle futures rose since July 21, moving 2.17% to the upside. August feeder cattle futures were trading at the $1.601750 per pound level with support at $1.54100, the July 19 low, and resistance at the $1.63150 per pound level, the July 16th high on the August contract. Open interest in feeder cattle futures moved 5.64% higher since the previous report. Sometimes live cattle prices lead feeder cattle prices, while at others, the opposite occurs. Price momentum and relative strength metrics were above neutral conditions on the daily chart on Wednesday. Feeders moved higher on weakness in corn prices.

August lean hog futures edged lower to $1.0570 per pound on July 28, which was 0.82% below the level in the previous report. Price momentum and the relative strength index were above neutral territory and turning lower. However, hogs have continued to make higher lows and higher highs since June 24. Short-term support on August hogs is at the July 15 $1.03225 low and 99.775 cents, the July 8 low. Technical resistance on the August futures contract is at the $1.081250 July 27 high and $1.20550 per pound level, the June 7 peak. Open interest rose 4.84% since July 20. Lean hog futures traded at the highest level since August 2014 at $1.23075 per pound on the continuous contract in mid-June. The all-time high was in 2014 at $1.33875 per pound.

Meanwhile, there are reports that African Swine Fever made a return in China, causing some supply concerns. If ASF destroys Chinese pigs, we could see an increase in the demand for US pork, which would push lean hog futures higher over the coming weeks and months. China is the world’s leading pork-consuming nation. At the recent G-7 meeting, leaders put additional pressure on the Chinese, which only exacerbates tensions with the US.

The Chinese own the leading US hog processing company, Smithfield Foods. A Chinese company purchased the Virginia-based company in 2013. Smithfield could divert some of its pork and pork products to China if shortages develop over the coming weeks and months. China has faced substantial challenges with pork supplies over the past years. China is very secretive about its food supplies. Hog and cattle futures are now moving towards the offseason, which begins on the Labor Day weekend.

The long-term average for the spread between live cattle and lean hogs is around 1.4 pounds of pork for each pound of beef. The August spread rose over the past week as live cattle outperformed the lean hog futures.  

Source: CQG

Based on settlement prices, the spread was at 1.164400:1 compared to 1.12640:1 in the previous report. The spread rose 3.80 cents as live cattle rose and lean hog futures declined over the past week. The spread moved towards the long-term average as pork became less expensive than beef over the past week. The April cattle-hog spread hit the high at 1.4971 on August 12, 2020. The spread made a new low at 0.9887:1 on June 1, with August live cattle’s price under August lean hog prices.  Hogs dropped far more than cattle in 2020 during the pandemic and corrected, sending the spread well below the long-term average. The October spread was at the 1.4356:1 level, just above the long-term norm, with October feeders settling at $1.28525 and the October lean hogs at 89.525 cents per pound.

Hogs remain historically expensive compared to cattle in August. Soybean and corn prices will continue to impact cattle and hogs over the coming weeks and months as they are the main ingredients in animal feed products.

The COW ETN is illiquid but can be an acceptable substitute for those who do not venture into the futures arena. I am neutral on the meats. As with all commodities, the higher prices climb, the more the risk of pullbacks becomes. Protect those profitable positions so profits do not turn into losses. The $1 level remains a pivot point in August lean hogs, with the $1.20 level the pivotal level in August live cattle futures. $1.60 is the level in the August feeders. I will begin covering the October contracts in the next report.

Soft Commodities

All of the soft commodities on the ICE futures exchange posted gains over the past week, led by the explosive move in coffee futures. Brazil is the world’s leading producer of Arabica coffee beans, sugarcane, and oranges. The three soft commodities posted substantial gains over the past week. Cocoa and cotton prices also moved to the upside since July 21.

October sugar futures rose by 5.32% since July 21, with the price settling at 18.61 cents. The price had mostly made higher lows and higher highs over the past months, and the trend remains bullish. The high in 2021 came on February 23 when the expired March sugar reached 18.94 cents, the highest price since March 2017. The October contract reached a high of 18.73 cents on July 27.

After reaching a continuous contract low of 9.05 cents in April 2020, the price over doubled at the most recent peak.  Technical resistance on October futures is now at 18.73 cents, the July 27 high. The continuous contract 18.94 high is the upside target for the sweet commodity. Support sits at 16.73 cents on the active month October futures, the July 13, 2021 low. Sugar put in a bullish reversal on the daily chart on June 21. The price action in the energy and agricultural products had supported gains in the sugar futures market over the past months. The mid-March correction in crude oil likely prompted selling in the sugar futures arena. A significant upside target on the monthly chart stands at the October 2016 peak of 23.90 cents per pound.

In 2011, sugar reached a high of 36.08 cents. Sugar could not close above 15.50 on March 31, ending the streak of quarterly gains at three. However, the price moved aggressively higher throughout April and into early May and rose in Q2. In June, sugar posted a marginal gain, and in July, the price moved higher and was higher than the June closing level on July 28.

Sugar prices can be sensitive to the exchange rate between the US dollar and the Brazilian real. The value of the September Brazilian real against the US dollar was at the $0.19440 level against the US dollar on Wednesday, up 1.65% since the previous report. The September real futures traded to a low of $0.17070 on March 29 but has recovered and made higher lows and highs. Brazil leads in the production of sugar, coffee, and FCOJ; all three moved higher since July 21. The soft commodity futures could follow the Brazilian currency if it makes a substantial move. If coffee’s price action is a sign for sugar, we could be in for some fireworks in the sweet commodity.

Meanwhile, Brazil remains a hotspot of the global pandemic, which could lead to supply chain problems for sugar, coffee, and oranges, as well as the other commodities produced by South America’s most populous nation and leading economy.

Price momentum and relative strength on the daily sugar chart were above neutral readings and rising towards overbought territory as of July 28. The metrics on the monthly chart were above neutral readings and rising. The quarterly chart is above a neutral condition and are also rising.

Sugar probed below the 15.00 cents area in late March and early April on the October futures contract and then rebounded to over the 18 cents level and is threatening to make a higher high. The low at April 2020 continuous contract low of 9.05 sugar fell to the lowest price for sugar since way back in 2007. In 2007, the price of sugar fell to a low of 8.36 cents before the price exploded to over 36 cents per pound in 2011.

At that time, a secular rally in commodity prices helped push the sweet commodity to the highest price since 1980. If the central bank and government stimulus result in inflationary pressures, we could see a repeat performance in the price action in the commodities asset class that followed the 2008 financial crisis. Sugar could become a lot sweeter when it comes to the price of the soft commodity in a secular bull market caused by a decrease in the purchasing power of currencies around the world.

Meanwhile, since Brazil is a leading commodity producer, rising raw material prices could push the real’s value higher, leading to gains in the world sugar futures market. The action from late March in crude oil, gasoline, and most significantly ethanol prices are supporting sugar prices. The recent selloff in the wake of OPEC+’s discord and increasing pandemic cases could have weighed on sugar futures.

However, in a sign of strength, sugar did not move significantly lower when crude oil fell to the $65 level. The price fell to 16.73 on July 13 but remained above that level on July 19 when crude oil fell to the most recent low. Sugar moved higher as crude oil recovered back over the $72 per barrel level.

Open interest in sugar futures moved 3.63% higher since the previous report. Without any specific fundamental input, sugar could still follow moves in the energy sector as well as the currency market when it comes to the exchange rate between the US dollar and the Brazilian real. Open interest had been gently rising as the sugar price rose over the past year, which is a technical validation of the bullish price action. Sugar can be a highly volatile soft commodity.

I remain long and bullish on sugar. I expect the sweet commodity to move with crude oil and gasoline prices. Coffee could be a model for the sugar market over the coming days and weeks. September coffee futures continued to rally and moved 13.89% higher since July 21 and reached the highest price since October 2014 on July 26.

Source: CQG

Nearby coffee futures rose to a high of $2.1520 on July 26, the highest price since October 2014 on the back of frost conditions in Brazil that threaten the Arabica crop. Time will tell if the price action on July 26 was a blow-off top in the coffee futures market.

September futures were trading at the $2.00450 per pound level. The short-term technical level on the downside is at the $1.5565 level on the September futures contract, the July 19th low. Below there, support is at around $1.4705 on the continuous futures contract. Technical resistance is at this week’s $2.1520 high and at $2.2550 the October 2014 peak. Coffee futures had put in a bearish reversal on the daily chart on April 29 and drifted lower before exploding higher on May 5 and making a new high on May 6. Coffee became parabolic over the past week.  

After putting in a bullish reversal on the monthly chart in November 2020, coffee’s price posted gains in December but was lower in January. Coffee soared higher in February. In March, it gave back February’s gains. In April, the price exploded to a new and higher high. In May, the price moved even higher. After a new high in early June, the price closed last month lower than the May closing price. In July, coffee exploded higher. JO was trading at $56.79 on Wednesday. I would move the stop higher or take profits on the ETN. Open interest in the coffee futures market rose by 1.30% over the past week. I have been selling my coffee and JO positions on a scale-up basis but remain long around 50% of the original position.

From a trend-following perspective, I remain long coffee. We have an average of over a 60% profit in the JO product. The upside target is now the October 2014, high at $2.2550 per pound. Daily price momentum and relative strength are above neutral readings near overbought readings. On the monthly chart, the price action was at overbought readings and rising. The quarterly picture was rising and near overbought territory. Coffee can be a wild bucking bronco when it comes to the price volatility of the soft commodity. I expect volatility in coffee to continue, and I will look to trade on a short-term basis with a bias to the long side. Any new positions should have tight stops and defined and specific profit objectives.

The price of cocoa futures rallied over the past week. On Wednesday, September cocoa futures were at the $2,427 per ton level, 7.15% higher since the previous report. Open interest was 0.91% higher since July 20. Relative strength and price momentum were above neutral readings as of July 28 after rising from oversold territory. The expired December 2020 futures rose to $3,054 per ton, which was a sign of tight supplies, rising demand, or both. Hershey’s buying in the futures market distorted prices and sent them to the highest price since August 2016. The cocoa market tends to display lots of volatility during roll periods because of deliveries. Avoiding the West African $400 per ton surcharge has caused some consumers to turn to the futures market for supply requirements.

The trend is likely to continue to add volatility to the futures market so long as the Ivory Coast and Ghana impose the premium for their beans. The two countries supply over 60% of the world’s cocoa annually. We are long the NIB ETN product. NIB closed at $29.37 on Wednesday, July 28. The levels to watch on the upside are at $2,446, $2,601, and $2,754 per ton. On the downside, technical support levels are at $2,232 and $2,137 per ton on the continuous contract. The long-term target on the upside is at $3,826 per ton, the all-time peak from 2011. I continue to favor the upside in the cocoa market. We are likely to see continued volatility in the cocoa futures arena in 2021. Cocoa prices can become very volatile as the weather and political conditions in West Africa are the most significant factor for the primary ingredient in chocolate confectionery products. Cocoa is breaking out of its downtrend. The soft commodity always has the potential for wide price variance because of the weather and conditions in West Africa.

December cotton futures were 2.06% higher since July 21. December cotton was trading at 90.52 cents per pound on July 28 after reaching a high at 91.00 cents on July 28. On the downside, support is at 86.35, 81.50, 77.12, and then at 48.35 cents per pound. Resistance stands at 91.00, 92.95, and 96.50 cents. Open interest in the cotton futures market rose 3.21% since July 20. Daily price momentum and relative strength metrics were above neutral readings and rising on Wednesday. Cotton reached a bottom at the 77.12 cents level on the continuous futures contract in March. The most recent move to the upside took the October futures to a higher high on July 28. The trading pattern remains bullish.

I had been optimistic about the prospects for the price of cotton since the 50 cents per pound level. The last time the price rose above the 90 cents per pound level, the risk increased with the price causing a selloff. I would continue to use tight stops on any long positions and a reward-risk ratio of at least 2:1. A softening in the tensions between the US and China under the new administration could support the price of the fiber futures. Cotton suffered selling pressure in 2008 that pushed the price to below 40 cents per pound. A decline in production and stimulative policies by central banks took cotton from the bottom end of its pricing cycle twelve years ago to an all-time high of $2.27 per pound in 2011. Cotton can be a highly volatile soft commodity that takes the stairs higher and elevator to the downside during corrections.

September FCOJ futures were trading at $1.3945 per pound, up 6.01% since July 21. Short-term support moved higher to the $1.2600 level, the July 16 low. Technical resistance is at $1.4380 per pound, the July 28 peak. Open interest rose by 4.93% since July 20. Price momentum and relative strength indicators were above neutral readings on Wednesday. FCOJ futures are likely experiencing the same Brazilian weather issues as coffee and sugar.

Brazilian weather pushed coffee to a seven-year high. The price action is likely to remain highly volatile. Sugar could be the next candidate for an explosive move to the upside. FCOJ is already trading at the highest level since late 2018. The bullish baton in the commodities asset class passed to the soft commodities over the past week. While cotton remains in a bullish trend and is trending towards higher highs, cocoa is the lone bear in the sector, but it is attempting to break higher. Cocoa is a highly volatile soft commodity. I continue to favor buying dips in the cocoa market.

A Final Note

From 30,000 feet, the price action in commodities has been a bullish relay race to higher prices since reaching lows in March and April 2020. In August 2020, gold reached a record high and corrected. In May 2021, lumber, copper, and palladium reached all-time peaks and corrected. In June and July, NYMEX crude oil reached a multi-year peak and corrected. While crude oil took an elevator to the downside on July 19, it stopped at a higher floor as the bullish pattern continued. Grains, oilseeds, Iron ore, coal, and natural gas prices moved to multi-year highs. This past week, coffee took off and reached its highest level since October 2014, when the price moved above the $2 per pound level. Natural gas made a higher high to above the $4 per MMBtu level for the first time since late 2018. Meanwhile, natural gas futures had not traded north of $4 in June since 2014. Bull markets rarely move in straight lines; corrections can be sudden and brutal. Since commodities tend to be one of the most volatile asset classes, bull market price action can be wide and sweeping.

Meanwhile, the bull market relay race in the commodities asset class continues while the Fed and US leadership call inflationary pressures “transitory.” The trend is always your best friend in markets. In commodities, the trends remain higher. We do not pick tops or bottoms in markets; we go with the flow. The flow continues to suggest that higher prices are on the horizon over the coming weeks and months. We are in the midst of a wild ride in commodities and other asset classes. Inflationary pressures erode money’s purchasing power and push prices higher. The latest Fed meeting continued to be dovish, which supports commodity prices.

There will be no weekly report next Wednesday, August 4, or summary report on Friday, August 6, as I will be traveling. I will return with the weekly report on Wednesday, August 11, and the summary report on Friday, August 13, covering all the action from July 28 in the weekly and July 30 in the summary.

I plan to increase the price of the report in the coming months. However, all of my current loyal subscribers will never experience an increase in their monthly or annual subscription rates. I will grandfather all subscribers at their current rates for as long as they maintain their subscriptions. Thank you for your support.

Please keep safe and healthy in this environment.

Until next week,

Andy Hecht

 

 

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.