Saturday, October 2, 2010

Weakness in U.S. Dollar Continues to Support Commodities

Weakness in the dollar continued to support commodities. Although several US data released last week beat expectations, speculations that the Fed will expand the bond buying program did not abate. The dollar index plunged for a 3rd week to 78.08, down -1.65% on the week.

The energy complex was the best performer of the week with crude oil and fuel prices surging 6-7%. Precious metals strengthened further with gold making new nominal highs and silver 30 year highs. Base metals continued to perform well as strong Chinese PMI signaled demand for the complex should sustain.

Central bank meetings will be the focus next week. Driven by robust economic data and hawkish speeches from policymakers, the RBA is expected to raise the policy rate by 25 bps on Tuesday. The ECB and the BOE will be meeting on Thursday. We believe both central banks will leave monetary policies unchanged.

Let's look at the charts for nominal returns in energy, precious metals and base metals.

The "Super Cycle" in Gold and How It Will Affect Your Pocketbook in 2010

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