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Commodities Surge Led by Energy and Metals

David Becker
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Energy and Metals lead the commodity sector higher with the Reuters/Jefferies CRB Index closing at the highest level since the third quarter of 2012. The CRB Index includes 19 commodities that are traded on exchanges in the U.S. and U.K. Commodity prices turned up during the first quarter of 2014 for the first time in two years. After consolidating during the second quarter, they appear to be regaining upward momentum.

Energy prices spiked higher the previous week on increased tensions in Iraq. Precious metals jumped sharply this week. That might also be the result of increased global tensions. This week’s jump in precious metals may also be the result of a jump in U.S. consumer prices to the fastest pace in a year combined with the Fed decision to keep rates low for an extended period of time. The daily bars show the DB Commodities Tracking Fund (DBC) surging to the highest level since last August. The index broke out and is showing a on the RSI of 73, which could foreshadow a correction. That helped make commodities the week’s strongest asset class. A weaker dollar also helped.

A weaker dollar is usually good for commodity markets. The daily bars in Chart 3 show the PowerShares Dollar Index Bullish Fund (UUP) losing ground during the week after failing a test of its 200-day moving average the previous week. Normally, the main reason for a drop in the dollar would come from a rising Euro (which accounts for 57% of the UUP). That was not the case this week. The Euro is experiencing a minor bounce, but remaining below its 200-day moving average. With the Eurozone embarking on aggressive monetary easing, upward progress for the Euro appears limited. Most of the week’s currency pressure came from two other sources, which include Britain and Canada.

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