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Commodities Run on Dollar Pullback

Sep 22 2008

Commodities Run on Dollar Pullback

Commodities like Silver (AMEX:SLV), Gold (NYSEArca:GLD), Oil & Gas (AMEX:USO), and Industrial Metals all shot up swiftly on Monday as the dollar (AMEX: UUP) declined on the US Government’s plan to bail out financials from the sub-prime crisis.

Commodities Do Well

            A number of commodities took off on Monday as the US Dollar pulled back slightly with a major bailout of the Sub-prime financials in the works in Washington. The run-up could last for a period of time but is very steep and therefore could pull back more easily than extend.

These whipsaw actions have made investing in the markets almost impossible as Financials decline than rally sharply to only decline more and then rally once again. The volatility index (^VIX) stabilized today but remains very high historically.

Financial Pull Back

            Why would financials pull back? The market doesn’t always make sense. Maybe they moved too much over the last two days, maybe not. With Morgan Stanley (MS) and Goldman Sachs (GS) now safe from bankruptcy and money market funds federally insured, the worries of last Wednesday and Thursday are gone.

And the government is ready to take all the bad mortgage loans off the books of banks across the country. This is definitely a strong reason to be bullish financials. Today looks to me to be a good day to add to positions in some of the strongest banks like Wells Fargo (WFC), US Bancorp (USB), Bank of America (BAC) and JP Morgan Chase (JPM).

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