With the recent surge in the US dollar, commodities have been hammered lower--grains, gold, and oil. [We shorted gold yesterday in a Flash Alert to our subscribers based on the chart setup we defined in our Key Market Strategies issue which you can find here. We have been short oil for the past few weeks based on our wave analysis.]
Will dollar strength and commodities weakness continue? We suspect so and believe the strength we are now seeing in the US dollar is corrective when place in the larger context. When this run is over, and we can see it lasting through 2018 and into 2019 it will be time to short the dollar and load up on commodities--a long-term position trade.
We were expecting an "inflation pop" this year. But commodities are telling us otherwise at the moment. Is it all trade related this fall in commodities, especially grains? We don't know yet. But the idea inflation is still quite dormant is the action in long bond yields relative to short rates. In fact, we are expecting a rally in the 10-year Treasury Note -- you can see our view in Key Market Strategies with our coverage of TLT (20-year bond index ETF).
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Jack Crooks, Black Swan Capital