Commodities Essential - April 12, 2011

Ben Bernanke starring in The Candy Man: Widening the Perspective-Gap.”

What’s going on is that we have a dynamic duo of carry trade currencies: the yen and the US dollar. As we’ve come to know very well, when investors are willing to take risk, the low yield is a huge incentive to borrow and seek out high returns.

As long as the BOJ is expected to be in recovery mindset, requiring extra asset purchases and the like, the yen will maintain its zero yield. And assuming Ben Bernanke and crew don’t change their monetary tack, the US dollar will also lack yield support. Or perhaps worse, any remerging talk of QE3 would be distinctly negative for the US dollar’s yield potential.

It appears as though the “weaker US dollar as driver of commodities” idea will remain in play and add to the specific fundamentals that are also supporting commodity prices. But there is something to be mindful of that could change this picture:

Commodities Essential. 12 April 2011