ALTERNATIVE MARKET OBSERVATIONS
by George Kleinman
Editor, Commodities Trends
September 6, 2006

There are a quite a few hedge fund managers--collectively controlling billions of dollars--who take the latter part of the summer off. This group tends to put their money back to work at the unofficial end of summer--in other words, now. For this reason, it�s not uncommon for new and important trends to begin right after Labor Day.

With a full post-Labor Day trading session behind us, what I find most interesting is that gold broke above a major downtrend line that had been in formation since May. This is a bullish sign.

December Gold



Source: Commodity.com

Gold and the dollar generally trade in opposite directions, but there�s a correlation with declining oil prices (like we�ve seen recently) and weaker gold prices. You would, therefore, assume the dollar was weak on this strong gold day, but it wasn�t. It was flat (trading below a long-term negative trendline and above a long-term positive trendline).

December Dollar Index



Source: Commodity.com

And it wasn�t only gold that exhibited strength this first trading day after Labor Day; copper surged as well. And take a look at the aluminum chart below. Aluminum (which is traded in London) confirmed gold by breaking out on one of the heaviest volume days of 2006.

London Aluminum



Source: Commodity.com

The dollar index is weighted toward the two most important non-dollar currencies: the euro and the yen. While they�ve both been flat, one minor currency--the Australian dollar--has had a breakout to the upside similar to gold and aluminum.

December Australian Dollar



Source: Commodity.com

What does all this mean?

The Australian dollar is termed the �commodity currency� due to the importance of commodities (particularly grains and metals) to the Australian economy. What its breakout means is this recent gold strength is no fluke--it was not only confirmed by aluminum (and other base metals) but also by the �commodity currency.� In other words, this breakout looks to be the real thing and a sign that the next major leg up in gold prices should begin soon. I�ll be looking for a reasonable-risk entry point to buy gold for Futures Market Forecaster subscribers.

Corn Update

In the last issue of Commodities Trends, I analogized the current corn market with the historic mega-bull market of 1995-96. In 1995, the corn market didn�t bottom at harvest time, as is usual, but in August (due to a demand shock). Last week I predicted the same basic pattern this crop year, and guess what? So far, so good.

The bottom for the move thus far was registered August 18; the market is now about 10 cents per bushel above that low. I remain very bullish on corn, and I�m looking for sharply higher prices in 2007. The next major event for the corn market will be the September 12 crop report; the US Dept of Agriculture will provide its estimate of this year�s crop size.

The market�s reaction to the news coming out of that report will be as important as the news itself. If the market acts properly, I envision adding to our current position.

George Kleinman is editor of Commodities Trends.

© 2006 George Kleinman
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