Demand is a broad term that encompasses, stock piling and speculative interest. At the end of the day, consumption demand is what dictates sustainable price moves, and consumption demand has not recovered to support massive prices spikes in copper and other commodities the past few months. see Copper Prices in for a massive correction. Buyers should beware.
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Hi Danielle,
Can you help me make sense out of some expert opinion? They all seem to make sense but point to different conclusions.
Opinion 1: US dollar will fall because of overprinting.
Opinion 2: Copper prices will correct dramatically because of oversupply.
Opinion 3: US treasuries auction last week went badly, therefore interest rates will have to RISE to attract foreign buyers.
Opinon 4: The PIIGS sovereign debt crisis will drive investors to US treasuries, and yields will FALL.
Questions:
When US dollar falls, doesnt that make commodity prices (eg gold, oil and copper) rise? .. But there is an oversupply .. So is copper likely to rise or fall?
Which of opinion 3 & 4 is correct? Is US treasury interest rate more likely to rise or fall?
Thanks for your insights.
Denis
First, there is good reason that there are conflicting opinions, the truth is that no one knows how the future plays out. But ranking risks in time frames is key.
1. Longer term it is possible that the US dollar will lose more of its value due to over-printing supply; but currencies are always a relative issue and at this point, many other economies have less stable currencies than the U$. So near term I do not see a weaker dollar as a likely main theme.
2. If the US dollar rebounds this will no doubt suck the wind out of commodities (and equities) that have surged the past 10 months mostly due to the falling dollar. A large part of the gains in things like copper the past few months has been all to do with the weak U$ and not much to do with consumption use. What demand there has been has been largely about inventory building and forced stock piling prompted by government stimulus. As a result, the huge rebound in commodity prices, in the face of tepid world demand, and now bulging inventories should mean an adjustment down in price.
3. Tonight the Fed announced a bump up in the discount rate to .75, removing the emergency rates from the system will mean structurally higher rates going forward. The bond market may well demand higher yields. The bias at present must be toward higher rates, we know that they can't go lower.
Thank you for separating the wheat from the chaff, and for adding clarity. Your blog is very much appreciated.
Denis