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The Dollar and Commodities

June 15, 2009 – 11:33 am

The dollar’s strength last week put a pause in the rally in general and has demonstrated that the rally in commodity prices was mostly based on a weak dollar not a recovering economy. Of course that belies the growth in China and the anticipated strong demand from the billion and a half people who want more and better food, better personal transportation, and a need for massive infrastructure improvement. Besides their current strong growth they have the cash to make it all happen. That is a compelling argument that commodity prices will continue to rise. So we have a struggle between strong future demand and the current weak dollar. Commodities around the world are traded in U.S. dollars.

The dollar has been oversold in the short run but massive government spending requiring massive government borrowing in the weeks, months and years ahead leads us to the assumption that there will be continuing downward pressure on the dollar. The counter argument is that the U.S. economy will recover and that would provide some stability to the dollar.

As I said it, is a massive struggle.

Good Trading
Steve Peasley

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