WEAK DOLLAR BOOSTS COMMODITY PRICES -- CRUDE OIL, COPPER, GOLD HAVE STRONG QUARTER -- SO DO STOCKS TIED TO THEM -- GOLD TOUCHES 11-YEAR HIGH -- WITH A LOT OF HELP FROM LOW INTEREST RATES
US DOLLAR HAD WEAK SECOND QUARTER... After surging during March (as stock prices plunged), the U.S. Dollar peaked in late March and moved lower during the second quarter. Rising stock prices during that quarter reduced the appeal of the dollar as a haven currency. Rising foreign currencies also reflected some funds moving into overseas markets which also had a relatively strong second quarter. One of the main side effects of the weaker dollar has been higher commodity prices, and stocks tied to them. Chart 1 shows the US Dollar Index (plotted through yesterday) falling below its 200-day moving average to the lowest level since March. While the dollar fell, several important commodities gained ground. They include crude oil, copper, and gold.
RISING COMMODITY PRICES...Three of the major commodity prices gaining ground are shown below. All of the prices are plotted through yesterday. Chart 2 shows crude oil nearly doubling in price between March and June. That helped energy shares gain 33% during the quarter. Chart 3 shows the price of copper rising 21% to the highest level in five months. That helped copper producers gain 85% during the quarter. Chart 4 show the price of price gold closing at $1800 yesterday for the first time since 2011. That helped gold miners gain 33% during the second quarter. Rising commodity prices also helped make materials one of the quarter's strongest sectors.
MATERIALS SPDR CONSOLIDATES ABOVE 200-DAY LINE...Consumer cyclicals and technology were the market's two strongest sectors during the second quarter. Energy and materials were third and fourth. That was due primarily to rising stock prices tied to commodities. Chart 5 shows the Materials SPDR (XLB) consolidating above its 200-day moving average. It's only one of five sector SPDRs trading above their red lines.
FALLING BOND YIELDS ALSO BOOST GOLD... The monthly bars in Chart 6 show the price of gold hitting the highest level since late 2011 in yesterday's trading. That raises the possibility of an eventual test of its record high set during 2011 at $1923. While a falling dollar has had a lot to do with recent buying, so has the plunge in Treasury yields that has taken place this year. The green bars show the 10-year Treasury yield dropping sharply during the first half of the year as gold prices rose. Part of that was due to Fed easing resulting from the pandemic to help stabilize the U.S. economy. Historically low global interest rates are good for gold (and its miners) that are non-yielding assets.
