October Surprise? - Sainik

During the week gone by, it looked as if markets across all asset classes, across all geographies, were following the old adage: Bull markets peak out on euphoria and bear markets bottom out on despair.

Gold: Gold has had a relentless rise in the past three months. From a low of $1175 late July, it has literally had a golden run, peaking out last week at around $1390. It then turned around, to close the week at $1368. In the past three months gold has put on nearly 20 percent, with no significance increase in demand from the largest consumer: India.

The golden run has been characterized by “fear” of the collapse of currency systems of the world, and, of course, in anticipation of QE2 from Bernanke and the gang of merry bankers out to Bankers who are out to ruin the world's economies.

Gold has nearly 98 percent bulls in it, according to the latest investor sentiment survey. The significance of so many gold bulls at these levels portends to an imminent correction. It would not be surprising if gold violently shakes off the bulls that arrived late to the party, by sliding to around $1250 soon.

Dollar: If ever there was a gold medal to be won for the most hated currency in the world, then the US dollar would have won hands down, especially in the last three months. The dollar index which was ruling at 89 has slid all the way to 76.1, breaking its important support level of 80. As long as Bernanke and his gang of fools rule the roost at the Fed, the dollar is toast.

However, even the devil has to get his due at some time. With nearly everyone (97 percent) bearish on the dollar, it is ripe for a pullback. The movement Friday when the dollar index bounced off its lows and closed at around 77.1, with a bullish key reversal, indicates the dog is not dead as yet.

Watch out for strength in the dollar. The first target is 80, and if at that point of time, some other European country has some new financial problem, which is very likely, then we could see the dollar soar and target 85 at least.

Oil: This is indeed the joker in the pack. It has quietly climbed above $81 to a barrel and seems comfortable at this level. The October-December quarter is traditionally a strong season for this commodity and it could spoil the party of many struggling economies.

Other Commodities: The CRB Commodities Index is on a tear, suggesting that hot money continues to flow in to the underlying commodities despite the global economies showing tepid recoveries. How else can you explain the price of cotton, an important constituent of this index, and a very widely used commodity, whose price touched a high just last week at nearly $1.20 per pound?

Just check this out: “It was the highest level for cotton since cash prices paid to farmers during the Civil War when blockades prevented shipments from leaving the South,” said Sharon Johnson, a senior cotton analyst at Penson/FCG. The American Civil War happened during the time of Abraham Lincoln in 1860's.