Dollar Drops; Commodities move Higher

Almost like clockwork, the abysmal payrolls number undercut recent strength in the US Dollar. Just like that -   up went the Goldman Sachs Commodity Index. Tell me that the Dollar is not the key to the complex!

It did not hurt that index one iota that the USDA issued a shock report today which contained a bullish surprise for corn prices. It was not that the number they gave us was so bullish; rather it was that no one expected it. The market was leaning heavily on the short side and the pencil pushers over at USDA threw everyone a curve ball.

Quite frankly I do not believe the final number that they gave us. It is what the market has to work with however for the time being, and thus we experienced a gigantic short squeeze in corn that helped keep wheat from falling completely off the cliff, as the USDA number for that grain was decidedly bearish.

The soybean number was also unfriendly as they showed a bit larger crop than the market had been expecting but it was the huge buying in the corn pit that tended to pull money into the entire grain complex. That prevented the beans from selling off on the report.

On top of that you had coffee moving higher, hogs moving higher and the liquid energy complex moving higher. Base metal copper was higher. Given that environment to expect silver or gold to move lower was unwarranted. As a matter of fact, we had a pretty substantial short squeeze in the gold market to accompany some of the short squeezes across the generality of the sector.

Gold has now completely recovered its losses from the "fat finger" trade of Monday to the point that any discussion about the particulars of that event are moot at this point. I stand by my contention that it was an erroneous trade but who cares at this point.

The lousy jobs number has given shorts reason for fear in gold and encouraged some more bottom picking in the metal. This is due to revived talk of a hold on any Fed tapering. However, it is now moving into a very strong resistance level on the price chart. Further upward progress, WITHOUT the accompaniment of a weaker Dollar and more upward price pressure across the commodity complex in general, is going to be much more contested.

Also, based on the strong November jobs number, plus the upward revision in today's report to that already strong number, today's numbers for December should be treated with a bit of skepticism, especially after private firm ADP gave us such strong numbers on Wednesday. A lot of time can pass between now and the next payrolls number but I would not be surprised to see that number move much higher, more in line with what we have been getting recently. If that is the case, look for any move higher in gold, based solely on ideas that the Fed will be on hold for Tapering, to meet with some aggressive selling on the part of the hedge fund community.

Bulls have the opportunity to try to take price up towards the last level of chart resistance I have noted between $1255 - $1260 or so. If they can best this level, they will have recaptured control of the gold market for the time being, at least from the daily or short-term perspective, and even have a shot at a quick run to $1280.

It is going to be educational to see how Asia responds to this price rise. Will the move up curtail some of the strong physical offtake we had been experiencing over there or will price-conscious buyers step away from the market to see if they can get the metal cheaper? We will find out.

A look at the weekly chart below shows the market still under the control of bearish forces, as it has been since late 2012. Today's move was a nice gift to the bulls but looking at the chart from this longer term perspective, it has FAR MORE WORK to do before changing the picture from one of bearishness to one of bullishness.