Another factor that has been acting in favor of commodities lately is the continuous weakness in the US Dollar. The Dollar Index fell to a 3-year low and is now within five percent of its all-time low, while the Aussie Dollar and Swiss Franc posted historical highs against the greenback. Gold settled over 1500 dollars for the first time, while Brent crude closed around 124 dollars a barrel. What we are witnessing here is the result of an out-of-control budget and escalating debt in the US, for which there seems to be no other remedy left but to print money. The resulting tide will continue to lift all the boats in our opinion, as nominal prices of just about anything are likely to rise over time.
So where do we go from here? Although cash prices remain under pressure, July has now fallen to a level at which it is not too far away from where physical cotton is offered in the Far East. For reasons mentioned above we expect to see a bounce over the coming sessions, although rallies will probably encounter a lot of selling and stall. We still like December below 130 cents, because there are currently some issues with new crop plantings (US, China, Turkey) and there is going to be a lot of pent-up demand from mills that have been postponing their purchases in order to obtain cheaper prices.