The Second Coming of the Commodity Craze

The dollar index found a new 2009 low yesterday. The American stock rally plus better-than-expected manufacturing data from China, Europe and the U.S. pushed the dollar index as low as 77.4. You’ll have to go back to late September 2008 to find the index that beaten down.

The dollar index arrested its slide this morning, but still remains around 77.5.

As the dollar slumps, commodities are soaring. The Reuters/Jefferies CRB Index of the 19 most popular commodities shot up 3.9% yesterday, its best day since March. With a score of 266, it’s at the highest point since November. What’s more, the CRB just got a technical tail wind… check it out:

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And if the greenback has any bearing on the price of commodities — which it certainly does — the dollar index makes the CRB look a bit cheap as well. The last time the dollar index was at today’s value was back in late September… when the CRB was just under 350.

“People will blame the higher oil price on speculators,” adds Chris Mayer, “but something interesting is happening in the markets for minor metals like molybdenum. Prices are rising, too. The silvery metal, used to strengthen steel, is now $15 a pound — nearly double the $8 and change it fetched in April. This is significant, because there is no futures exchange for moly. It trades on a physical spot market. Speculators play a very small role here. The buyers of the metal use the metal.

“So there is a demand story shaping up here, too, mostly focusing on a fragile recovery of some sort and mostly centered on China and the emerging markets. The market is looking ahead…

“Every rally, like every bottle of beer, has a finite life span. There will be lots of bumps along the way, but the prices of many commodities — such as oil, iron ore and moly — will tack higher, in my view.”