Fed Comments Should Bolster Bond Market

Commodity Connection

Cheaper dollars will also make U.S. exports cheaper, giving an additional boost to the economy. This is a phenomenon we're already seeing in certain commodity markets.

On Wednesday, July wheat (WN3:CBOT) marked its fifth consecutive gain with its best one-day gain of the year.

Wheat surged on news that Egypt, the biggest importer of U.S. wheat, made a sizeable purchase from the U.S. in place of increasingly expensive French wheat.

This rally in wheat overbalances the daily downtrend that has been in place since February.

The next upside test comes at 309, and a break of that level works to confirm that a new uptrend is in place.

A lower dollar and debt yields are also constructive for gold. As the dollar erodes in value, investors seek a secure store of wealth, a traditional role for gold during times of currency degradation. Declining interest rates are ultimately inflationary, the Fed's current implied policy goal. Gold's second traditional role is as a hedge against inflation. Both factors will likely continue to support December gold (GCZ3:COMEX) prices for the remainder of the year.

SARS Update

Finally, to update the effects of SARS highlighted in my last column, I would like to share an email from a RealMoney subscriber who lives in Shanghai:

"Small item representative of how it is. Just got a call from CEO of a garment vendor in a city four hours from Shanghai. He was stopped for an hour driving to Shanghai and 1 1/2 hours leaving the city on a super expressway. Everyone gets his/her temperature taken by the police. I think these measures strike at how exacting government efforts are to check the spread, despite some temporary inconveniences."