Momentum Polishes Gold; Mind the Dollar

Commodity speculation and the strong dollar have been major stories in 2005: The price of Comex gold is trading above $500 per ounce for the first time in 18 years, and tested the February 1983 high of $514 this morning. Crude oil futures on the Nymex soared to $70.85, an all-time high, on Aug. 28, just as Hurricane Katrina was about to make landfall. And the strong euro turned on a dime just as 2005 began.

I believe the higher gold price is not just a sign of inflationary pressures. Gold is becoming an asset class of choice for petrodollars, and central banks are increasing their gold reserves on global currency concerns. To me, high gold prices warn that financial assets are vulnerable in 2006. The dollar bottomed at the end of 2004 and could top out by the end of 2005 as global investors get nervous about the growing U.S. budget and trade deficits.

How big a warning? Let's start with a look at the CRB to create the context for commodities, then review each segment and some possible trades on the trends there: gold, oil and the dollar. ...