Resource Alert Briefing June 5: Tarnished Silver to Shine Again and Bake-Cation Bonus

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The Futures business, synonymous for Commodities as all Commodities are Futures but not all Futures are Commodities, always has forward focus. The current market level is derived from all of the data and information we know and is the reason price is where it is. That established equilibrium is not a forecast but more of a look backward at price inputs.

An interesting reversal of thought has overcome skittish investors with Energy prices going from too high to support any bullish environment to so low that an immediate catastrophic global slowdown is almost assured. The 2011 Staycation concept of not being able to afford the gasoline prices for summer family travel has diminished as an economic excuse to remain close to home. Crude Oil has dropped 30% since the April peak a year ago.

That drop has not necessarily translated into lower pump prices at the same ratio, another riddle wrapped in a conundrum by Big Oil, but record all time low interest rates making mortgage payments much lower and diving food costs have to help the consumer bottom line.

The Commodity Research Bureau Index that covers a broad swath of the commodities markets has declined 100 points from the 2011 peak and back to the prices from the end of 2009. Resources are cheaper as price pressure is now on the downside to renew DE-flation concerns.

Metal action Friday after the monthly Employment report tells a story of possible stimulus undercurrents with Gold rallying $60 to finish back inside the long standing trading range between $1800 and $1600 for the past 10 months. A three-week base was made below the critical threshold with this breakout evidence of changing internals.

A Key Reversal in the Dollar Index Friday, new highs with a lower close, and also in 30-Year Treasuries in Monday's session signal stability for the markets. The US Dollar rally is unsustainable in the current economic and political climate.

A note about the jobs data Friday in that it has not been mentioned that half of the sell off happened before release on global concerns. A 2% slide has not put America in the economic peril as some would lead you to believe.

Heightened expectations are not always easy to achieve as evidenced by a positive employment payroll increase that was a disappointment. The trend is not a strong as anyone would like but on the plus side for 27 consecutive months and heading in the right direction.

Click here for more from my CNBC clip.

Silver Shines

The price action recovery from oversold lows looks to test the established trading range. Higher May lows against January extremes with a bounce to near multi-week channel top illustrates Bullish divergence against the Dollar. New two-year Dollar Index highs and a 14% run since last summer did not drive Silver to new lows.

The December option spread order was executed Monday at $1450 with nearly six full months for development. An initial rally above $29 projects $31 before an encounter with the overriding resistance at $32. A modest objective of the $2 channel width higher would increase the option value by $1000.

The $33/$34.5 call spread has a maximum potential value of $7500 if above the higher strike at expiration. The combination of Time and Reward/Risk at four-to-one with the Fed now possibly forced to act once again are all potentially supportive factors.

Bake Sale

A quick check of a list of ingredients shows the cost to bake the proverbial cake or pie has become much more palatable. Wheat prices for flour are down a third from the peak of last year at $9.00 a bushel. Sugar trading now below $0.19 per pound and Cocoa at $2100 per ton is nearing the half off level of 2011 heights.

Commodities are cheap, though they can always get cheaper, to the benefit of us the consumer that wants lower prices. Caution is heeded as you need to be careful what you ask for as discounted resources are a sign of asset weakness. At extremes prices are corrective for scarceness and oversupply. Low prices are the cure for low prices.

The ingredients are cheaper but the tuition for instruction how to combine these basics remains at a premium. A foodie might enjoy this Baking Vacation for a heightened appreciation of how It ALL Comes Back To Commodities...

Tribune June 3- "Filling a knead to bake Michigan bakery teaches fine art of bread- and pastry-making For the intimidated masses, a stop at the popular Zingerman's deli in downtown Ann Arbor sates the need for a luscious loaf of bread or a palate-pleasing pie. But about four miles to the south, at Zingerman's so-called Bakehouse, the experts are more than happy to share their secrets. Each summer people from around the country travel to southeast Michigan to spend their time off on a "Bake-cation."

"I had always been a very good basic food cook, but I was not a good baker," said student Mary Mitchell, of Battle Creek, Mich. "Things never turned out the way they were supposed to."

For four years, Mitchell has been building confidence in the kitchen by making the 11/2-hour drive from her home to attend classes at Zingerman's, located in an industrial park just a scone's throw from Interstate Highway 94. The wife of a surgeon, she has learned lots about precision and technique, having mastered nearly all of the bakery's bread-making classes, which form the foundation for one of the two, four-day Bake-cations. Now she's turning her attention to the other: pastries.

"Baking is a science," he told his students, warning them that even slight deviations can lead to failure. "As bakers, we always weigh ingredients for precision.

"We're not making a cake. We're going to need to do some kneading," Roman noted as he launched into a demonstration of strudel-making before letting loose pairs of students to create their own, using both a sweet filling of apples and raisins and a savory one of cabbage and goose fat.

Loud thumping noises permeate the room as Roman demonstrates the "beaver slap," a technique that strengthens the gluten in the dough to keep it from tearing. "We throw it palm up," the instructor said, encouraging his students to imagine they're tossing yo-yos. When the dough strikes the table, it sounds like a beaver slapping its tail in a pond. Down the hall, in another classroom, Shelby Kibler instructed two men and six women in the craft of making various Italian breads.

"This bread, we want to bake it to a moderately reddish-brown," he said as he put a loaf of ciabatta into an oven. Then he removed a loaf of focaccia and sprinkled it with olive oil, coarsely-ground sea salt and rosemary. The oil, he observed, infuses the rosemary into the bread.

"Warm bread is great, but if you're looking to taste a bread, it really should be at room temperature," he advised.

Back in the pastry class, the students practiced the fine art of spreading the dough across an entire table.

"So thin you can read the newspaper through it -- that's what we're going for," Roman said of the process, which -- despite its delicacy -- is quickly grasped by the class.

As the work continued, Roman said that the fillings -- apples and cabbage -- were inexpensive and readily available to the peasants of Eastern Europe, where the treat was invented. History lessons are part of the experience.

"Bread baking especially had eluded me for many, many years," Mitchell said during a break in the strudel class. "By taking these classes, I learned the importance of measuring all your ingredients and following a very detailed recipe so that things come out as expected every single time.

"The quality of classes I receive here is above and beyond anything I've ever encountered anywhere else."

One of the best features may be that students don't have to clean up their messes. That task is left to the staff. That fact by itself might justify the cost of tuition.

Zingerman's Bakehouse

Four-day "Bake-cations" are offered in June, July and August and cost $1,000; weekend and evening classes are held year-round and cost $500.

Current Portfolio Positions

June 2012 Canadian Dollar (CDM12) 100.5 call at 160 points ($1,600): New Dollar highs on Eurozone fears crushed currency. Ohhh Canada, the drop from 100 in the last weeks has mortally wounded this play. The breakout move above 101.5 had set up a potential 2 point run to 103.5. Canadian Dollar support had held the last drawdown at 99.5 and reversed prices higher. The position will expire worthless, which represents a 100% loss. HOLD.

October 2012 Natural Gas (NGV12) 3.5 call at 160 points ($1,600): The price rally stalled at $3 in May and reversed on profit taking. The halfway point of the Jan $3.2 to April $2.3 decline at $2.75 needs to be reclaimed. The early season tropical storm in the Southeast is a reminder of potential volatility. Time is an ally with the October option. A push above $3.2 in the October contract lights higher prices to the $3.7 target. The position sits at 7.6 points ($760), which represents a 52% loss. HOLD.

September 2012 Cocoa (CCU12) 2400 call at 160 points ($1,600): The May asset crush has pushed Cocoa to the year long price base below $2100 from Dec, Jan and April lows. The last rally run back above $2350 and new month highs just weeks ago has unwound. The $2300 level held back gains and led to selling since. A secondary push to $2450 basis September contract set up an attack on resistance peak. Another thrust above $2450 sets up for a test of crucial $2500/$2550 to put in price bottom. The larger target of $2900 is the halfway point of multi-month decline. The position sits at 46 points ($460), which represents a 71% loss. HOLD.

July 2012 Crude (CLN12) 110/115 call spreads at 152 points ($1,520): $102 support failed last month on the heavy unwinding sales. Prices sat at $106 before the plug was pulled. The price pivot is now the previous old breakout point support of $95. The position sits at nominal value ($0), which represents a full 100% loss. HOLD.

June 2012 Gold (GCM12) 1750/1825 call spreads at 15 points ($1,500): Half of the spreads were sold at $1000 profit per position last week. The option premium had pushed to more than double the initial premium cost again on a run above $1750. Weekly support at $1600 was violated to bury the metal markets. The push above the $1675 October lows targeted the next upside at $1725 and $1750. Expiration is May 24th. The second half position will expire worthless, which represents a 100% loss. HOLD.

July 2012 Corn (CN12) 700/850 call spreads at 32 points ($1,600): Perfect weather has pushed old crop July Corn to yearly lows below the $6.00 level. The last rally has extended moves above $6.30. A Bounce off $6.00 has twice rallied Corn $0.50+ in the last months. A move back inside the range from $6.80 to $6.50 lows Oct 11 is a good sign to test recent highs again. The position sits at nominal value ($0), which represents a full 100% loss. HOLD.

October 2012 Sugar (SBV12) 25/31 call spreads at 135 points ($1,512): A drop from 24 cents just weeks ago has pressured Sugar to new 6-month lows. The new dip below 21 cents has voided any bottom pattern. Sugar prices had hit lower lows at 22.5 cent area after pushing above 24 cents before the failure last week. Sugar prices had held again the critical quadruple + bottom at 22.5 cent area which now represents a bottom confirmation level. This was also the September and October three-month lows. The position expiration is over four months away September 17th. The spread sits at 11 points ($123.2), which represents a 91% loss. HOLD.

It ALL comes back to commodities!

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Alan Knuckman can be followed on Twitter at twitter.com/AlBk2Comodities
At the time of publication, Alan Knuckman held no positions in the stocks or issues mentioned.