NEW YORK (Kitco News) - As long as the U.S. dollar continues to churn higher, the commodities sector, which is near 18-year lows, will continue to remain weak, according to one senior commodity trader.
In an interview with Kitco News, Todd "Bubba" Horwitz, senior strategist and trader at Adam Mesh Trading Group, described the current market conditions as a "complete collapse." The sector breakdown is being led by oil prices.
January West Texas Intermediate (WTI) crude futures remain under pressure Wednesday, trading below $40 a barrel, down almost 11% since the start of the month.
However, despite the renewed weakness, Horwitz said that he thinks the commodity sector, and gold, are close to a near-term bottom. Markets just have to be patient and wait to see the outcome from the Federal Reserve's monetary policy and Fed Chair Janet Yellen's comments in the ensuing press conference.
"It has nothing to do with the supply and demand model right now; it has everything to do with the Federal Reserve and the U.S. dollar," he said. "The theory is: The U.S. dollar has already priced in an interest rate rise, which should relieve some pressure, which might help the commodities."
Looking specifically at the gold market, Horwitz said that he likes the yellow metal despite the current negative sentiment. He noted that the market is seeing record short speculative positioning in gold.
"Typically when those things start to happen that usually signifies a potential bottom in a market," he said. "Now, I'm not saying we are going to bottom tomorrow or that we are going straight up, but ... the risk/reward model states, to me, that I am much better being a gold owner than a gold seller."
Horwitz added that most of the negativity in the gold space is in the paper market but demand for physical gold remains strong.
Comex February gold futures were relatively unchanged on the day, trading at $1,078.50 an ounce.