Commodity Traders Are Bulls for a Day as a Year to Forget Closes

  • Weaker U.S. dollar, slumping equities fuel day's rally
  • But don't call it a trend, `it's a trade,' says one analyst

For commodity traders, it’s the last working Friday in a dreadful year -- a rare chance, perhaps, to feel bullish.

Copper was up 3.1 percent, sugar 2.7 percent while gold climbed 1.5 percent as of 1:59 p.m. in New York trading. The Bloomberg Commodity Index, a measure of returns for 22 components, was up 1 percent to 77.357, the most since Dec. 3, after falling 26 percent this year. Gains were held back by crude oil, which was down 1 percent at 2:20 p.m.

Friday’s drivers included a weaker U.S. dollar, slumping equities and -- perhaps -- the coming end of the annus horribilis. But don’t confuse one day’s results for a full-fledged rebound. Investors are running out of trading days to close out positions for the year and minimize losses or lock in gains.

"Right now, there’s a good deal of money coming out of the stock market and going into commodities, mostly precious metals today," James Cordier, the founder of Optionsellers.com in Tampa, Florida, said in a telephone interview. "There’s also not that many trading days left this year, so I think some of the strength is from books clearing."

Federal Reserve Chair Janet Yellen may have helped by raising interest rates for the first time in almost a decade on Wednesday, potentially exposing shaky equity values, Cordier said.

"Part of it may be short-covering; there’s massive short positions in precious metals, in energy," Cordier said.

Yellen’s Words

And Yellen’s repeated use of the word "gradual" when discussing future interest rate increases may put pressure on the U.S. dollar, boosting commodity prices, said Quincy Krosby, a market strategist at Prudential Financial Inc., based in Newark, N.J.

The Bloomberg Dollar Spot Index was down 0.3 percent Friday at 1:52 p.m., the most since Dec. 9. 

Still, traders aren’t expecting the global economy to grow rapidly, something that would lead to a meaningful recovery in commodity prices, Krosby said.

"This does not signify a trend," she said. "It’s a trade."

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