There are a quite a few hedge fund managers--collectively controlling billions of dollars--who take the latter part of the summer off. This group tends to put their money back to work at the unofficial end of summer--in other words, now. For this reason, it’s not uncommon for new and important trends to begin right after Labor Day.

With a full post-Labor Day trading session behind us, what I find most interesting is that gold broke above a major downtrend line that had been in formation since May. This is a bullish sign.

December Gold



Source: Commodity.com

Gold and the dollar generally trade in opposite directions, but there’s a correlation with declining oil prices (like we’ve seen recently) and weaker gold prices. You would, therefore, assume the dollar was weak on this strong gold day, but it wasn’t. It was flat (trading below a long-term negative trendline and above a long-term positive trendline).

December Dollar Index



Source: Commodity.com

And it wasn’t only gold that exhibited strength this first trading day after Labor Day; copper surged as well. And take a look at the aluminum chart below. Aluminum (which is traded in London) confirmed gold by breaking out on one of the heaviest volume days of 2006.

London Aluminum



Source: Commodity.com

The dollar index is weighted toward the two most important non-dollar currencies: the euro and the yen. While they’ve both been flat, one minor currency--the Australian dollar--has had a breakout to the upside similar to gold and aluminum.

December Australian Dollar



Source: Commodity.com

What does all this mean?

The Australian dollar is termed the “commodity currency” due to the importance of commodities (particularly grains and metals) to the Australian economy. What its breakout means is this recent gold strength is no fluke--it was not only confirmed by aluminum (and other base metals) but also by the “commodity currency.” In other words, this breakout looks to be the real thing and a sign that the next major leg up in gold prices should begin soon. I’ll be looking for a reasonable-risk entry point to buy gold for Futures Market Forecaster subscribers.

Corn Update

In the last issue of Commodities Trends, I analogized the current corn market with the historic mega-bull market of 1995-96. In 1995, the corn market didn’t bottom at harvest time, as is usual, but in August (due to a demand shock). Last week I predicted the same basic pattern this crop year, and guess what? So far, so good.

The bottom for the move thus far was registered August 18; the market is now about 10 cents per bushel above that low. I remain very bullish on corn, and I’m looking for sharply higher prices in 2007. The next major event for the corn market will be the September 12 crop report; the US Dept of Agriculture will provide its estimate of this year’s crop size.

The market’s reaction to the news coming out of that report will be as important as the news itself. If the market acts properly, I envision adding to our current position.

George Kleinman is editor of Commodities Trends.

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Futures and futures options can entail a high degree of risk and are not appropriate for all investors. Commodities Trends is strictly the opinion of its writer. Use it as a valuable tool, not the "Holy Grail." Any actions taken by readers are for their own account and risk. Information is obtained from sources believed reliable, but is in no way guaranteed. The author may have positions in the markets mentioned including at times positions contrary to the advice quoted herein. Opinions, market data and recommendations are subject to change at any time. Past Results Are Not Necessarily Indicative of Future Results.

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Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.