Monday, October 1, 2007

Commodity Re-balancing

Crude Oil

GLD - Gold ETF

With the start of a the fourth quarter it is helpful to look back at some of the strong gainers in the third quarter. Two examples that were particularly strong and trading in an orderly trend were oil and gold. Both of these commodities are major components of many of the commodity index that various fund managers follow. After strong quarterly gains it is helpful to watch for re-balancing at the start of a new quarter. Oil had a gain of almost 16% for the quarter while gold had a gain of almost 14%. This means that the initial weighting of commodity indexes could be in need of re-adjustment. To do this there could be some selling in the commodities that were strong for the quarter and buying in some of the weaker index members. Keeping this in mind might help explain some selling that might not otherwise make sense. Any strength in the U.S.Dollar could also mask this rebalancing effect. Oil and Gold are both very sensitive to the dollar and at the present time seems to be benefiting from some short term oversold conditions.

No comments: