Commodities Mixed as U.S. Dollar Strengthens: Is Party Over?

Even though commodities increased some on Friday, the overall drop in prices during the week, especially with gold, silver, rice and wheat, has some investors starting to wonder if the party is over.

The U.S. dollar had a decent week, and that always takes its toll on commodities; especially from institutional investors.

Another factor influencing the downturn in some commodities has been the credit market may be showing some signs of regaining some of its health, and that has investors starting to be willing to assume more risk.

One sign institutional investors are leaving commodities is the pullback from gold ETFs.

"That's an indication that the credit market tightness is being alleviated," said Tom Pawlicki, commodities analyst with MF Global Research in Chicago. "At this point I think we're probably in the early stages of a weakening commodities market, a strengthening dollar and more risk appetite."

Gold is down from its all-time high of $1,038.60 an ounce it achieved on March 17 by 20 percent.

The drop in price of grain futures this week also seems to point to investors looking elsewhere, as wheat, rice and soybeans dropped in price. That's even with gains on Friday. Corn did lose 3.75 cents for July on Friday, dropping to $6.135 a bushel.

On the CBOT, rice futures increased by 31 cents to finish at $20.945 a hundred pounds.

Other precious metals making some gains were silver and copper, with copper rising by 12.60 cents to finish at $3.8205 a pound, while silver grew by 26 cents to end at $16.465 an ounce on the Nymex.

Is the commodities party over?

I don't think so. Demand for food will continue from China and India, problems in Chile with copper will probably continue, and investors are always one weakening of the U.S. dollar away from plowing their money back into the commodity market.

Concerning the end of the commodity bubble, Elaine Kub, a grain analyst in Omaha said, "I wouldn't say it's the end of the bubble. We're talking about widespread global demand (for food). Just because the dollar is higher doesn't necessarily stop that growth."

My thought is it won't be as predictable as it has been, and it'll take a little more work to separate the chaff from the wheat. We'll probably see less institutional money in the market, but those that follow and understand commodities should have some good opportunities to make money for some time ahead.