Making Hay Monday – April 14th, 2025
Making Hay Monday
A Tale of Two Commodities
Felder
The stock and bond markets have been, understandably, dominating investors’ attention with their highly volatile behavior since mid-February. However, what’s occurring in the currency markets is also significant.
The U.S. dollar’s (USD) strength in the face of twin deficits in trade and the federal budget – which have jointly been running in the $3 trillion range for most of the past four years – was an enigma. The persistent rise in gold, however, was indicative that the USD’s rise was potentially more a function of weakness in other currencies like the yen, the euro, and the Canadian dollar.
Lately, though, as is apparent, the dollar has materially weakened. It is now at a critical juncture, as noted by the ever-vigilant Jesse Felder (who will be joining us for a webinar on Wednesday – all subscribers all welcome to join! Details to follow.).
The Trump administration has wanted to force the USD lower, and it looks to be achieving its goal. Should its fall become deep and disorderly, however, it could hit the stock market as foreign investors seek to avoid further currency losses. Because overseas holders of U.S. equities own around $16 trillion of U.S. stocks, any mass exodus on their part could easily trigger another down-leg in the S&P and NASDAQ.
Felder
With another hat tip to my great mate Jesse Felder, the negativity in the oil futures market is as intense as it has ever been over the last decade (which has produced several bouts of ferocious bearishness).
The dollar amount of derivative (or commodity market) trading in crude often runs 30 times the physical market. Accordingly, bullish or bearish positioning in the oil futures market dominates fundamentals.
As Jesse also notes, crude supplies are currently the lowest they’ve been in over four years. This echoes the stance of oil expert/extraordinaire, Mike Rothman of Cornerstone Analytics.
The main risk with oil right now is a wicked global recession and that possibility can’t be dismissed. Yet, a contrarian could cogently argue this possibility has already been at least partially priced in, though, to be fair to the bear case, probably not fully. Another yet, per the below quote by John Kemp, is that it’s reasonable to believe a serious economic contraction has mostly been discounted.
“Lower oil (prices)=lower US oil production=low US oil exports=higher US (dollar) exports=weaker US (dollar), and; lower oil (prices)=lower US oil rig count=lower US industrial production and ISM*=lower US (tax) receipts=higher US (Treasury) issuance.” Luke Gromen, author of the always-incisive Forest for the Trees newsletter, on the impact to the U.S. economy of oil prices falling below the marginal cost of production (as they have)
“Hedge funds sell oil at the fastest rate on record as trade war erupts.” (A headline from a recent research note from energy maven, John Kemp)
*The Institute of Supply Management, which publishes influential reports on the U.S. economy
A Tale of Two Commodities—& Their Producers
It’s likely not an exaggeration to say that at the start of 2025 there was no segment of the U.S. stock market as unpopular as was the gold mining sector. One of the reasons for the pervasive investor disinterest, bordering on disgust, was that the leading ETF, GDX, had seriously lagged gold, the metal, last year. And, of course, it had nothing to do with AI.
Even more exasperating was that it had been a total dog since the last bullion bull market ended in 2012. In point of ugly fact, GDX’s price had melted 50% from its peak in 2011 by the end of last year (it topped out before gold prices themselves did back then). GDX’s pathetic performance from 2011 to 2024 was despite the yellow metal having risen 50%!
As many readers are aware, GDX’s deeply out-of-favor status caused me to recommend it on weakness both in 2023 and 2024. There were a couple of rallies that gave us a chance to do some partial profit-taking, but each time the rally was fleeting. This caused even further dismay among the tiny cohort who were still invested in them.
As longtime readers of my material can verify, I was also a vocal fan of GDX and the junior miner version, GDXJ, in 2020 when both ETFs went postal. Unfortunately, that episode sucked in a plethora of investors near the peak back then, right before a vicious correction, which left most of them disenchanted with this star-crossed industry.
However, as we wrote in our Trading Alert for our top-tier subscribers last Thursday, there appears to be a seismic shift underway. It may be powerful enough to finally pull the gold miners out of the penalty box which they’ve been in for ages. …
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