Rosenberg on commodities and the dollar

David Rosenberg of Gluskin Sheff offered the following warning today about the future course of the trade-weighted U.S. dollar and its historical relationship with commodity prices.

We are still long-term fans of the commodity complex and precious metals but again, the charts are indicative of a further correction in coming weeks and months so keep your powder dry and be ready to add to long-term positions in the areas of the investment arena that are in secular bull markets.

The U.S. dollar has broken out on the upside, and while this is more a reflection of the problems overseas than anything overly encouraging state-side, the charts again are telling a story of a flight-to-safety not unlike what we experienced in late 2008 and early 2009. It is a countertrend rally in the greenback but this could last a while longer — the DXY tested the 90 threshold in the last such up-move nearly a year ago, which would imply another 10% rise from current levels (ie, this countertrend rally may only be 40% of the way done).

Again, countertrend rallies in the U.S. dollar are not generally associated with upward movement in the commodity complex, so expect to see further near-term declines in the resource space. Although the chart of gold against the euro and many other currencies still looks quite constructive.

That's not going to make any commodity bulls or gold bugs very happy, except of course, those living in Europe or anywhere else outside of the U.S. where they don't really see the price declines in dollar terms. Shouldn't we be hearing about Indian jewelry buyers stepping in to make gold purchases right about now?