(This guest post originally appeared at the author’s blog)
Investors are piling into any commodity they can get their hands on as the dollar crumbles and real assets spike. A cautious reading on homebuilder sentiment did not deter traders from bidding lumber limit up for the second day in a row. A vicious combination of short covering, market optimism and demand for commodities is driving lumber prices higher. Curt Cunningham, president of Pacific Futures Trading attributes the buying to inventory restocking and funds that are scrambling to get their hands on one of the few commodities that just a few weeks ago was not at a 52 week high. That was remedied in a matter of three trading days:
“Funds have been buying gold, crude oil and whatever and there just seems to be a consensus that the weaker U.S. dollar means that you need to be long commodities. General consensus is there’s not much wood in the wholesale distribution pipeline and that has left guys scrambling for product.”
Housing data has not been particularly strong of late, but restocking heading into a weak seasonal period could be a sign of better times to come for the housing market. On the other hand, as we’ve seen with many markets it’s difficult to decipher what is real recovery based demand and Fed induced liquidity buying. For now, it’s safe to assume it’s a bit of both.