On Tuesday, the Dow (NYSE:DIA) surged 202 points after a debt deficit plan emerged by a gang of six senators, and praised by President Obama. The news also fueled optimism that Congress may reach a deal to increase the U.S. debt ceiling soon. Gold (NYSE:GLD) and silver (NYSE:SLV), which traded mostly flat before the news, took a beating. Gold fell below $1600, and silver fell more than 3% to close under $40. Although it may appear that investors appeared optimistic about financial markets, U.S. Treasuries had strong price gains. The iShares Barclays 20 Year (NYSE:TLT) gained 2.08% on Tuesday. Furthermore, commodities also experienced strong gains. Oil (NYSE:USO) climbed above $98 per barrel, corn (NYSE:CORN) continued its rally, and the Continuous Commodity Index ticked higher.
Copper (NYSE:JJC) also continued its rally as prices rose to a 3-month high due to gains in U.S. housing starts. Bloomberg reports that work began on 629,000 houses at an annual pace, which topped estimates. Copper plays such as Freeport-McMoRan (NYSE:FCX) and Southern Copper Corp (SSCO) both closed higher.
The market action yesterday was schizophrenic at best. Even though a raise in the debt ceiling signals more government spending and dollar devaluation, investors treated Treasuries as a safe haven, while ignoring ultimate safe-haven plays such as gold and silver. However, investors still appeared somewhat worried about inflation as commodities in general rose. Corrections and pauses are common occurrences in gold and silver. Time will tell if this was a simply a down day for precious metals (NYSE:DBP) or the start of another correction.
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Disclosure: Long AGQ