The dollar has been trying to move higher the last couple days, which normally would signal weakness for commodities. Gold has shaken off the recent strength in the dollar and just keeps chugging higher. Some might say gold has moved too far, but I believe it has the potential to move much higher. We could see a short-term pullback, but I would view that as a buying opportunity.

Corn, wheat and soybeans have been pushing higher. The grain commodities had been neglected since early summer as the crops were expecting to be very large this year. Indeed they will be, but the long-term picture is supportive. The next few months are usually a slow time of the year for corn and soybeans so the upside may be limited unless the inflation trade accelerates.

Crude oil has been stuck in a range for more than a month and you would expect it is just a matter of time before this market decides to break higher or lower. The fundamentals suggest lower prices unless the dollar rolls over again.

The soft markets like cocoa, sugar, orange juice and coffee have been holding steady, but not making new highs. The funds like to push these markets to extremes and this could be the calm before another storm. Cotton futures have been pushing to new yearly highs, which is nice to say from a market that has been beaten up the last few years.

Lumber futures are certainly one of the most illiquid commodity markets and erratic price behavior is the norm in the lumber pits. The price action in lumber futures has been quite amazing in the last month. January lumber futures have risen from 182 to nearly 240 in about four weeks. Most of that move came in just the last week.

The reasoning for the jump in prices is a little unclear. Some say demand is increasing and inventories are being replenished. This is the slow time of year for lumber demand, so it doesn't make much sense. Another explanation is that lumber prices have been in the doldrums much of the year and hedge fund managers might have sensed some value here.

It doesn't take much to move lumber futures, so this market could have been ripe for picking. New home starts have been weak, so it is difficult to see where demand is coming from. This could revolve around expectations for improving demand in the future or it might just be more of a liquidity enticed rally like the stock market and some other commodities. Regardless, this is a dangerous market to jump onboard - always trade this market with caution.

The U.S. Dollar Index fell 62 points to 74.80 on Monday, which makes this another new low for the year. The dollar has been trying to move higher the last few days, but just got crushed again today. This, of course, fueled commodities higher. Gold jumped $26 to close just shy of $1,143. Most other commodities were also sharply higher.

Commodities are working off the macro economic picture right now. The macro picture happens to focus on the Fed and the massive government stimulus programs. They have the spigots wide open right now with no indication they will back off anytime soon. The price action in gold and the dollar tell the whole story.

The trend right now is a momentum trend. Institutions are selling the dollar, while buying stocks and commodities - especially gold. Expect maximum exploitation out of this setup. I feel these moves are not sustainable and will end badly. That could be tomorrow or a couple years from now. The S&P (stock market) is just shy of a 50 percent retracement from the peak in 2007 to the low in March 2009. Could this be a top?

Crude oil prices have dipped back to $76 a barrel, which is the lowest price in about a month. Crude oil supplies continue to be well above last year's levels and the dollar is trying to rally. It is surprising that gold has rallied so strongly, yet crude oil has been drifting lower. On a pure supply and demand basis, crude oil should not be trading around $80 a barrel.

These are strange times and the economy is awash with liquidity. This funnels money into stocks and commodities and there's no telling how this will play out in the years to come. There is also the argument that much of the incremental demand for oil will come from China and other developing countries. That may be true, but many of the experts are also expecting the U.S. economy to grow sharply the next couple years.

I still think we are seeing nothing but talk yet and little economic growth. The government has skewed economic data for decades. The government is also throwing a large amount of money at this economy and interest rates have been holding near zero for some time. As Scotty would say - "I'm given it all I got captain!" If the economy can barely grow with massive amounts of stimulus, what happens when it is taken away? We can't afford to borrow money until infinity.

For crude oil, it is on strong support around $75. The market looks like it wants to go lower and the mid-60's would be a likely target. The key is to see if it holds the $75 support level. The high end of the range is $82 and it would likely take a huge drop in the dollar to break through there in the near term.

Once gold made a solid move above $1,000 and then broke the record high around $1,018, many analysts began to increase their profit targets for gold. The popular price target for gold now appears to be $1,500 an ounce. If that level is taken out, I would expect $2,000 to be the next target. Before we get ahead of ourselves thinking this move is a lock, let's see why the market might continue moving higher.

The main reason for gold moving higher is the dollar is losing value. The underlying cause of the dollar weakening and a flight to gold is the Fed is printing money like crazy and the federal deficits are swelling out of control. Few have faith that the government powers will get this under control and that is a perfect recipe for rising gold prices and higher inflation down the road.

The government will always downplay these issues, but don't fool yourself and think they aren't a problem. The problem with estimating price targets for gold is that it there are too many differing variables that cause the price to move. Most commodities can normally be valued from a simple supply and demand equation, but gold is influenced by many financially related issues that are difficult to quantify.

The most logical way to value gold is to look at the big picture. Gold should continue moving higher in the long-term as long as the underlying problems are still in existence. As long as the government keeps the printing presses working around the clock and interest rates remain near zero, gold should continue moving higher. It is anyone's guess how far this market might run.

The USDA will be releasing their monthly crop report Tuesday morning at 8:30 EST. Traders are expecting a slight increase in the production numbers for soybeans and wheat. However, they are expecting a drop in corn production by about 80 million bushels from the October USDA estimates. Cotton production is also expected to drop by about 300,000 bales.

These commodities are typically calm the day before a monthly crop report, but the dollar hitting new lows today sparked a rally. The grains also traded lower the last few days, so traders could be squaring positions ahead of the report. The chances of a major surprise in this report are fairly low, but anything can happen.

Poor silver. You never seem to hear anything about silver these days as gold is capturing all the headlines. Central banks are buying gold to hedge currency risk. Gold is the pinnacle investment for an inflation hedge as well as a safe haven investment. And lets not forget that gold has broken the psychological $1,000 barrier and keeps hitting record highs. So, what does silver have to say for itself?

There really isn't much to say about silver, except that it is riding on gold's coattails in the precious metals complex. Silver is an attractive investment for investors who like to buy the physical metal by the ounce or silver coins. Some even think silver has more leverage or upside potential than gold.

You can't help but recall that silver went up to $50 an ounce nearly 30 years ago when the Hunt brothers tried to corner the market. Trading around $17.34, silver would appear to have a lot of upside potential when you look at a long-term chart. The only problem is that it is unlikely another dynamic duo will corner the market anytime in the future.

I might be giving the impression that silver is an ugly duckling, but that is not the case. In fact, silver has outperformed gold during the last year. Silver has risen 106% off the October 2008 lows, while gold has only risen 61% from its October 2008 lows. Silver has a long way to go before it hits record highs, but I would expect silver to at least keep pace with gold as long as the rally continues.

The Fed released their decision on interest rates yesterday and it is business as usual. This means they will keep interest rates near zero for the foreseeable future, which does absolutely nothing to help the dollar. Does this mean the same theme of a lower dollar and higher commodities will resume?

I'm sure the "short the dollar and long commodities trade" will pickup once again. The markets have an enormous appetite for risk, because it is apparent that the Fed and the government will give the markets everything they want. This is a liquidity driven market because of those reasons and it will be interesting to see how far traders take it to an extreme.

That being said, there is still a top in the commodities and stock markets that should hold. We are in strange times and there is no telling what will happen. The gold market is making quite a statement trading near $1,100 an ounce. However, the commodity indexes are consolidating below their highs. The dollar will have to make a strong break lower if commodities are to make new highs.

Gold futures received a sharp boost from news that the International Monetary Fund (IMF) sold 200 metric tones to India's central bank for $6.7 billion. The news caught many investors by surprise as China was originally thought to be the eventual purchaser and many thought it would be spread over a period of time. However, it went to India and it went quickly.

Gold traders saw this as a vote of confidence for the precious metal as they pushed prices to another record high. Gold closed $31 higher at $1,085 an ounce on Tuesday. It is a positive sign for the gold market that such a large purchase could take place with gold near record highs. I have to say it is also a sign that foreign countries want to diversify out of the dollar, which might paint an ominous sign for the dollar going forward.

December coffee futures staged a large rally on Monday - up more than 5 percent. Coffee closed 6.45 cents higher at 142.35($1.4235 a pound). The technical picture looks very interesting in this market. It looks like coffee futures could be on the verge of a strong move higher.

A break above $146.50 would be the breakout point. Markets typically have a sharp run higher on a technical formation like this. Please remember that not all technical breakouts work and you must control your risk.

The fundamentals look positive for this market, but I can't say they suggest a rapid move higher at this point. I expect commodities to be very volatile throughout the next few weeks as the financial markets are at a critical stage right now. Technically, I would favor the upside in coffee unless there is a breakdown below the trendline - currently around $133.