In 2014, The US dollar has caused a lot of damage to commodities, industrial metals included. Over the last decade, the correlation between the dollar and commodities has been very strong (a negative -0.75%). For this reason, it’s very important not to look at either market in isolation, as important clues can develop in one market before the other.

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For example, if you had looked at both markets in conjunction, you would have realized in September (as we warned) that commodities were likely to fall throughout the year in the face of a dollar hitting multi-year highs.

As the year ends, the dollar index is up 13.5% since July:

Meanwhile the CRB commodity index is down -25% (helped by the crash in oil prices):

So What should we expect going forward?

To be honest, it’s very difficult (if not impossible) to predict how long this dollar rally will continue and how low can commodities go. What’s more important is to understand and to interpret the present. Therefore, what we can say is that a strong dollar going forward should act as a restraint on commodity prices, industrial metals included.