We have seen both the corn and gold markets fall recently on bearish influences, but there are some bullish factors to consider that eventually may boost prices. While CBOT corn futures dropped on expectations of favorable planting weather, concerns about delayed plantings and high demand for corn are likely to provide a lift to prices. Meanwhile, indications of a slower U.S. economy have resulted in declines in COMEX gold futures, though concerns about terrorist activity remain as bullish factors to consider. For both these markets, I favor buying when prices drop.

Corn Market Mainly Affected by Weather

The corn market has experienced notable volatility, with fairly choppy trade amid news about weather and planting delays. CBOT corn futures traded lower Monday, April 30, on favorable plantings conditions, with the May contract closing down 6 ¼ cents to $3.58 a bushel and July down 6 ¼ cents at $3.67 ½.

Prices were pressured by a favorable six- to 10-day forecast, with near to above-normal temperatures in the Western and Eastern Corn Belt. The forecast also calls for near- to below-normal precipitation in the Eastern Corn Belt, which has had significant rainfall in the past month that prompted concerns that corn may not be planted in time to produce good yields. Adding further pressure to prices on Monday were deliveries start against the May contract. Deliveries of 1,700 contracts were larger than expected.

The Commodity Futures Trading Commission's Commitments of Traders Report on Friday, April 27 showed that open interest in the corn futures market fell about 288,000 contracts from the February peak. With the decline in open interest, there may not be much more long liquidation to expect in the market. Last Friday, some fund selling pressured prices, but that appeared to subside by Monday until just before the close, when funds sold as the month ended.

Another bearish influence on the market was last week's International Grain Council estimate of 2007-08 world production of 746 million tons. That's up 52 million tons from last year.

While these bearish factors have dominated, bullish factors such as slow corn planting progress must be considered. As of April 29, only 23 percent of corn had been planted, compared to 52 percent at this time last year and the five-year average of 42 percent. Traders, who have been watching weather developments, were looking for corn planting to be 30 percent to 35 percent complete.

Greater demand for feed and ethanol also are bullish considerations. Mexico passed legislation to increase both corn-based and sugar-based ethanol. In the U.S., many new ethanol plants are being constructed or are being planned for construction.

I am leaning toward the bullish side in corn and recommend buying dips in the July contract. I see technical resistance initially at $3.80 to $3.82, then $3.91. If the market breaks through those levels, prices could aim for $4.00. I would recommend putting stops on long positions below $3.56 to $3.57 and down to $3.49.

July options expire at end of June, but investors can buy a $4 call for about 11 cents or $550, excluding commissions. With December corn futures trading at $3.65, investors can also look at the $3.80/$4.20 call spread for about 10 cents. These options don't expire until November. If we see indications of more planting delays, a wet August similar to last year, or harvest frost, this would be a good long-term bullish strategy.

Consider Geopolitical Factors in the Gold Market

While the gold market sold off, worries about geopolitical developments are likely to provide support.

COMEX June gold futures fell about $24 per ounce from its April highs. Prices were under pressure from fund liquidation late in the week and signs of a slower U.S. economy, which has dampened physical demand for gold. Recent gains in the stock market have also taken some of the luster out of the gold trade.

However, concerns specifically about terrorist activity in the world, favor the bullish side. Last week, Saudi Arabia arrested 172 individuals suspected of plotting attacks on the country's senior officials and government oil, military and security installations.

I recommend buying gold futures on dips, as I have for corn. An investor can enter a long position at about $675 to $677 in the COMEX June contract, with stops at around $670. If the market breaks through that level, prices could slip to $660 or $655.

For options strategies, I recommend buying August $700 calls priced at $1,700 and the $710/$760 call spread for about $1,100, not including commissions.

I'm also keeping an eye on other developments that could affect the gold market. I'm watching reports on the Chinese economy to see if demand in that country slows down. In addition, some key reports on the U.S. economy will be released this week, including the employment report on Friday, May 4.

Greg Milkovich is a Senior Market Strategist with Lind Plus. He can be reached at 866-631-6216 or via email at gmilkovich@lind-waldock.com.

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