May coffee futures broke above the $3 level, which is another milestone for this rally in coffee.  Many analysts thought this was an unreachable level just a few months ago, but here we are.  Supplies remain tight for coffee and weather has not been cooperating for coffee producers.  Some analysts believe there are enough supplies of coffee and producers are holding on to them in anticipation of higher prices.  Regardless of the situation, coffee continues to rally.

Commodities have taken on a new life in recent years as commodity prices have moved like we haven't seen since the 1970s.  Coffee is one of those commodities that the hedge funds are taking to extreme levels.  I say extreme now, but there is no telling where the price could be six months from now.

The underlying factor supporting the commodity markets is the Fed's easy money policies and ever decreasing value in the US dollar.  It will continue until there are changes made in policy, but there are none on the horizon.  Money managers know this and they will continue running commodity prices higher until the macroeconomic picture changes.  There is also another part of the equation where China, Brazil and other developing countries are leading to increased demand for commodities. 

The next chart resistance level for coffee is the May 1997 high of $3.18 a pound.  I would be surprised if the market doesn't hit that level in the next couple months.  The coffee market has gone straight up in the last year and major resistance levels are usually tested in these instances. 

The Fed kept interest rates unchanged in their latest meeting on Wednesday, which was no surprise.  Investors were anticipating the Fed Chairman's press confernce after the minutes were released and Bernanke gave them just what they wanted.  The bottom line of the press conference was that Bernanke said little to make investors believe the Fed will do anything in the near future to pull the liquidity out and slow the economy.

The results at the end of the day had gold about $24 higher and silver jumped nearly $3.  The dollar continued to sink and that typically leads to higher commodity prices.  The stock market also rallied and it looks like the markets cleared a major hurdle today and it will be business as usual.  This means the stock market and commodities should continue moving higher, especially gold and silver.

Bernanke did acknowledge that inflation has ticked higher, but it is nothing to fear anytime soon.  Commodity investors should feel good about the Fed's apparent lack of concern about inflation.  This means the macro picture is very supportive of a lower dollar and higher commodities.  

Gold and silver continue pushing higher even though gold continues to set new record highs and silver has rallied 27 percent in the last month.  Silver has been gaining more in percentage terms than gold and has the makings of a parabolic rally. Gold has been more of the steady mover.

Silver opened trading Monday morning with more than a $2 gain, but the markets leveled off by the end of the day.  The initial excitement might have come from talk that China is looking to diversify its large holding of currency reserves into other investments.  As you might expect, precious metals could be a likely candidate.  It seems logical, as gold and silver would be a good inflation and currency hedge against the dollar.

I have been getting emails from readers wondering how high silver and gold might run.  I see silver as a runaway market right now and I have to believe it will test the all-time high around $50 soon.  There could be a reversal at that level or it could break through and have a blow-off rally. 

Either way, I still expect gold and silver to move higher in the coming years.  Fed Chairman Bernanke will have a press conference on Wednesday and we might get a clearer picture on the Fed's intentions with the economy.  If the markets interpret that the Fed will continue with the easy money policies, precious metals should continue rallying.  It might take the Fed clamping down on their easy money policies and Congress getting a realistic balanced budget passed to stall the rally in gold and silver.  So far, there aren't many believers these things will happen when you look at the price of gold and silver.      

It seems fitting to discuss the cocoa market with Easter just a couple days away.  Cocoa is in high demand this time of year, as chocolate bunnies have been hopping off the assembly lines on the way to little boys and girls.   As you might expect, the price of chocolate has increased from last year along with almost everything else at the grocery store.

Commodities have risen nearly 40 percent from this time last year.  Surprisingly, cocoa prices are at the same level as this time last year.  However, the price of sugar has increased 40 percent and most of the other ingredients in chocolate have also increased.  When you look back a little further, the price of cocoa has increased about 300 percent over the last 4-5 years.  It was only a matter of time before producers like Hershey would increase prices (about 10%).

Looking at the current situation in cocoa, prices dropped substantially in March when it looked like Ivory Coast would have their political problems somewhat resolved and cocoa exports would resume.  Well, they still have political unrest, but they are resuming cocoa exports.  World supplies look to be more than adequate as long as they can continue exporting.  Recent reports indicate that another major cocoa producer, Ghana, will have a better than expected crop. 

Cocoa prices may struggle to move much higher in the next few months unless Ivory Coast really ignites and exports are halted.  This is probably unlikely, but you never know what is going to happen with this country.  The path of resistance is lower for the near-term and higher when you look a couple years down the road.