Oil And The Dollar Put Pressure On The Metals
by Joe Battaglia
Posted: April 24, 2008
Oil fell $2 a
barrel to $116.26 and the dollar roared upward gaining 65 basis points at
72.47. That put heavy pressure on the
precious metals and other commodities.
Gold dropped $13 and silver was down $.34 in early trading.
New home sales fell
8½% in February, the biggest drop since 1991.
The inventory of new homes was revised to 575,000 homes. This would indicate the economy is going
remain in significant trouble for some time.
It also indicates the problems facing the banks and the financial system
with the collateralized mortgage derivatives is going to continue to be severe. Thus far, lower interest rates haven't helped
much in moving the inventory of unsold homes.
In addition the Help Wanted Advertising index of the conference board
fell to 19 in March versus 21 in February.
This indicates jobs will be hard to come by. The cumulative impact of the housing crisis, financial market
turmoil, higher energy and other factors are slowing the overall economy,
resulting in job cuts and reduced hiring.
Some analysts say that the labor market is likely to get worse before it
gets better. One would think this would
force the Fed to continue to ease interest rates. However, the performance of the dollar and gold would suggest the
Fed may cut interest rates only ¼% next week or perhaps not at all. The demand for durable goods the big-ticket
items, unexpectedly declined for the third straight month in March. The government report suggested the economic
downturn continues to plague the factor sector as well.
How the Fed reacts
to all of this data is the big question.
Perhaps another question to consider is can the Fed to anything to stop
the economic downturn. These questions
will remain unanswered for some time.
One thing is clear; if the Fed and the government fail to take some kind
of significant action there could be serious consequences for the financial
community. With the European Central
Bank refusing to lower interest rates, the European economy is beginning to
sink more aggressively. That has been a
negative factor for the euro and has been the key issue in allowing the dollar
to strengthen and gold to weaken.
In my view, gold
will remain in a bull market as long as it remains above its 200 day moving
average of $831.20. For the moment, it
would appear gold would have vulnerability to the $880 level. With gold heavily oversold on the charts,
there is every prospect that gold will rally back within the next week or
two. As long as gold remains above its
200 day moving average it remains bullish and all corrections should be viewed
as buying opportunities.
Investors would be
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Select those that best meet your own personal and individual investing
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helpful, call Goldline. Let me
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Investors should be mindful that past performance does not guarantee future results. Transaction costs are generally 5%
to 7% on bullion and 30% to 35% on coins. This is also referred to as the spread, or the difference between the buy price
and the sell price. The market must go up enough to overcome this spread before an actual profit is achieved. All markets go
up and down. Coins are a long-term, three- to five-year investment, suitable for 5% to 10% of the average portfolio. Please
see Goldline's Risk and Disclosure Statement for further details.
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