Thursday, September 14, 2006

 

Gold, Oil Extend Declines

Bloomberg reports on Gold trading. "Gold in New York fell to the lowest since June after a rally above $600 failed to attract new buyers. 'People are selling rallies now,' said Frank Lesh, a trader in Chicago. 'There are still some longs that have been trapped. The trade now is to sell gold and get short of this stuff.' Gold is down 20 percent from a 26-year high of $732 an ounce reached on May 12."

"Gold futures for December delivery fell $10.30, or 1.7 percent, to $586 an ounce on the Comex division of the New York Mercantile Exchange, the lowest closing price since June 28. Prices earlier traded as high as $601.80. Today's decline was the sixth in seven sessions."

"Losses accelerated after gold fell below the 200-day moving average, a signal to traders who look at historical charts that prices are poised to fall. 'You have a flip in the market from net long to net short,' said Michael Guido, director of hedge fund marketing at Societe Generale in New York. 'Speculators are starting to short the market.'"

"A decline in oil helped send gold lower. Oil futures touched $63.15 today, the lowest since March 23, after reaching a record high of $78.40 on July 14. Oil erased earlier gains after the Energy Department said inventories are 11.7 percent higher than the five-year average. Gold and oil have generally moved in lockstep as investors buy the metal as a hedge against inflation when energy expenses climb."

"Gold may drop to $575 before rebounding, said Guido. 'The intention is to buy the market but investors want to see how low it can get,' Guido said."

"The lowest prices in more than two months may attract some buyers, analysts said. Gold may rise to $700 an ounce by the end of this year, GFMS Ltd., an indepe"ndent London-based precious metals research company, said in a report today.

"Net purchases of gold for investment totaled 165 tons in the first half, compared with net sales of 38 tons a year earlier, GFMS said. Jewelry demand, the biggest use for the metal, fell 28 percent to 1,069 tons. 'The worst of the decline may be over,' said GFMS Executive Chairman Philip Klapwijk at a London conference today."

"'I'm looking for a bounce from bargain hunters,' said Leonard Kaplan, president of Prospector Asset Management. Lower prices have lured some of his clients back to the market, he said."

From Today Online. "And as the cliché goes: 'When the US sneezes, the rest of the world catches a cold.' The problem is that if the eagle has a severe chill, the Chinese dragon could catch pneumonia. And with both sick, the global economy is in trouble."

"China's economic success has been powered by an export boom to the US. US consumers spend billions on cheap goods manufactured in China, where labour costs are a fraction of Western capitalist labour costs. China in turn imports raw materials like oil, iron ore and copper from third countries."

"But with the US economy slowing and consumers cutting back their spending, China's growth could come to a sudden halt if Americans stop buying Chinese imports."

"The doomsday scenario is premised on the questionable but plausible analysis that an economic bubble (bigger than the dotcom one) has developed in China, a view held by a quiet minority of experts. The bubble will be pricked by the US economy going into a severe recession, as investors and Chinese consumers in China worry about the consequences of a US recession."

"If this happens, China will no longer be able to fund America's massive budget and current account deficit by buying US treasury bonds. (It is doing this because it wants to keep its currency from rising against the US dollar, believing that a rising yuan is bad for exports to the US). The US dollar will collapse, bringing another set of problems."

Comments:
The Times article actually states a case for a slowing economy causing inflation. Deflationists say a US recession will reduce commodity demand. Inflation theory says a US recession will hurt demand for Chinese imports, reducing the ability of the Chinese to support the USD. The market would demand higher rates to compensate for the falling USD. That would cause inflation. Can Japan and Europe support the dollar without China's help?
 
among all the cheerleading, did anyone notice that we hit another record monthly trade deficit? boy, that should've had an effect on gold, no?
 
Well I just looked at the poll on CNN Money about what the most important news stories of the week was. 61% thought the oil pullback and only 8% thought the record trade gap. Apparently most people care more about the $.20 less they're paying at the pump then the $68 billion we're sending overseas...
 
and the more money we send overseas the more our oil will eventually cost.
the trade deficit is irrelevant to most people. they don't understand.
 
" the trade deficit is irrelevant to most people. they don't understand. "

Well, one person does, and am using this dip to back up the truck....Record deficit, crashing housing market,
recession...Is that going to be bullish for the dollar??

purely speculation ,but I jumped in with both feet yesterday ,and bought my favorite spec miners...Time will tell, . ..good luck
 
Time will definitely tell!

Just like with the housing bubble, we know -- and I mean know -- that PMs will one day soar due to the undeniable fundamentals. Just like past years with housing, though, we simply don't know when that will happen.

The trip to $730 for gold & $15 for silver earlier this year was similar to housing's 2003 slowdown. Option ARMs came to the rescue and extended things a while. Similarly, the Fed is using all of its might to perpetuate "goldilocks", but that'll only last so long.

Patience.
 
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