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Gold News - 9/11/08
September 11, 2008
The recent volatility and consolidation in gold has been a result of the declining price of oil and other commodities, and the increase in the dollar.
Blanchard does not see the current strength in the dollar supported by real fundamentals. Currently, there is little economic data that is positive for the dollar other than general weakness within other currencies. Long term, the dollar will not be able to sustain its current increase for a number of reasons. Consumer spending in the United States is down, exports are down, the credit crisis continues to claim victims - with more on the horizon, and jobless claims remain extremely high. These factors are not bullish for the dollar.
On the oil front, supply and demand fundamentals are pushing it downward. Supply has not changed, and demand has weakened slightly. However, in the U.S., and across the globe, people have become too dependent upon oil for its demand to slow much more. Any interruption in supply could push oil right back up near record levels.
The Federal government in the U.S. will have to continue to dump liquidity in the market, either through rate cuts, bailouts, tax rebates, or come other creative plan to stimulate economic growth of any sort of note. If the Fed does not push liquidity, the U.S. will fall into a recession. This is extremely bullish for gold. The decrease in price that we have seen over the past few weeks is healthy for gold - It allows new investors to get into the market at depressed prices, and the reality is that gold is currently on sale.
While none of the markets have fared well in 2008, gold has maintained its value at better levels than many of the equities markets.
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Copyright © 2009 Blanchard and Company, Inc.
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