-- Posted Monday, 2 March 2009 | Digg This Article
| Source: GoldSeek.com
April Gold: Open= 953.4 High=959.5 Low=921.0 Last= 925.1 -28.3
As suspected, this week is starting off with rocky news. First, AIG reported a shocking enormous $61.7 billion loss, the largest corporate loss in history. It is asking for another $30 billion in taxpayer funds to keep it from collapsing. Having at one time insured some 100,000 business and groups, it appears that hundreds of thousand of business and millions of people are now insuring AIG.
Construction spending fell 3.3% and the manufacturing index was yet again signaling a contraction in sales and jobs, the 13th month in a row. On a slightly positive note, consumer spending and personal income were up, albeit brushed aside by the markets and dismissed as blips in a larger trend.
Overnight, major stock indices around the world were lower by 3-6%, and the US markets fell right in line with them, as well, with the Dow falling roughly 4%, closing below 7,000 for the first time since 1997. The Dow Index, however, is perhaps losing some status as reliable indicator as some of its stocks have fallen below $10 a share and have not been de-listed. That might lead us to look at another index, such as the S&P 500. The S&P was down 4.66%. Not good either. How does this all affect gold?
Flight to quality apparently did not provide any support today. One might think that a general collapse in the equities would provide a boost for gold, often thought as a safe haven for capital. However, the market is already quite long of gold by many indicators and reports are surfacing that physical buyers in India and the Middle East are backing away from purchases. It turns out that there is another market also garnering flight to quality attention, and that is none other than the US dollar.
While the US faces a host of economic and fiscal problems, it is not alone in the global recession. Conditions in Eastern Europe have deteriorated rapidly and Western Europe has balked at a second round of bailout money for the region. Fears of turmoil in the Euro Zone are gathering, as well, with some harking back to Milton Friedman’s thoughts that the Euro would not survive its first recession. Japan is facing a demographic bomb, with its population plotted to shrink by half by 2050. For investors, tough choices are abound and money has to be put somewhere, even if it is the best of a bad lot. The US economy is still the largest in the world and has the most capable military force still.
That leaves traders chasing dollars, and the net effect of that today was a deflationary tone. The dollar closed at its highest level in nearly 3 years today. Nearly every major commodity was in the red as traders fear further slowing in demand. Even as OPEC contemplates another cut in production, oil dropped over $4 a barrel today as demand concerns trump supply concerns.
Buyers should view this correction as a buying opportunity but may want to include some sort of put protection. Given the volatility of gold, a pullback could encompass a price range to as low as $880.
Review charts on these markets here www.britefutures.com. Remember that futures and options can be used for bullish or bearish positions; feel free to contact me to discuss trading strategies. Each contract/option = 100 ounces, a $1 move in a futures contract = $100.
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Thomas Hartmann
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-- Posted Monday, 2 March 2009 | Digg This Article | Source: GoldSeek.com
