Gold continues to pop as it rides the dollar’s weakness and inflationary concerns resume. Adding to the major bullish tone was the decision by the Fed to reduce both the federal funds rate and discount rate by 50 basis points, far more aggressive than most expected. While this may have injected some sort of spark into the economy, rising inflation still seems to be on the minds of many analysts as the dollar traded 64 points lower today, closing at 78.67. The Fed's decision seems to signal that the economic threat posed by the housing slump could be far worse than they thought at the last meeting, only back in August. Certainly, the ripple effects of bad investment decisions will hit some homeowners hard and some companies that were floating on clouds of cheap money. Cheaper money will, however, not stop mortgage resets. The tidal wave of resets won't come till the turn of the new year and then foreclosures should really jump. A bane to some, but a boom to many who have been pushed aside during this housing bubble and may finally be able to afford homeownership. And thy home shall be thy kingdom because at current exchange rates, travel abroad will certainly not be cheap.
The Fed signaled to the market that the US economy was not strong enough to weather this storm. What already was a weak dollar has now fallen to 20 plus year lows against major currencies. The US dollar and the Canadian dollar traded evenly for a time today! Investors are dumping the dollar and putting capital into other currencies. So far this shift has been rather calm. Gold will benefit from this move as flight to quality buying propels gold higher. With $80 plus crude oil, $10.00 soybeans, $9.00 wheat, and multi-decade high prices in other commodities, inflation is abound, even if 'core' inflation is only at 2%. It would not be out of the question to see gold prices move well beyond current levels if this type of monetary shift continues and global demand for goods remains strong.
Establishing long positions in the gold market on a pullback would be a good play for traders looking to profit from positive moves ahead.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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