November 6, 2007, 10:46 am
How Subprime Woes Fuel Oil and Gold
Posted by David Gaffen
CommoditiesBy now, one can draw a direct line from the ongoing chatter surrounding the subprime mess to the ongoing surge in commodities, particularly gold and oil, both of which were strutting higher this morning.
Concern over still-more losses at major financial supermarkets have investors putting larger bets on the possibility of another Federal Reserve easing, despite the Fed’s line in the sand. More rate cuts means lower interest rates, which makes the dollar less attractive to foreign investors (the euro is at another all-time high today, natch).
oilgold_c_20071106103950.jpg
Oil and gold keep going.
With the dollar degradation continuing, investors are again buying up commodities denominated in dollars, as they’ve technically become cheaper as the greenback has suffered. And here we are, with crude oil traded lately at $96 a barrel and gold running up to $823 an ounce.
“All appearances are that rates are going to continue to come down, and the dollar is going to continue to weaken — and there’s a concern over inflation that’s drawing dollars into the commodities,” says Darin Newsom, commodities analyst at DTN in Omaha.
Mr. Newsom says he sees gold headed to $950 an ounce, and for it to surpass the old high of $853 an ounce soon, potentially by year-end. Ashraf Laidi, chief forex analyst at CMC Markets, says the dollar’s decline should continue thanks to the Fed’s actions — particularly in light of the fact that other major central banks, such as the Eurozone, England and Australia, are all in the midst of tightening rates (or certainly, not easing rates).
November 6, 2007, 10:46 am
How Subprime Woes Fuel Oil and Gold
Posted by David Gaffen
CommoditiesBy now, one can draw a direct line from the ongoing chatter surrounding the subprime mess to the ongoing surge in commodities, particularly gold and oil, both of which were strutting higher this morning.
Concern over still-more losses at major financial supermarkets have investors putting larger bets on the possibility of another Federal Reserve easing, despite the Fed’s line in the sand. More rate cuts means lower interest rates, which makes the dollar less attractive to foreign investors (the euro is at another all-time high today, natch).
oilgold_c_20071106103950.jpg
Oil and gold keep going.
With the dollar degradation continuing, investors are again buying up commodities denominated in dollars, as they’ve technically become cheaper as the greenback has suffered. And here we are, with crude oil traded lately at $96 a barrel and gold running up to $823 an ounce.
“All appearances are that rates are going to continue to come down, and the dollar is going to continue to weaken — and there’s a concern over inflation that’s drawing dollars into the commodities,” says Darin Newsom, commodities analyst at DTN in Omaha.
Mr. Newsom says he sees gold headed to $950 an ounce, and for it to surpass the old high of $853 an ounce soon, potentially by year-end. Ashraf Laidi, chief forex analyst at CMC Markets, says the dollar’s decline should continue thanks to the Fed’s actions — particularly in light of the fact that other major central banks, such as the Eurozone, England and Australia, are all in the midst of tightening rates (or certainly, not easing rates).
He doesn’t, however, link the rise in the commodities to inflation — just the expectation of November 6, 2007, 10:46 am
How Subprime Woes Fuel Oil and Gold
Posted by David Gaffen
CommoditiesBy now, one can draw a direct line from the ongoing chatter surrounding the subprime mess to the ongoing surge in commodities, particularly gold and oil, both of which were strutting higher this morning.
Concern over still-more losses at major financial supermarkets have investors putting larger bets on the possibility of another Federal Reserve easing, despite the Fed’s line in the sand. More rate cuts means lower interest rates, which makes the dollar less attractive to foreign investors (the euro is at another all-time high today, natch).
oilgold_c_20071106103950.jpg
Oil and gold keep going.
With the dollar degradation continuing, investors are again buying up commodities denominated in dollars, as they’ve technically become cheaper as the greenback has suffered. And here we are, with crude oil traded lately at $96 a barrel and gold running up to $823 an ounce.
“All appearances are that rates are going to continue to come down, and the dollar is going to continue to weaken — and there’s a concern over inflation that’s drawing dollars into the commodities,” says Darin Newsom, commodities analyst at DTN in Omaha.
Mr. Newsom says he sees gold headed to $950 an ounce, and for it to surpass the old high of $853 an ounce soon, potentially by year-end. Ashraf Laidi, chief forex analyst at CMC Markets, says the dollar’s decline should continue thanks to the Fed’s actions — particularly in light of the fact that other major central banks, such as the Eurozone, England and Australia, are all in the midst of tightening rates (or certainly, not easing rates).
He doesn’t, however, link the rise in the commodities to inflation — just the expectation of further deterioration in the dollar.
Oil has its own supply-related issues as well; demand is currently outstripping supply, and Exxon Mobil, in a recent report, notes that oil production is peaking and should plateau soon enough, falling far behind worldwide demand. “The Fed is in a bind — they need to cut to bail out housing and prevent recession,” says Patrick Kerr of OilGasFutures.com, but in doing so, “commodities will continue up.”