Unemployment Number Saves Gold...

By Chip Hanlon | September 05, 2008 | 9:58 AM | 2 Comments

...but for how long?

This morning's huge surge in jobless numbers has knocked the dollar, thus causing gold to pop up nearly $20 as I write this near the open. The conclusion's simple enough: such economic weakness will prevent the Fed from raising rates anytime soon (Fed funds futures now suggest only a 2% chance the Fed will raise rates by year-end, down from 40% odds just one month ago).

Without these numbers, it looked like gold was poised for another sharp leg down. Why? Let's take a look at crude:

Not much of a bounce considering how technically oversold it had recently gotten. This is an especially poor sign that there isn't much strength here; those calling for sub-$100 oil are now looking quite likely to be proven right in the short-term. The charts of many commodities and commodity-related equities look similar right now, by the way.

Now here's a 1-year chart of gold:

Gold hasn't embarked on another down-leg of its own but you can see the set-up is very similar to that of oil: poor-looking technical action.

Today's jobs data looks like it may have saved gold from a similar fate, but that's not a sure thing at all. If its bounce this morning fades later today or in the next couple of trading sessions, expect another leg down.  There's very heavy technical support for gold down near $700, but not much until then.

And regarding other commodities: aggressive traders shouldn't be nibbling here, but waiting to pick at even lower prices in coming weeks. I recently wrote that such aggressive trades were in order, but those should probably be stopped out of in most cases and attempted later because the bounce that materialized was so meager. Another chance to buy dramatically oversold commodities will materialize--perhaps soon-- but for now you just can't like this short-term action in commodities.

Gold Movement Chip: You may be right about commodity weakness but here are just a few "caveats": 1. Last week Jim Rogers launched another commodity fund (HAP). Why would he make such a move if the commodity bull was dead? 2. The move up in the USD is clearly overdone. The pure "fantasy" belief that our economy is recovering faster and stronger than anyone else is just wishful thinking more than anything else. Does anyone really believe that by the Govt backstopping over $5 trillion in mortgages that is bullish for the USD? Don't think so. It won't be long until the US Treasury is faced with the prospect of having its debt lowered to "junk" status by the rating agencies. And the brutal, ugly reminder that the unemployment rate has risen 35% this year is not a cause for celebration by dollar bulls. After all it is the "rate" of accelerating unemployment that is more troubling than the overall 6.1% number reported on Friday. 3. We continue to see actual "physical" shortages of both gold and silver. How long can the "paper" price of gold and silver (downtrend) defy the inevitable supply/demand shortfalls? I don't see nay of the above posing lower gold prices and a higher USD anytime soon. But then again this is an "Alice in Wonderland" stock market where things are never what they appear to be. Sincerely, Chris M. Miami, FL Submitted by Chris (not verified) on Mon, 2008/09/08 - 12:40pm » reply |

Good Points It be tough for Ben & Co. to raise interest rates in the face of a rising unemployment, this is simply more proof of domestic economic weakness. However, this is a dead cat bounce for gold. The dollar still has room to move on the upside, especially vs. the EUR & JPY which will continue to pressure precious metals & commodities. Submitted by Anonymous (not verified) on Fri, 2008/09/05 - 2:26pm » reply |