The volatility in the commodity markets has been tremendous and in my opinion can be traced to several factors. These factors include such items as high energy prices, the ongoing mortgage debacle and ensuing credit crunch, the possibility of future rate cuts, and geo-political tensions, just to name a few. These have all combined in some sort to keep pressure on the U.S Dollar. Recently the crude oil futures looked certain to trade $100.00 per barrel and Gold was on its way to $900 per ounce, however both markets have since pulled back.
When trading Gold always remember it is the “anti-Dollar’, meaning that rarely do the two trade in the same direction, in my opinion. Much of the yearly upside in the Gold has been attributed to world traders needing a safe haven to protect their portfolios and the increasing demand to own physical Gold.
I believe this recent correction is more technical in nature, as opposed to fundamental. The market needed to fill in a gap at the $780 level, or thereabout. The market sure felt a little top heavy up around $840 and was losing momentum. The Gold market gave back $70 Dollars in a matter of weeks and Gold traders never panicked…Truly amazing. I guess seasoned traders have been through that type of action before.
The Crude Oil production increase certainly added to the strength of the U.S. Dollar and the sell off in the Gold market as well. But I believe the overall housing sector crunch is going to continue to be a drag on the U.S. economy and the US Dollar. Unless the FOMC can figure out a long term and permanent solution I will continue to buy dips and bull spreads.