Friday, February 29, 2008

Commodities Gone Wild

The pictures tell more than a thousand words, thanks to the excellent long-term perspectives from Decision Point. I have to hand it to Carl Swenlin: he's maintained a premium site for a number of years, with consistent improvements and unique features. It's one of the subscription services that I gladly pay for year over year.

You can see from the top chart that the U.S. dollar broke long term support and continues to head lower. Meanwhile, note the parabolic moves in gold and commodities overall. One can only surmise that the Fed is so concerned about the banking system and economic collapse that it will do whatever it takes to provide economic stimulus. So far that's not exactly inspiring the stock market with confidence--and it's not lifting financial issues, which are getting close to January lows.

With Treasury rates plummeting--the 2 year rate closed at 1.65%, down from over 5% last June--it's difficult to see what will entice investors to hold U.S. dollars. And that, so far, is creating panic buying among commodity traders and a buyer's strike among equity participants.


hcarstens said...

Whoa! Feedback loops w/in feedback loops w/in feedback loops.


Wilson said...

Teresa Lo pointed out an interesting phenomenon among the gold ETFs - as their AUM has increased due to surging investor demand, they've been purchasing more and more gold to hold on behalf of their investors; this transfer of demand has likely has played a role in the price of gold recently. One argument for sustainability of prices (although by the chart it doesn't seem so - looks very much like a bubble to me) is that perhaps investors, particularly on the retail side, who never would have had access to gold investments now do; in a sense barriers to investing in gold have been reduced, providing for a larger market of buyers.