Commodities Trip Over Strong Dollar

Posted: Jan 31, 2012 12:01 AM

Commodities sagged to start the week as precious metals, crude oil, and grain prices all took a tumble in early trading. 

Gold was down $9.51 to $1,728.29 and silver was off $0.49 to $33.43.  Even on a down day for gold the news is not all bad.  Prices for gold held above $1,700 an ounce, which means today’s correction is largely in line with currency fluctuations and the concerns I had about profit-taking failed to materialize.  After a pop of almost $100 last week that is surprising price resiliency, though I should note the spot price is jumping around a lot this morning and it may be too early to call a trend for the day. 

On the broader economic front comes news that small business hiring slowed in January after a good surge in December.  What that means is the money the Federal Reserve is loaning out at nearly zero interest is not getting into the hands of small businesses.  Instead of loaning it out, Wall Street banks are using the low interest loans to speculate in the unregulated and highly secretive swaps market, leaving taxpayers on the hook if those bets go bad. 

Figures from January are going to bring more bad news to the housing market, with the numbers showing approximately 11 million homes, one in four, are “underwater” in equity value, where the owners owe more than the homes are worth.  Coupled with tighter lending standards and millions of potential buyers with a mortgage default on their credit record, I don’t see where the buyers will come from to absorb the overhang. 

If the government wants people to buy homes, then it should focus on ways to make home ownership a better deal.  Right now buyers have to slog through incredibly tight lending standards only to end up being owned themselves by the mortgage company, insurance company, utilities, state, county and local government and, sometimes, a homeowners association.  Seriously, who needs all that overhead in their life?   How many people sit around and wish for more reasons for government at all levels to meddle in their affairs?  Yet, that’s what you get with home ownership today.

Government programs aimed at assisting struggling homeowners are lucky to help a million people stay in what will still be over-valued homes.  Those programs are like waiving a rolled up newspaper at a charging rhinoceros for all the good they will do. 

Sadly, that’s all good news for gold prices.  The more people get chiseled on the big investments in their lives, like their homes and 401(k) plans, the more they’ll be more likely to opt for defensive investments like precious metals. 

Chris Poindexter, Senior Writer, National Gold Group, Inc