Gold, Oil Trade Lower

Posted: Sep 21, 2012 12:01 AM

The dollar came back hard against the euro sending commodity prices into a tailspin in early trading.

Gold was down $10.68 to $1,760.40 and silver was off $0.30 to $34.31, for a silver/gold ratio of 51.3. 

It was a rough night for commodities as the dollar surged against a basket of overseas currencies.  Joining silver and gold lower were platinum, palladium, crude oil and copper. 

While it may be a bit premature to call the end of the bull run triggered by the stimulus announcement from the Federal Reserve, we don’t seem to be getting much of a rally for our $40 billion a month. 

Part of what’s influencing commodity prices is a slowdown in Chinese manufacturing.  That comes at a time that China and Japan are feuding over the ownership of some disputed islands in the East China Sea.  The real source of the dispute is the oil under the islands, which has prompted “spontaneous uprisings” by the Chinese people which they’ve taken out on Japanese factories in China. 

For China, reminding the Japanese that having factories in China leaves them vulnerable to this kind of trade dispute, may not have been the best tactical move.  If the Japanese decide to bring that manufacturing back home it’s only going to exacerbate the economic situation in China. 

While the Chinese and Japanese duke it out for some uninhabited islands, unemployment remains stubbornly high in Europe and the housing market in the dumps in the U.S., despite the availability of record low mortgage interest rates. 

All these seemingly unrelated factors combine to make the United States the cleanest shirt in the economic hamper.  Investors are continuing to buy our bonds because we look so much more reliable than other countries. 

This is building to a point about gold and silver as a strong dollar depresses prices on commodities, at least in the near term. 

Currency dilution has a dark side and that’s inflation.  There are already troubling indications that the Fed’s current action is stimulating inflation and that will ultimately be good for silver and gold prices. 

Chris Poindexter, Senior Writer, National Gold Group, Inc