Why have short-dollar/long-commodity trades punished gold?
*Barron's, by Debbie Carlson, November 3, 2008:
"Consumers certainly are happy to see lower pump prices. But a lot
of market-watchers are wondering if the weakness in commodities is a
harbinger of deflation -- or falling prices -- in the broader economy.
While analysts say that changes in fiscal and monetary policy by many
nations should stave off negative growth, the financial crisis and
sputtering global economy, combined with the losses in equities and
commodities, have many thinking of the D-word.
Could it be the reason gold hasn't revisited its March all-time high,
$1,014.60 an ounce, despite the worrisome economy? On Friday, December
contract gold on Nymex's Comex settled at $718.20 an ounce, down 1.657%
on the week.
The causes of commodities' rout aren't completely fundamental. Yes,
industrial demand has slowed, hitting base metals like copper and
nickel, and Americans are driving less, pinching oil. Still, Hussein
Allidina, head of commodity research at Morgan Stanley, says that
unwinding of short-dollar/long-commodity trades have punished
commodities, gold included. Nontraditional buyers who previously helped
to boost all commodity prices have headed for the exits to avoid
further risk. Gold futures, specifically, suffered from margin-call
selling and investors scrambling into cash, says John Person, president
of advisory National futures.com.
While the gold-futures market might be lackluster, the retail cash
market for gold coins and bars is robust, with many dealers offering
what coins they have for sale at a several percentage point premium
over spot.
Person says that, compared with historical averages, commodity prices
remain high. 'I'm surprised we're not even lower. I don't think there's
deflation from a historic standpoint,' he says. 'Based on a global
financial meltdown, commodity [prices] are telling us it's not as bad
as it seems.'"
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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