Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Tuesday, December 05, 2006

US ISM Growth May Present Opportunity in Metals

The latest ISM # out this morning is bullish for the economy. The Institute for Supply Management's index of non- manufacturing businesses rose to 58.9 last month. That’s the highest since May, from 57.1 in October. Readings above 50 indicate expansion in industries that account for almost 90 percent of the economy.

You can read all about it by

This is finally giving the US dollar some legs and sending precious metals lower. However, this is a counter-trend move if I ever saw one.

Traders are buying the dollar and selling gold because they think this ISM # gives the Fed more reason (or excuse) to raise interest rates.

This euphoria could last through Friday, when we get the nonfarm payrolls and consumer sentiment for December (see an economic calendar here: I don’t have a crystal ball, but I expect those numbers to disappoint. Here’s why…

1) The ISM # is up because consumer spending rose last month. And that was mainly due to lower gasoline prices (which coincidentally or not, bottomed on election day).
2) Gasoline prices are slowly rising, and home prices are falling. I’d expect that to filter into consumer sentiment for December. Likewise, while consumers have been spending this holiday season, it hasn’t been spectacular. Therefore, there’s no big reason for employers to rush to add to payrolls.

Still, while we make educated guesses, never forget that the economics game is really a glorified crapshoot.

Anyway, if my hunches do play out, the dollar will slump lower again on Friday, and gold and silver will head higher. Naturally, if I see good opportunities to add positions before Friday, subscribers to Red-Hot Canadian Small-Caps, Red-Hot Asian Tigers and Red-Hot Resources will be the first to hear about it.

Labels: , ,

Check out my new gold and energy blog at