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Monday, November 17, 2008

3 Charts -- Gold, Dollar and Crude

Today, the markets look to open lower as the parade of pain continues around the world. Japan has joined Europe in recession, President Bush lets slip that he is worried we are facing a depression "greater than the Great Depression", and China's consumption of commodities is running off the rails.

I'll have links to all these stories in a moment. First, let's look at a chart of gold.Gold may be hammering out a base. Its price action has improved enough that it is now above its 10- and 20-day moving averages, and the 10-day moving average looks ready to cross above the 20-day moving average. We'll need follow-through to be sure.

Meanwhile, momentum is improving. Gold is still in a downtrend -- we don't have a weekly buy signal -- but this looks encouraging. What could be driving it? How about reports that the Arab oil sheiks and Iran are piling into gold right now. Why would they be doing that? I'll explore that more in this week's column.

Now, let's look at a chart of the US dollar ...
The dollar broke out to the upside and is now consolidating those gains rather than taking off. This is perplexing, considering the bad news pouring in about other economies. But if this were easy, everyone would be millionaires.

As the US dollar goes up, usually gold and oil go down. Let's look at crude oil ...
Oil seems to be going lower as demand falls around the world and OPEC seems to be backing off from a potential cut this month. What will turn crude oil around? Probably when it reaches new equilibrium in supply and demand. We are already seeing many new oil projects delayed or canceled due to falling oil prices, lack of finances, and so on. This is future supply that is being destroyed, just as present demand is being destroyed now. The two shall meet ... and maybe sooner rather than later.

Here is some news I find interesting ...

Japan joins Europe in recession - International Herald Tribune
Japan became the latest major economy to fall into recession on Monday with France close behind, and the IMF said it needed at least $100 billion (67 billion pounds) to fight the billowing economic crisis enveloping the world.
The euro zone is also in formal recession, with two consecutive quarters of contraction, Britain and the United States are on the brink and China is slowing sharply.

Bush: We're Trying to Avoid a Depression Greater Than the Great Depression

"I'm a free market person," President Bush told reporters after the summit ended, "until you're told that if you don't take decisive measures then it's conceivable that our country could go into a depression greater than the Great Depression."

Long, painful recession is likely - survey A survey of leading economists showed Monday that the likelihood of a prolonged recession has increased significantly as economic conditions continue to deteriorate.

Copper Drop to Deepen as China Spending Overwhelmed by Deflating `Bubble' Not even $586 billion of emergency spending by China can slow the plunge in copper, the worst- performing metal since the commodities market crashed in July.

U.S. Cotton Exports Drop at Fastest Pace in Decade as Chinese Demand Slows Cotton users are halting orders from the U.S., the world's biggest exporter, at the fastest pace in at least a decade as the economic slowdown erodes demand from China and sends prices to a six-year low.

Aluminum Falls to Three-Year Low as China May Increase Supply; Copper Down Aluminum fell to a three-year low and copper declined in London on speculation more metal will be shipped out of China, adding to global supplies as demand falters. Zinc also fell.

China Reduced Gasoline, Diesel Imports in October Because of Weaker Demand China, the world's second-biggest energy consumer after the U.S., cut diesel and gasoline imports for a third month as the economic slowdown damped fuel demand growth.

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