Monday, April 15, 2013

OIL and GOLD Prices Falling Hard ... And Here's What It Means ... No Inflation, Energy Independence, Smaller Trade Deficit and Strong Dollar Lie Ahead ... All Good Things

Gold and oil prices fell hard last week.

They're falling even faster and further this morning in global trading. In addition to last week's precipitous declines, gold has fallen more than $100, or 7%, to under $1400 today. Meanwhile, oil prices have fallen another 3% to near $88 this morning.

Weakness in the Chinese economy is blamed in part for the fall in prices today, but there are several other factors at work, too. And taken as a whole, it's not necessarily bad news for U.S. consumers, savers and investors. Unless you're betting on gold, oil and other commodity prices rising due to runaway inflation and the end-of-the-world-gloom and doom economic scenario.

And that's definitely NOT what I'm expecting to happen. Better times lie ahead for We the People in our various capacities as citizens, workers, savers and investors. That's the long term American future I foresee. We have problems, to be sure, but we'll solve them. In the end, we always do.

In fact, if President Obama gets off the dime and encourages private sector growth initiatives and efforts to achieve North American energy independence, we could be in for substantially further price drops in gold and oil prices and an improvement in the outlook for a resumption of solid U.S. economic growth in the coming years. Let's hope that happens.

So let's take a peak at the crystal ball and recap the recent action in gold and oil trading.

For today's action thus far, Gold sinks 6%; copper hit after China data: says this:

"Gold futures tumbled by more than $90 on Monday, deepening their descent after entering bear-market territory last week, while prices for industrial metal copper also slumped following economic data from China that fell short of expectations.

Gold last week lost 4.7%.

The losses roughly matched gold’s heavy drop on Friday, when it lost $63.50, or 4.1%, to $1,501.40 an ounce on the Comex division of the New York Mercantile Exchange. . . .

Copper prices, meanwhile, lost 7 cents, or 2%, to $3.28 a pound. Copper’s gain of 0.2% last week was wiped out after China, the world’s second-largest economy, posted quarterly-growth and monthly industrial-production figures that missed analyst expectations.

China’s gross domestic product in the January-March quarter rose 7.7%, slower than growth of 7.9% in the fourth quarter, and below expectations for an 8% gain in separate surveys from Dow Jones Newswires and Reuters. . . .

Oil prices were also tumbling on Monday as the weak China data deepened worries about demand for the commodity. . . .

Elsewhere in the metals complex Monday, silver . . . dropped $2.52, or 9.5%, to $23.82 an ounce, building on last week’s 3.3% retreat.


Commodity prices, including gold, silver, copper and oil are in apparent freefall this morning in global trading. But that's not necessarily a bad sign for U.S. consumers, markets and investors. In fact, it's potentially a very good thing.

Energy Independence = No Trade Deficit = Strong U.S. Dollar = No Inflation = Higher Incomes = Greater Economic Growth = Equals Lower Fiscal Deficit.

Sounds great. All we need now is the political will to make it all happen.

It simply means that inflation is not a worry and that investors see general economic market conditions in the U.S., as well as globally, stabilizing.

Accordingly, there's a high probability that we've not seen the last of the price declines for oil and gold, respectively. Not by a long shot.


Oil logs 2% loss, ends at lowest in over a month says this about oil's recent decline:

"Crude-oil futures settled lower on Friday, as declines in U.S. retail sales and consumer sentiment, renewed worries over Cyprus and recent downgrades to global oil-demand forecasts combined to push prices to their lowest close in over a month. . . .

“The oil story is coming into greater focus, that the preponderance of the evidence globally points to a massive, long-term flattening out of oil demand,” said Richard Hastings, macro strategist at Global Hunter Securities. . . .

On Wednesday, the Organization of the Exporting Countries cut its global oil-demand estimates for the year slightly, saying financially troubled Cyprus is now another point of worry in the euro zone.

Pressure builds

Disappointing data on the U.S. economy and euro-zone concerns were also to blame for oil’s plunge Friday.

“Falling oil prices often coincide with economic weakness,” said James Williams, energy economist at WTRG Economics, adding that the “old saying that high oil prices cause recession is just as true the other way around. Weak economies cause low oil prices.”

“The problems in Europe and the U.S. are beginning to impact Asia which for some time has been the source of growth in petroleum consumption,” he said. . . .

In the U. S., March retail sales fell 0.4% — below the MarketWatch forecast of a 0.1% decline and a gauge of consumer sentiment dropped in early April to the lowest level in nine months.

The negative news just keeps coming, said Williams, with consumer confidence adding another layer of negative news impacting the oil price. . . .

One cure for weak consumer spending is lower prices, and lower oil prices are also a confidence booster as well.


In addition to today's action, gold prices fell dramatically on Friday as well. Gold enters technical bear market after Friday drop says this:

"Gold‘s price plunge Friday meant that the battered commodity is in a bear market, a technical status that could lead to more selling.

Gold lost a whopping $63.50, or about 4%, to settle at $1,501.40 an ounce on the Comex division of the New York Mercantile Exchange. That was the lowest close since July 2011."

Summing Up

Falling oil and gold prices are potentially good signs for the overall U.S. economy, energy independence, national security, a strong dollar, low inflation, higher consumer spending and global stability.

While the U.S. economy will probably stumble along at an anemic pace for the remainder of 2013, we can anticipate an economy gaining steam over the next few years. That will result in lower fiscal deficits and a much healthier private sector.

In turn, that will give a much needed boost to both consumer and business confidence going forward.

As a result, we can expect that inflation will remain well under control and that interest rates will remain quite low until the economic picture brightens substantially.

All of this is good news for our economy, consumers and long term investors.

At least that's my take.

Thanks. Bob.

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