Monday, September 22, 2008

After the bailout: stocks slump; oil, gold, Euro rally

As predicted, stocks in New York fell over 3% today as investors worried that the government bailout may not be enough to stave off a recession. I think we will see more downside pressure the rest of the week.

Gold has resumed its upward direction as it rose to $913 today. We're on track to hit $1000 by perhaps next Monday, if not before.

Oil also rallied strongly and closed at $120. While I had anticipated gains early in the week, I was not prepared for this meteoric rise. Clearly, the US dollar is going to be pummeled in the near term as fears grow about the increased debt burden of the US government. This will drive up the value of commodities and other currencies. The Euro also moved sharply higher above 1.48 today.

Just as gold will rally in the coming weeks, it seems certain that it will be joined by oil and the Euro. It's possible we'll see the old highs of $147 eclipsed in crude while the Euro may once again be headed for 1.60. Please note, this is a significant revision of my weekly forecast. All these gains will not last long, however, as the Fed will likely have to raise interest rates perhaps in November to defend the greenback.

I am expecting a near term high in gold, oil and the Euro (and other currencies) next Monday the 29th. After that, the rally may slow somewhat but it should continue until about October 15-18. After that, I would begin to expect a change in sentiment that could occur in late October, or may be delayed until early November.