“World economy is a tough spot,” says the International Monetary Fund.
“No kidding,” says MoneyMorning.
“We concur,” say angry investors in Karachi, Pakistan, who yesterday pelted their stock exchange with rocks after stocks tumbled 4% before midday.
"We are looking at the situation and there is no question of suspending the market," said Razi-ur-Rahman, chairman of Securities and Exchange Commission of Pakistan (SECP), undoubtedly while sweeping up glass.
The financial markets are currently more unstable than a tight-rope walker who’s just downed a bottle of ouzo. The gold price has been bouncing around all over the place. Earlier in the week it shot over $970 as stocks tumbled. Overnight the yellow metal had its biggest fall in three weeks after falling oil prices put investors’ minds a little more at ease. The price now sits around $962.
”The fall in crude takes gold down with it,” said Frank Lesh, a trader at FuturePath Trading. ”If you’re buying gold as an inflation hedge, this removes that impetus.”
If you loaded up on gold a year ago, you have every right to feel pleased with yourself. In 12 months the price has risen 47%, while oil prices have climbed 87%. (I can’t believe I just typed that. 87% in a year! It’s funny what you become accustomed to when it happens gradually…like a lobster, slowly being brought to boil in a pot…)
We told you yesterday that there could well be more correction in the oil price this year. Does that mean gold is likely to fall in tandem? The guy quoted above seems to think so. We’re not so sure…
Take a look at the chart below, provided by our pals at MoneyWeek…
Take a look at the circled areas. Note the similar chart patterns. After spectacular rallies, both the May ‘06 rally and the rally at the beginning of this year, gold entered a consolidation period that took the form of a descending triangle. After that it broke out at $625 per ounce and rallied 60%. As you can see the pattern is very similar for what’s going on right now.
The other point worth noting is the extremely strong underlying support that the 200-day moving average has acted as. On some rare occasions gold briefly broke below its average, but it didn’t stay there for long.
There are loads of good reasons to remain bullish on gold. Perhaps even more so than oil, long term. We’ll keep covering them in future issues.
How high could gold go? Nick Jones of The Real Deal and Whiskey and Gunpowder, a fine technical analyst is forecasting a new high in the neighborhood of $1,700 to $1,900 an ounce.
If you agree, get buying.
US Stocks rally
Pakistani stock investors are unhappy. Aussie and American investors have a few reasons to be cheerful.
US stocks advanced for a second day overnight. More than three stocks climbed for every two that fell on the New York Stock Exchange. A lower oil price and an easing in the financial sector also helped Australian stocks. The ASX ended up by 30 points yesterday. Shares are expected to advance today for a third day running.
Oil doesn’t fall enough to save Qantas jobs
Oil crept lower overnight, trickling below $130 a barrel. It wasn’t enough to save a whole bunch of jobs at Qantas. Word is the airline is about to announce job-cuts today in a bid to offset the rising cost of jet fuel.
It’s tipped that losses could amount to as much as 3,000. Yes, 3,000. Not a small number…around 8% of Qantas’s workforce.
Bear in mind, this is not confirmed, reader. But when a Qantas spokesman was asked directly if cuts are imminent he replied: "Yes there are … there is … and there is no announcement that has been made today or will be made today. It will either be tomorrow or next week. We just need to finalise timing for that.”
So something is going down.
Qantas is not alone. Airlines across the world are firing staff, reducing flights, slashing costs and axing routes. Last month British Airways announced it was going to have to hike all fares up to 4%. With such an increase it’s going to cost a family of four an extra $270 to fly from London to Orlando.
Small potatoes maybe. But the cost of air travel is creeping up, reader. If you’re bullish in the price of oil, you’re bullish on the price of air travel.
Advice: if you’re planning a world trip – take it soon.
Oil doesn’t fall far enough to hurt Woodside
Despite the recent correction in crude, Woodside Petroleum posted a 52% jump in second quarter sales revenue. For the 2008 calendar year, production was up 4% and revenue up 38%.
Production rose 14% from a year earlier to 19.3 million barrels of oil equivalent, the Perth-based company said yesterday in a statement to the Australian stock exchange. Woodside retained its forecast of an increase in full-year output of as much as 22%.
Woodside is currently off its 52-week high of $58.50 as the market makes sense of oil’s recent move down.