Chris Lau - Seeking Alpha

Friday, August 15, 2008

So Much for Canadians Shopping in the U.S.
Eye is on the US Dollar and Commodities

After a nice rally (and my self-praise to go along with it), gold prices fell $19.70 to $798, down 2% on the day, and 8% for the week. One day did not make a trend, and the lack of a follow-through for stronger gold prices is a concern for the commodities market.

The U.S. dollar has been on a surprising uptrend, and its strength runs counter to any of my fundamental reasons for otherwise: the government is in heavy debt due to over-spending, tax rebates, and very soon, the cost for keeping Freddie Mac and Fannie Mae afloat.

The market has often traded contrary to perceived logic, but it remains forward-seeing. If the USD strength holds, and I think it will, it is telling us that the US economy will stabilize and that the globalized nations (Europe, Canada, Asia). Further, commodities prices including oil and metals will continue to fall.

It will still be important to keep an eye on the rate of foreclosures. In short, the tug of war will be between falling home prices/foreclosure rates versus the rate of falling commodity prices (due to global slowdown).

Source: RealtyTrac