Tuesday September 23, 2008

Crude oil surges over $26, gold rises over $44, CRB commodities index has biggest gain since 1956

bloomberg :

Surging prices for oil, silver, soybeans and gold sent the Reuters/Jefferies CRB Commodity Index to its biggest gain in more than five decades. The CRB rose 3.9% to 373.44, the biggest increase since at least September 1956. All 19 commodities in the index gained, led by NYMEX crude oil futures for Oct 2008 delivery that jumped $16.37, or 16%, to close at $120.92 a barrel on the New York Mercantile Exchange. Gold futures for Dec 2008 delivery rose $44.30, or 5.1%, to $909 an ounce on the COMEX.

- I made the call earlier that with 3 major factors converging - the end of the Beijing Olympics shutdown, the OPEC production cut of 520,000 barrels per day, and the USDX hitting the 80 resistance level - the price of oil should be bottoming out within this time period and start to reverse from its fall. But the ferocity of the move, a surge of over $26 from intra-day low to high, surprises even me. This kind of move is really unprecedented. Bloomberg says it is the biggest rise since 1956, and that is as far back as the earliest records of the CRB commodities index go, so I guess we could safely say that this *is* the biggest move ever. If this keeps up, we'll be back on the oil record-breaking track again : $150 oil beckons as does $180, $200 and beyond. It's a great day to be a commodity bull.

I also made the call earlier that regarding USDX, the US Dollar Index, "the best it could do is probably to consolidate between 76 and 80". Well here it is, a nice and neat downward move from 80 to 76 :

USDX looks like it is threatening to crash through the 76 level. Nothing goes up nor down in a straight line of course, and we may still have an attempt to consolidate between the 76 and 80 levels, but if the 76 level on the USDX does not hold, the next trading range is going to be between 72 and 76. Given how more than half the Fed's balance sheet is now toxic waste paper, and the upcoming $700 billion bailout plan for which the Treasury is planning to sell more US Treasury bonds that no sane foreign government in their right mind would really wish to buy, the fundamentals for the US dollar are, to put it mildly, shot to hell. 70 would be too kind for the USDX, it really ought to be plumbing the depths of 60, 40 and below.

And seeing how the US government tends to underestimate the amount of spending they really need by a factor of two, three or even more, we're probably looking at an eventual bailout of at least a trillion dollars for a start, and as the contrarian community has been yelling all along, it will take at least a couple of trillion dollars or more to smooth things over. It's an election year after all.

To paraphrase a certain Star Wars movie :

"A trillion-dollar injection can only mean one thing : hyperinflation."

Gold caught a huge whiff of this coming hyperinflation and it responded by having its best up day in, well, days, second only to the incredible over $100 move from $780 to over $880 just last week :

I wanted to write about this earlier but the recent turn of events has superceded that - nevertheless, I should still point this out - we've just witnessed huge trend reversals at the mother of all support levels : oil above the psychological level of $100, gold above the 28-year level of $850, and USDX below the 23-year support level of 80. It's a triple whammy. And it's very, very significant from a technical point of view.

This is all-out craziness. A rise in gold of over $44 in one day, from $860 to over $900. And this, on a day when the Dow Jones dropped 372 points back down to 11000 support, the S&P 500 fell 47 points down to 1200 support, and even the Canadian TSX index dropped 274 points. The financial system continues to melt down while the commodities bull awakens. 22 Sep 2008 is turning out to be a historical day.

(2008-09-23 08:53:48 SGT) [Energy] Permalink

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