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US Unemployment Report Saves Gold ...but for how long?

Commodities / Gold & Silver Sep 06, 2008 - 04:33 AM GMT

By: Chip_Hanlon

Commodities Friday morning's huge surge in jobless numbers has knocked the dollar, thus causing gold to pop up nearly $20 as I write this near the open. The conclusion's simple enough: such economic weakness will prevent the Fed from raising rates anytime soon (Fed funds futures now suggest only a 2% chance the Fed will raise rates by year-end, down from 40% odds just one month ago).


Without these numbers, it looked like gold was poised for another sharp leg down. Why? Let's take a look at crude:

crudeover1

Not much of a bounce considering how technically oversold it had recently gotten. This is an especially poor sign that there isn't much strength here; those calling for sub-$100 oil are now looking quite likely to be proven right in the short-term. The charts of many commodities and commodity-related equities look similar right now, by the way.

Now here's a 1-year chart of gold:

goldover1

Gold hasn't embarked on another down-leg of its own but you can see the set-up is very similar to that of oil: poor-looking technical action.

Today's jobs data looks like it may have saved gold from a similar fate, but that's not a sure thing at all. If its bounce this morning fades later today or in the next couple of trading sessions, expect another leg down.  There's very heavy technical support for gold down near $700, but not much until then.

And regarding other commodities: aggressive traders shouldn't be nibbling here, but waiting to pick at even lower prices in coming weeks. I recently wrote that such aggressive trades were in order , but those should probably be stopped out of in most cases and attempted later because the bounce that materialized was so meager. Another chance to buy dramatically oversold commodities will materialize--perhaps soon-- but for now you just can't like this short-term action in commodities.

*After having taken a few weeks off, my weekly podcast, “ Market Neutral ,” will return next Tuesday.

**And if you hadn't seen it yet, an ETF based on our global shipping index launched last week (NYSE symbol: SEA ). Click here to learn more .

Chip Hanlon
President
Delta Global Advisors
Phone: 800-485-1220
www.deltaga.com

Chip Hanlon focuses on foreign equities, currencies and commodities. He is currently the president of Delta Global Advisors, an SEC-registered investment advisor with more than $1BB in assets under management. Previously, he was the C.O.O. and chief U.S. strategist for Euro Pacific Capital, president of Unfunds, Inc. and vice president of investments and syndicate director for Sutro & Co. He is also a contributing writer to Green Faucet and to Real Money, the subscription service of thestreet.com

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