Yesterday, the price of oil jumped $16 (settling at $120 on the New York Mercantile exchange). This is a remarkable increase in the price of the world’s most important commodity. If the increase is permanent it will affect both inflation and economic growth forecasts.
On the same day, the price of Gold increased $44.30 to settle at $909.
Whilst gold and oil increased in price, the dollar fell to its lowest value against the Euro for a month. The US currency has now lost 6% in value since Sept 11th.
The reason is that Gold and oil are seen as a substitute to investing in dollars. With so much uncertainty surrounding the US economy, investors are looking for alternatives to the dollar - which many feel could fall in the coming months. Investors are nervous about the dollar because of the government’s ambitious $700bn bail out plan for the beleaguered financial system. The plan would increase the nation’s debt ceiling by 6.6% to $11.315 trillion. With such a large deficit, the dollar becomes less attractive.
There is also growing criticism of the $700bn plan to bail out banks. US house sales are still weak putting pressure on another US interest rate cut.
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Greg Knapp talks about this with Mike Maloney, author of Rich Dad’s Advisors. Check it out http://tinyurl.com/3orlbj
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