Oil and gold continued their brief, but sharp declines on Thursday (March 20) as US stocks regained much of their Wednesday losses, and the dollar remained firm in the midst of its hiatus from its long-term downward fall.  Oil had been on a relentless climb up until three days ago when it peaked at $111 and began a swift fall.  Gold had traded around $1,020, but has seen an even more impressive fall to a spot rate of $910 Thursday.

The major market moves in oil, gold, equities, the dollar and other financial markets, began to develop on Tuesday as investors waited for, and then responded to, the Fed rate cut announcement.  Following a deep .75 point rate cut, investors reacted with hope about the future, which shined through in several markets.

Light sweet crude settled at $101.84 in New York, which was definitely welcome news to Americans set to travel for the Easter holiday weekend.  Travelers may not necessarily see lowered gas prices in time for their departures, but they may save a few cents per gallon on their return trips, at the end of the weekend.  Lower oil typically translates, at least somewhat, to lowered fuel prices.

More importantly, lower oil is a welcome sight on the first day of spring.  Travel picks up greatly in the US in the late spring, and especially in the summer.  Oil had been on an almost daily pursuit of new records for several days as it soared to $111 earlier in the week.  Although gas prices had not climbed as aggressively as oil over the same time span, national gas averages did manage to set a new record this week.  According to the Energy Information Administration (EIA), weekly national retail gas prices came in at $3.284 for March 17.

Gold’s fall has been remarkable, as it too had been on a strong rise.  Gold had been aggressively up since it broke through previous record highs near $850.  Many speculators have turned to gold in lieu of the weak dollar.  As the dollar has picked up steam in light of the Fed rate cut and US economic hope, gold enthusiasm has waned a bit, leading to the drop to today’s spot rate at $910.

Gold itself does not have a huge impact on the typical American’s daily life, other than in the form of more expensive jewelry or other luxury items.  Gold prices are often seen more as a relative indicator of dollar strength or general world economic strength.  Viewed as safe money, gold speculation increases in uncertain economies.  Countries that develop gold through mining usually benefit more from higher prices based on their ability to develop new holdings.  Most countries rely on gold for reserves to back up paper money.

It is hard to say that the economy and the dollar are reversing direction, but the last few days have certainly been an impressive break from the strong downward trends.  The dollar had reached record weakness against several major currencies, including the Euro, yen, and Swiss franc, late last week and the start of this week.  The dollar has gained about four pips on the Euro, and two to three pips on the yen and Swiss franc in the last few days.

Objective observers would likely consider investor resilience in US financial markets either a powerful sign of hope, or a good example of American stubbornness.  Daily economic reports continue to offer signs of economic struggle.  Jobs data today confirmed that economic weakness had infiltrated employment.  Investors and Americans seem focused on the future, which might be the best way to avoid getting overwhelmed by the present.

Market Recap

Following Tuesday’s strong stock surge, investors pulled back Wednesday, with the Dow, NASDAQ and S&P all off sharply.  The Dow dropped 293 points, with the other indexes down 58 and 32 points.  Morgan Stanley gave hope to financial services companies by besting first quarter estimates.  Oil dropped after an inventory report showed strong supply.  Equities showed unique resilience Thursday, with the Dow taking back 263 points.  The NASDAQ and S&P jumped 48 and 31 points.  The rise was driven mostly on hope, as current reports still indicate a weak economy.  Oil fell back to the century market in another sharp drop.  Gold fell as well, as the dollar climbed against most major currencies.

Neil Kokemuller
Thursday, March 20, 2008
7:47 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA.  He has a MBA from Iowa State University with a specialization in marketing.

Please note:  The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments.  Actions taken on the basis of the information shared is at the sole risk and discretion of the individual.  Currency investment poses significant risk of loss.