Commodities prices held in check by stronger dollar

By Pete Southern in LiveWire Economics Blog | November 19, 2010 15:28 |

Oil prices have seen restricted upward mobility and gold prices have fallen in lieu of a stronger dollar the last two weeks. The greenback has climbed higher against most major currencies and on the whole after the initial reaction to the Fed’s $600 billion Treasury bond purchase.

A barrel of light sweet benchmark crude oil was trading slightly higher on early Friday (November 19th) morning trade on the New York Mercantile Exchange. Oil is currently at $81.52 per barrel, down 33 cents from Thursday’s $81.85 settle price.

Analysts suggest that the debt issues facing Ireland and the Chinese government’s attempts to combat inflation are major factors affecting oil price movement.

The belief is that if the Chinese government aggressively intervenes to control inflation, a resulting impact could be a slowing of growth in the economy, thus diminishing crude oil demand.

Gold prices have been hammered of late after a break through $1,400 peaked at $1,421 on November 9th. Gold reached its lowest point in about three weeks with a Wednesday close at $1,335.80. The current spot rate is $1,345.60.

Most leading gold experts still believe gold is primed for more upward movement and that the recent pullback is just another example of profit taking following a surge higher in the previous weeks.

A stronger dollar has definitely been a key factor in oil prices and gold prices being held under wraps of late. The dollar has pushed back against major currencies like the euro and pound following renewed debt concerns in the European Union over the problems in Ireland.

Even with the dollar’s bounce, analysts believe, similar to gold, that the current trend is short-term. In the long run, the dollar still appears to be in a relatively weak position against other leading currencies.

With the Central Bank aggressively intervening through the bond purchase program and likely to keep interest rates low, conditions seem unfavorable for a higher dollar in the medium and long-term timeframes.


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