Commodities in general and oil and gold specifically are considered a good hedge against inflation, a weak dollar and flat trending stocks. However, these markets can also be very volatile as oil and gold traders are finding out this week.Oil inventories are up (not good for prices) and demand from refineries is down, which has put some additional downside pressure on the commodity. A stronger dollar the last two days has compounded oil's problems and sent prices below $67 a barrel.
A stronger U.S. dollar means that it costs fewer dollars to buy a commodity and therefore its price in dollars will drop. This is bad for traders who may have been buying into gold and oil near the multi-month highs we have seen the last few weeks.
Any additional negative economic news could send the dollar's value up in a very short period of time, which could push commodity prices down further. Overall, longer term traders are probably not too worried but this adjustment is likely to contribute to a fair amount of volatility, gaps and volume in oil and gold stocks in the short term.
Any additional negative economic news could send the dollar's value up in a very short period of time, which could push commodity prices down further. Overall, longer term traders are probably not too worried but this adjustment is likely to contribute to a fair amount of volatility, gaps and volume in oil and gold stocks in the short term.
John Jagerson is a co-founder of Learning Markets LLC.
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