Gold slumps below $800 as dollar extends rally but it may be the bottom of a corrective pattern as world economies slow and inflation accelerate
Alan Hershey
Aug. 15, 2008

Gold fell below $800 an ounce for the first time this year on Friday as the recent sell-off in the commodities sector gathered pace. The dollar hit fresh highs. The trend in crude prices is down. Commodities are finally getting corrected after endless run ups in the last eighteen months.

Momentum, analutics, and quantitative models however point to a bottom in gold and top in dollar. The fundamentals did not change. The US and other world economies will register negative growth well into 2009. In addition, the inflation scenario is now well stretched from commodity inflation into wage inflation in Asia. The higher prices in food and energy is still getting slowly absorbed and will hit the streets sooner or later as produces of finished goods slowly transfers the burden to the consumer in the next several quarters.

It may be the time to start accumulating gold and commodities again. One thing is for certain, Asia has larger buying power than before and relatively commodities are in shortage.

The consumers in US are tapped out. That will put pressure on US economy. The scarcity of raw maetrials will not allow noticable drop in prices.

What that translates to higher commodity price and higher gold price. The US dollar may keep rising because of better trade deficit scebnarios for America.

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