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Are We Killing The Goose?

September 27, 2007

The one that lays the golden eggs- of prosperity? Just how high can the price of a barrel of oil go before, not just America, but the entire planet chokes and can’t be resusitated? Oil was up $2.79 a barrel today to close over $83 a barrel. Meanwhile, the U.S. Dollar fell to a record low against the euro, boosting the appeal of commodities as alternative investments. But that notwithstanding, how high will gasoline prices now rise at the pump?

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Investors purchased oil on speculation a U.S. report showing a drop in new-home sales bolsters the case for the Federal Reserve to make interest-rate cuts to promote growth. A lower dollar and economic expansion may increase fuel demand.

“When you have a central bank that’s willing to do whatever it takes to avoid a recession, owning oil makes a lot of sense,” said Bill O’Grady, director of fundamental futures research at A.G. Edwards & Sons in St. Louis. “It’s become clear that the Fed is willing to tolerate a weak dollar.”

There’s a very high inverse correlation between the price of oil and the value of the US$. There are a number of new highs being made among different commodities, not just energy. Gold and silver rose; and platinum jumped to a record today because of the falling dollar. The US$ has tumbled since the Fed lowered the overnight lending rate between banks 0.5 percentage point to 4.75 percent on Sept. 18, the first reduction in four years.

Is the goose salvagable? :-(

Written by Ernie · Filed Under Daily Commentary 

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