Written by OTCPicks.com
Oil prices were up more than $25 a barrel today as investors became unsettled about the government’s $700B bailout plans. This was the biggest one day price surge ever for oil.
The Fed is going to have to auction off a truely huge amount of Treasurys to finance this bailout and propping up Fannie Mae and Freddie Mac, buying AIG, and other
projects they have going on. This is going to cause the dollar to get hit and start to weaken against other currencies.
The Dollar and Oil are in kind of an inverse relationship where Oil rises when the Dollar falls and visa versa. This also hold true for precious metals as a weak dollar causes a monetary flight to the safe havens of commodities.
Light, sweet crude for October delivery jumped as much as $25.45 to $130 a barrel on the New York Mercantile Exchange before falling back to settle at $120.92, up $16.37. The November crude contract, which became the front-month contract at the end of Monday’s session, was trading at $108.69, up $5.94.
Monday’s rally broke crude’s previous one-day price jump record of $10.75 which was set back in early June. The Nymex temporarily halted electronic crude oil trading after prices breached the $10 daily trading limit but resumed seconds later after the daily limit was increased.
Gold prices also shot up more than $44.30 to settle at $909 an ounce, extending last week’s flight to gold and precious metals. Other safe-haven commodities also rallied and will likely continue to rally as investors remain uncertain about the economy and what the Fed’s bailout of the banking industry will mean to the value of the Dollar. There’s a renewed scramble for commodities because of a general weakness in the dollar and the perception that the bailouts will cause the dollar to sink even lower.
Crude has gained about $30 in a dramatic four-day rally that has at least temporarily halted oil’s steep two-month slide below $100. It is very conceiveable that oil could return to the July record high of $147 per barrel very soon. Right now it’s fear and anxiety driving investor’s activities and they are turning to tangible assets such as oil, gold, and other precious metals as a safe haven to ride out the storm..
A weak greenback was a catalyst for the commodities boom of the past year, and analysts said large investment funds were expected to pour money back into the sector as the dollar weakens yet again due to the government’s bailout and what that is undoubtedly going to do to the dollar.
So, commodities look like they will be a great sector to invest in over the next year as the Fed. prints a lot of funny money to pay for this bailout! Consumers look to pay more at the pump again as $4 per gallon might
look cheap really soon.