GOLD : Overextended after a massive run : more volatility to come

After testing $1900, gold prices have corrected sharply. In the near term prices continue to remain overextended, well above supporting trendlines at $1640.

I continue to remain a long term bull, but would once again remind readers that in the short term, gold prices will continue to be volatile and reacting to options expiration and the FED's Jackson Hole meeting at the weekend.

Here is a fantastic chart from Jesse's Café Américain - a super site for all gold related news and excellent unbiased market analysis.

RISING GASOLINE PRICES

A chart from http://www.chartoftheday.com/.

A weak USD and high Crude Oil prices has resulted in rapidly rising gasoline prices.

GEOPOLITICAL NEWS IMPACTING MARKETS

The last couple of months have really been a roller coaster ride for the world economy.

Whether its the unrest in the Middle East leading to surging Crude Oil prices, or rising food prices or EU Sovereign debt troubles, or the recent Japanese Quake and resulting Tsunamis...... a lot has been going on.
The incredible damage to property and the loss of innocent lives in case of the Japanese quake is really tragic.

There was another important bit of news that went by unnoticed.
"" Wisconsin Gov. Scott Walker on Friday signed into law the controversial bill that eliminates most union rights for public employees""
Wisconsin governor signs anti-union rights bill World DAWN.COM
Wisconsin governor signs into law union curbs Reuters
Clearly the crisis on Main Street is not over yet. As David Rosenberg recently said, the impact of cost cutting and downsizing at the state and local government level will really undermine the '''ongoing consumer recovery'''
So I think that it's time that the guys on Wall Street sit up and take notice.
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The Dow Jones may continue to brush off the impact of rising gasoline & food prices and the discontent on Main Street for now, but the prudent investor must realise that its now too late to join the equity market bandwagon. The risk reward ratio is not in favour of the ''long only'' investor and his margin of safety is far too inadequate at the current time.

THE SOFT COMMODITY BOOM CONTINUES

Some call it the Bernanke effect, some blame the BRIC nations, while others blame rising soft commodity prices on the weakening USD.

JIM ROGERS clearly has been spot on as far as the boom in soft commodities goes. Food inflation is making headlines again!

Clearly some of the commodities may be rather overpriced at the moment. Meanwhile speculators and commodity hedge funds continue to build positions in this rather overbought sector. Caveat emptor - Watch this space!

Source : Commodity Prices / Quotes & Commodity Charts - Free - A fantastic site for commodity charts.

C.R.B. vs. B.D.I.

Below is a rather curious chart of the CRB Commodity Index vs the Baltic Dry Index.

It's interesting to note, that as commodity prices continued to trend upwards in recent weeks, the Baltic Dry Index has continued to drift downwards.

The ongoing activities of global Central bankers are once again boosting asset prices, including prices of USD denominated commodities. As speculators and hedge funds latch on to rising prices, it's quite possible that prices could rise still further.

Longer term however, this diversion in the CRB & the BDI will have to correct itself.

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Given that the rise in the CRB is not purely end user driven, CRB prices could see a sell off if the global economy faces a double dip.

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As Central Banks in Asia continue to raise interest rates to combat food & energy inflation, Asian economic growth could slowdown in the second half of 2011.

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Also, let's not forget the troubles with Club Med, unemployment issues in the developed world, the troubles with state/municipal finances in the USA and the Debt and Fiscal issues of the US government.

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If the world economy slows, the CRB Index is going to turn downwards.

Investors and speculators in the commodity markets must realise that at current prices, most commodities are trading in 'overbought' territory and leave the investor with little or no margin of safety at all

Caveat Emptor!