Monday 8th December

We are seeing a small but sharp rally on the bourses. Some analysts are suggesting that this is due to the Obama proposal for major infrastructure works. However, given that the effect of that will not be seen until 2010 at the earliest, that is not the whole story. To some extent the rally is due to shorts being closed before the Christmas break and possibly an effect of quantitative easing by the Treasury which is buying any assets at its discretion; support of the stock markets will be a priority action for the Fed/Treasury to avert the looming banking crisis. Banks are still not lending. The fundamentals for most equities still look terrible with deteriorating conditions being reported on a daily basis. We could see this rally continue into Christmas but volatility is very high -- if you want to get involved, this is a market to trade, not a market to buy.

Oil is in the spotlight at the moment with OPEC due to hold another meeting on 17th December. It is being tipped that they will cut production by 2 million per day. Certainly OPEC will not tolerate oil under $50 for long since even those producers that can produce at lower prices already have huge budget deficits. My forecast is for oil to rise back to $50 to$60 fairly soon; while it is impossible to rule anything out in this crazy market, I think that the probability of oil falling further to $30 or $20 are very small indeed.

Commodities in general have continued to fall -- the October rally reversed and prices have continued to fall along with the dollar's rise. I think that the effect is, to a great extent, due to the strengthening of the dollar with continued pessimism on industrial activity, particularly in Asia.

Gold is much firmer with continued reports from bullion dealers of record demand by investors, for bullion. It is interesting that while the official price of gold has been very volatile the demand has been increasing steadily and bullion is selling at 20% or more above the official price. The reason for this is that most gold trading is through gold futures -- these are paper transactions and traders seldom take delivery. With the extra powers now given to the US Treasury under 'quantitative easing', the Treasury is now in a better position to influence the price of gold than hitherto; there is no evidence that is actually has been doing so as the Treasury is not obliged to report which assets it has bought or sold, so that is conjecture. It is also quite likely. The central banks do not want to see a strong gold market; they want to dissuade people from investing in gold. Many gold investors have bailed out after recent sharp pullbacks although those with a longer-term strategy have been doing very nicely. It seems most likely that gold will continue to rise as this financial crisis gets worse. Investors should take the longer-term view and invest in physical gold. Ideally, buy coins and take delivery of them.