Monday, oil and the precious metals were hit hard. While the popular media stories reported that too many speculators had entered the market for metals, or that the rise in prices was finally over, this old market timer can only delivery the news I believe.
Gold, silver, copper, platinum, oil. they were all due for a correction. Nothing goes up or down in straight lines. Finally, a correction arrived. It’s a buying opportunity for me. Yes, let the speculators get out. Let the patient money buy more. Last Friday, gold was up 192% from its 2001 price low. Now, gold’s up only 180% since 2001. So what? I’m happy to give back twelve points to put a healthy correction in the market. The speculators may have bailed yesterday, but they will be back on the next gold rally. That, you can count on.
For me, Monday and Tuesday news wasn’t about a correction in the oil and precious metals market. Quietly, while everyone was focused on resources and metals, Monday the Dow Jones U.S. Home Construction Index plunged 2%. Yesterday, this index fell another 1.4% to a new 52-week low. In fact, this index of the largest U.S. home builders is now at its lowest level since December 2004. Funny, I didn’t read anything about this in today’s papers!
If the metals and resource stocks were falling while the home building stocks were rising, I’d be worried. But, with all three falling in tandem, and the U.S. dollar rising only marginally against the euro, I’m comfortable calling the recent action in oil and precious metals a price correction.
As for the real estate market in the U.S., the action of the Dow Jones U.S. Home Construction indicates tough times ahead. Construction has been the backbone of the U.S. economy for years. If the housing market starts retracting, the economic repercussions in the U.S. will be huge. Just how tough the economy will get because of the U.S. housing market depends on how much lower the big home builder stocks fall. I’ll keep you posted.
NEWSFLASH–The U.S. Commerce Department reports April housing starts fell to a 17-month low. The correction is happening in the U.S. housing market. My feeling is that the housing market in the U.S. is beginning to unravel.