News

August 18, 2008

As Commodities Tumble, The Dollar’s Strength Isn’t All Bad News: It Presages Stronger Growth

By Rob Davies

At the end of last week sterling had fallen for 11 days in a row, taking the pound to its lowest level against the dollar for two years. Although the UK economy certainly has its problems, the shift was more about a strong dollar than about any specific concerns about the British economy. Indeed, Reuters cited analysts who believe the seven year bear market in the dollar has come to an end. During that time the dollar has lost 40 per cent of its value, and has helped trigger a strong rise in commodity prices. Now that the dollar may be recovering, does that mark the end of resources boom?

Gold traders seemed to think so as they took the yellow metal below US$800 an ounce last week, at one stage touching a low of US$744 an ounce. That’s the first time this year gold has been below US$800 an ounce, and some see that as a significant development.  . Precious metals were not the only commodities to be hit, as most base metals came off as well, with the exception of nickel, which rose US$500 to close at US$19,050 a tonne. That was the exception though. Copper fell US$190 to...