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Home sales, gold price, interest rates, federal reserve.

Thu Nov 30, 2006 10:11AM | By Tony

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Three things have happened since I pitched buying gold coins in October when the price of one ounce of gold was $589.
First the existing home sales report came out as rather bleak, showing the largest year-to-year drop on the record at 3.5%.
Second, gold price stands at $646 today, and poised to go even higher, while US dollar keeps falling.
Third, the mortgage rates have been staying low with the benchmark 10 Year Treasury Note at 4.47% as we speak. As a result, the 30 year fixed rate mortgage is quite conceivable at 6.00% for those with good credit. 15 year is at 5.625%.

In spite of low mortgage rates, homes are not selling, at least not for what sellers ask for. So the questions are what will happen if the mortgage rates will go up, and if the Federal Reserve will raise interest rates to stabilize the dollar somewhat.

If it does it will immediately push higher home equity interest rates, credit card and car loan rates, and eventually mortgage rates also, further depressing spending, economy and home sales. If it doesn't, the dollar will likely fall even further, pushing the gold price even higher. My take is the Federal Reserve will not raise the rates, allowing for dollar to slide further and pushing gold price even higher. That is why I bet on gold. Of course that is one man opinion.

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