The Morning Gold Report: Gold Surges as Oil Hits Record and Stocks Plunge

June 27 a.m. (USAGOLD) -- Gold has surged to a new one month high, underpinned by a new record high in oil, a weakening dollar and plunging global stocks.

US stocks are under pressure again today after the DJIA lost 358.41 points on Thursday, or just over 3%. Stocks were sent reeling by a series of downgrades, particularly in the automotive and banking sectors, as well as new record high in oil.

We've been highlighting the vulnerability of the stock market for quite some time now. We thought that the upticks in the Dow above 13,000 seen in May were unsustainable and that the lows for the year at 11,530.12 were likely to be retested. That low has been negated and the Dow is now trading at levels not seen since late in the summer of 2006.

A close below 11,331.62 would confirm a bear market in the Dow. Such a move would shift focus to the 10,600/10,000 range initially, although potential would be significantly lower. Imagine where stocks might be if the Fed had taken a decidedly more hawkish stance on Wednesday.

It just goes to show the extent to which we've been painted into a corner by US, and global, monetary policy. The piper is always going to demand payment at some point.

With a dual mandate of price stability and sustainable growth/employment, the Fed is essentially a slave to two masters. They have decided that for now inflation is the lesser evil when measured against the substantial risks to growth and employment. I don't envy Chairman Bernanke his job.

Yields are dropping as expectations of a Fed rate hike this year continue to erode, making treasuries less attractive as an option for a store of wealth. Given the rate of inflation, going to cash is certainly not a logical choice.

For these reasons, we look for gold to continue to benefit from diversification flows out of the stock market. Physical gold is your best option for wealth preservation in these tough economic times.

Gold is bedrock.

Yesterday's release of existing home sales was a little bright spot in an otherwise gloomy financial news day. Sales of previously owned homes climbed 2% in May to an annual rate of 4.99M units. This was better than the market was looking for and suggests that buyers are starting to return to the market. However, that is still 15.9% below the pace of a year ago.

The inventory of existing homes was drawn down 1.4%, but there is still a 10.8 month supply of available homes based on the current rate of sales. That's going to keep downward pressure on prices as the market attempts to work through that large inventory and as the high rate of foreclosures continue to add to inventory.

The national median existing home price dropped to $208,600, down from $222,700 last May, a decline of 6.3% y/y. This, along with housing data released earlier in the week continues to paint a pretty grim picture.

Sales of new homes in May were down 2.5%, with average prices dropping 5.7% from a year ago. Meanwhile the S&P Case-Shiller home price index showed that home values in 20 major US cities declined 15.3% y/7 through Apr.

While US personal income for May rose by 1.9%, the continued decline in housing and fresh losses in the stock market have most people feeling quite a bit poorer these days. Unfortunately these two trends, along with inflation are likely to continue.

It's not too late to diversify your portfolio with a physical gold purchase. Those that do will certainly weather this economic storm in far better shape than those that don't buy gold.

Next week's release of the USAGOLD - Centennial Precious Metals Survey of Investments will clearly show which asset classes have been outperforming of late. However, the best performer over the past year has been...well you'll just have to wait until next week to get that info.

If you're not already a member of the USAGOLD NewsGroup, sign-up today and you'll receive the Survey of Investments as soon as it is released.

(Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.)