- I will be out of the office until October 26th. I look forward to seeing many of you at Michael Campbell’s Conference on October 24th.
- U.S. Dollar deeply oversold but can’t get out of its own way.
- Watch this video before joining the “Don’t Worry, Be Happy” crowd on Wall Street.
Most people (IMHO) do not understand inflation, currency values, etc and how it impacts them financially (folks on this blog excluded, of course!).
This post (which I had help on) I think does a great job of illustrating how the Dow Jones at 10,000 today is really 25% lower than the Dow Jones of 1999.
http://investletters.com/blog/dow-is-down-25-in-real-dollar-terms-since-1999/
Regards,
Roger.
Hi peter.
Is it time to start shorting copper.
In a recent interview Julian Robertson has mentioned that
he is considering it. I know that you have been warning about base metals
for some time now.
Is copper bubbling? And, how would you short it, FCX?
thanks
steve
Bill Downey has a good perspective of what’s up with Gold
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Let’s take a look at the dollar versus gold. In the chart below we see a very similar pattern as the gold chart with one important difference. The breakout thus far has only breached the upper dotted trend line and has NOT made a new high thus far. The reason is simply that while gold has made new highs, the dollar has not made new lows that parallel the March 2008 highs. Another important consideration is that last weeks close was near pretty much at the lows of last week.
While there can be no doubt that the dollar is a currency that is in trouble, might there be just a little too much bearishness over the short term? It’s not that it isn’t justified, but at only 3% bulls, the theater is crowed with a lot of bears in the dollar camp. While this is not a sell signal in itself, it is suggestive that we need to keep a close watch just the same. If the dollar were to make a move above the March highs in conjunction with gold closing above the 1083 area, it would go a long way in confirming that the current rise in gold has still legs to go higher.
From a seasonal standpoint the next 8 weeks are usually the dollars strongest time period of the year.
What next?
There are two critical TIMEFRAMES for gold in which a fall pullback usually occurs in the metals. The months of October and or November have on average provided that time period for a fall low point many times in the past. But discerning exactly whether October or November being when the pullback will occur this year is proving difficult. We can only review and weigh the evidence and infer what the data suggest are the best “odds” for the timing point. Let us begin with October.
The month of October is USUALLY THE WORSE MONTH OF THE YEAR FOR GOLD on a seasonal 17 year average. But they are not always big corrections. In a very strong market sometimes it’s just a sideways pullback or a quick pullback and the trend starts higher right away and then rallies to the next timeframe or resistance area.
For instance, let’s zoom in a bit on 2007. It may be difficult but try and look find the month of October on the chart below for 2007. If we hone in on there we can see that after a sideways first half of September, October rallied straight through until the second half of the month and a pullback finally developed that encompassed the month of November. It’s hard to see, but the point is that gold was so strong that even though there were cyclical forces at work gold did not sustain a hard correction, but more a sideways type of action that lasted until Thanksgiving. Once the correction was complete, gold rallied into the mid February timeframe.
The purpose of this observation is that the FIRST OF THE FALL cycles are exacting their pull on the gold market. Even though we made a new high last week, the gold market has been acting in a choppy and overlapping price pattern on the shorter term charts last week. Last Thursday, gold began the first real pullback we’ve seen in October correcting from $1072 down to $1044 by Friday morning on the COMEX.
If this is a real breakout in price for gold, it should NOT CORRECT HARD because new bull legs are usually very strong. It might meander here in the 1025-1080 range over the next week or two into the end of October and begin another move upward. The gold seasonal average shows that the last two weeks of October can see sharp pullbacks so we should not be taken aback should gold go into a corrective phase here.
How about a correction back to the 980-1000 by the middle to end of November? Yes. That is a possibility. While we don’t know exactly when or how much just yet, we do know that the odds favor a fall correction in gold and there are some price and time targets we can speculate on.
When one gathers all the technical data, the dilemma one is always faced with are the conflicting set of forces between bull and bear and it is a daunting task, especially in a market that is so charged up like gold. On the surface the fundamental and geopolitical factors seem overwhelming for gold and it is hard to imagine a scenario where gold would enter a major correction. And that is the problem with markets and perception. Let me ask the question another way. If I would have told you on March 9th, 2009 when the Dow Jones stood at 6600 that we would see Dow 10000 before Halloween you would have thought me to be insane. The breakout we are monitoring is of medium term proportion in gold. Over the next 30 or so dollars on the upside we want to proceed with caution just to be sure that gold is ready to move forward NOW.
So what is an investor or trader to watch?
Is there any one indication we can look at that would put the odds in our favor that this breakout is not a fake-out?
The question of higher price, when broken to its smallest component is whether the demand (bulls) is going to OUTSTRIP the supply (bears). We have been told that the supply of gold is miniscule and there is actually more money invested in a Microsoft or a Wal-mart stock than all the gold on earth combined. The problem is that many vehicles for gold are really for paper and not for real gold. When gold and silver ETF’s were first introduced they were hailed as great investment vehicles. In retrospect, the money printers were smart enough to realize that the demand of gold would outstrip supply, and these ETF’s are nothing more than PAPER gold, which in essence has shifted the investment demand from physical to paper and has aided in price suppression. Since we’re dealing with paper, and since the governments and central banks of the world have probably been suppressing the price, gold bugs are up against a formidable enemy. This is an enemy that rarely ever loses a bet.
Confirming the breakout
In my many years of watching price charts I’ve seen numerous breakouts of one week end up being the high point and much lower prices end up coming in. But I’ve also noticed that when there are TWO WEEKLY price bars above a breakout point, the odds diminish that a breakdown will occur. And then there’s the THREE WEEKLY price bars in which the third bar makes a new WEEKLY HIGH again. This is usually a reliable signal that confirms a price move to higher levels.
Therefore, if the price of gold exceeds the 1075-1083 area the ODDS will greatly increase that a new price level in gold is about to be discovered by the markets and we are in a confirmed new Medium Term uptrend and the 20 month consolidation should be complete.
Now, as every investor and trader knows the only guarantees we have in life are death and taxes. There are no others. It is and will always be a speculation that while the odds are in your favor, they are only odds, and as the Dow showed us this year, anything is possible in a world where you can CREATE MONEY that is backed by NOTHING.
An great short discussion on central banks, fiat currency and gold price suppression with Michael Hainsworth of BNN and Trace Mayer of Runtogold.com. Love the “Greenspan Call” and the “Beijing Put” reference!
http://watch.bnn.ca/the-close/october-2009/the-close-october-9-2009/#clip222383
Peter’s 5th bullet point talks about the worsening of forclosures. Elizabeth Warren, Chair of Congressional Oversight Panel also says in a video on http://www.finance.yahoo.com that she sees the housing market getting worse not better. Unfortunately was unable to copy and paste the link here but if you want to see it, go to yahoo finance and then down a bit is the tech ticker video’s.
SRS – I am thinking of this ETF that trades in the US which is the invese of the Us REal Estate Index. It was up on Friday and in after hours trading. ANY THOUGHTS ON THIS FROM ANYONE?
Myth: Portfolio managers are trailing the market and need to get into stocks – Common line debunked by facts at Barrons this weekend. Link: http://online.barrons.com/article/SB125573658219691061.html Now that doesn’t mean that they will sell an uptrending market – but there is a difference between needing to catch up and just needing to hold serve. Amazing how the “fund managers desparate to buy” can gain so much traction without being supported by facts. To me, explains the low volume – no one wants to sell so whatever buying there is results in a low volume rally.
US Dollar – Read an article on PIMCO site over lunch an excerpt of which I am posting below. PIMCO seems to agree with Peter on the dollar’s demise.
“Implications Going Forward
As the global economy recovers, it is likely that the 2008 surge in the net U.S. international liabilities will put downward pressure on the dollar for some time to come. In a post-crisis world the relative attractiveness of U.S. assets has and will likely continue to decline, and global investors may seek to rebalance away from the 60% increase in their net exposure to U.S. assets that occurred in 2008. This is negative for the dollar and, in the New Normal, also likely negative for the relative performance of U.S. equities, especially for companies without a global presence that must grind out profits in a world of 4% nominal GDP growth. For fixed income, much will likely depend on the appetite and portfolio preferences of foreign central banks and sovereign wealth funds as global private demand for sovereign debt – U.S. Treasuries included – is eventually likely to lag behind the vast increase in sovereign debt supply which may result from current and prospective budget deficits. An orderly decline in the dollar, similar to the decline between 2002 and 2007, would likely contribute to this adjustment. For example, because of the exorbitant privilege, the decline of the dollar from 2002 to 2007 reduced net U.S. international liabilities by $1 trillion. While an orderly decline in the dollar is the most likely scenario going forward, a disorderly decline, while unlikely, cannot be ruled out. Much may depend on how history completes the sentence which provides the title for this essay. If “with (exorbitant) privilege comes responsibility (on fiscal, regulatory, and monetary policy),” a disorderly decline will likely be avoided. If not…?”
Richard Clarida
Global Strategic Advisor
Is the Canadian Dollar going higher against other currencies or is the US Dollar just dropping. The central bank seems to always be concerned about the appreciation of the dollar but we are not gaining vs the EURO the USD just keeps dropping. Today the CAD$ dropped 2 cents, so far on comments from the central bank.