A Golden Buying Opportunity
Forbes
The lightness of the correction in gold is very bullish for the metal as well as its ETF vehicles, and as this drought ends, the next big leg up may soon begin.
The two-week pullback in gold futures from the early February highs was very mild, as it also was in the most popular gold ETFs.
With less than a 3% correction from the highs, last week’s close suggested that the correction might be over. Tuesday’s strong opening and the close above the recent swing high supports this view.
The weekly and daily chart formations have indicated for several months that the drop from the early September highs was just a pause in the uptrend. Thesecontinuation patterns are one of my favorite formations to trade.
The completed flag formations on both the futures and ETFs have initial upside targets well above the September 2011 highs. Therefore, the two key gold ETFs, the Spyder Gold Trust (GLD) and the iShares Gold Trust(IAU), both look attractive for new purchases, as the recommended stops make the risk very manageable.
Click to Enlarge
Chart Analysis: The weekly chart of the gold futures shows the completion of the flag formation (lines a and b) in the latter part of January.
- The tight weekly ranges and triple “dojis” made a deeper correction less likely
- Once above the 2011 highs at $1,942, the 127.2% upside target is at $2,035
- As I noted in my article on longer-term Fibonacci projections, the next “major target is $2,274”
- The weekly on-balance-volume (OBV) closed last week very strong, as it shows a bullish zig-zag formation
- The weekly OBV is leading prices higher, even though the daily OBV (not shown) is still below its WMA
- There is short-term support for the April futures at last week’s low of $1,706, with more important levels at $1,652
The daily chart of the Spyder Gold Trust (GLD) shows the completion of the flag formation, lines d and e.
- There is near-term chart resistance at $173.80, and then further levels in the $175.40 area
- The flag formation has a 127.2% Fibonacci retracement target in the $196 area
- The daily OBV confirmed the price breakout as it overcame its downtrend, line f. The OBV is still below its WMA but has turned higher
- Short-term support now sits at $170.75 to $169.50, with more important levels at $166
- GLD’s recent correction held well above the 38.2% Fibonacci retracement support at $162.40, as the recent low was $166.17
- The breakout level (line d) and stronger support in the $158-$162 area
read more on this article here
U.S. Stocks Decline Amid Economic Reports
Bloomberg
U.S. stocks fell, a day after the Standard & Poor’s 500 Index failed to hold at an almost four- year high, as sales of previously owned houses missed estimates and data from Europe and China spurred economic concern.
Stocks pared losses after Greece’s finance minister said yesterday’s approval of a bailout means the nation is tied to the euro area. Toll Brothers Inc. (TOL) and KB Home dropped more than 2.7 percent to pace a slump in homebuilders. Dell Inc. (DELL) sank 6.1 percent as its sales forecast missed estimates. Financial shares had the biggest decline in the S&P 500 among 10 groups, falling 1.1 percent. Gannett Co. (GCI), the owner of 82 newspapers including USA Today, surged 4.4 percent as it will boost its dividend.
The S&P 500 retreated 0.1 percent to 1,360.89 at 2:19 p.m. New Yorktime, paring an earlier loss of as much as 0.5 percent. The Dow Jones Industrial Average declined 1.25 points, or less than 0.1 percent, to 12,964.44 after the 30-stock gauge rose above 13,000 (INDU)yesterday for the first time since 2008.
“You can ride this, but you’ve got to be very careful and sit near the exit,” David Darst, the New York-based chief investment strategist at Morgan Stanley Smith Barney, said in a telephone interview. His firm has $1.6 trillion in client assets. “Most of the economies are slowing. Earnings will be slowing. The market is overbought on a short-term basis.”
Stocks fell as purchases of previously owned homes climbed to a 4.57 million annual rate, less than forecast, data from National Association of Realtors showed. European services and manufacturing output unexpectedly shrank in February. China’s manufacturing may shrink for a fourth month, according to data from HSBC Holdings Plc and Markit. Fitch Ratings lowered Greece’s credit rating and said a default is highly likely.
Trimming Losses
Equities pared losses as Greek Finance Minister Evangelos Venizelos said yesterday’s decision by euro area finance ministers to approve a second rescue package for the country bound Greece to the euro and the euro area. Greece sealed a 130 billion-euro ($170 billion) bailout package by agreeing yesterday to austerity measures while reducing its bond principal by 53.5 percent as investors swap into new securities with longer maturities and lower coupons.
The S&P 500 yesterday failed to hold above its April 2011 peak of 1,363.61 (SPX), which was the highest level since June 2008. The index has rallied 3.6 percent in February and is poised for a third straight month of gains, the longest streak in a year. The monthly gain has extended this year’s advance to 8.2 percent amid higher-than-estimated U.S. economic data and profits and expectations Europe will tame its crisis.
read more on this article here
Gold at 3-Month High as Bargain Seekers Prevail
MarketWatch
Gold futures on Wednesday beat initial weakness to settle at a three-month high as the early price dips only enticed investors back to the metal.
Gold had spent most of the day in the red, as the optimism from the Greek deal faded after downbeat data from China and with investors taking profits given recent gains. Bargain-hunting ensued, however, in the last hour of trading, securing the milestone for the metal.
Gold for April delivery advanced $12.80, or 0.7%, at $1,771.30 an ounce on the Comex division of the New York Mercantile Exchange, the highest settlement for gold since mid-November.
The metal, which settled 1.9% higher on Tuesday, spent most of the session in the red.
The decline in prices enticed back some investors, said Jim Steel, an analyst with HSBC in New York.
Helping gold higher were steep gains for platinum and palladium, he said. The gains came mostly on the back of a ongoing strike in South Africa, a top exporter of platinum.
Greece remained in the headlines after Fitch Ratings cut Greece’s sovereign-credit rating to C from CCC, and said that the planned bond swap for private debt holders will amount to a restricted default.
The dollar pushed higher, contributing to the fall of gold and other commodities, but moderated its gains. The ICE dollar index, which measures the greenback’s performance against a basket of six rival currencies, rose to 79.207 from 79.023 late Tuesday.
The dollar topped the key ¥80 level against the Japanese yen, also as economic data from China disappointed. The preliminary result of a survey by HSBC showed Chinese factory activity at a four-month high in February, but at a level that indicated modest contraction.
News on Tuesday that Beijing had cut reserve requirements for lenders had helped gold and other metals rise. The move was an effort to boost lending and increase liquidity in China, a large consumer of raw materials.
Copper and silver kept their losses, with platinum and palladium ending higher.
Copper for March delivery fell less than 1 cent to settle at $3.83 a pound.
March silver futures shed 18 cents, paring losses, to end at $34.25 an ounce.
Gold Up One Percent on Greek Deal, Economic Uncertainty
Reuters
Gold rose about one percent on Tuesday, outpacing gains in the euro and equities, as a massive European bailout deal as investors bought the metal amid doubts the bailout will work.
Gold rallied to its highest in more than two weeks after Euro zone finance ministers agreed a 130-billion-euro ($172 billion) rescue for Greece. Analysts said the deal bought time for the single-currency bloc but left deep doubts about Greece's ability to recover and avoid default.
Bullion has benefited from news that China recently cut its required reserve ratio and committed to help the euro bloc. The metal already received a strong boost after the U.S. Federal Reserve last month said it would keep rates near zero at least until late 2014.
"Gold gets a boost from the EU kicking the can down the road," said Rob Kurzatkowski, senior commodity analyst at optionsXpress.
"Not only does the bailout perhaps delay the inevitable (Greek bankruptcy), but it also opens the door for higher inflation across the euro zone," he said.
Spot gold rose 1.2 percent on the day to $1,755.19 an ounce by 11:30 a.m. EST (1630 GMT), having earlier hit a high of $1,756.41, the loftiest price since February 3.
Bullion was on track for its biggest one-day gain in two weeks.
U.S. COMEX April futures rose $31 from Friday's close to $1,756.90 an ounce as traders returned after Monday's U.S. Presidents' Day holiday.
Analysts said gold outperforming the U.S. stock markets and other riskier assets highlighted underlying inflation worries and lingering doubts on Greece's ability to avert a chaotic default in the long run.
However, gold could face strong headwinds as liquidity appears to tighten for European banks soon.
The European Central Bank wants its second offer of cheap ultra-long funds next week to be its last, putting the onus back on governments to secure the euro zone's longer-term future.
GOLD-EURO CORRELATION
The positive 30-day log correlation between gold and the euro has risen to near 0.5 up from 0.3 last week, indicating a stronger positive link between the two.
"Gold is trading more like the other metals - as a risk asset, rather than a risk hedge," Citigroup analyst David Wilson said.
read more on this article here
The Enduring Popularity of Gold
GoldSeek
The World Gold Council (WGC) reaffirmed the power of the Love Trade in its 2011 Gold Demand Trends report released this week. Gold demand grew 0.4 percent in 2011 despite a 28 percent year-over-year increase in bullion’s average price.
After flirting with the top spot for some time, China emerged as the world’s largest gold market for jewelry and investment during the fourth quarter of 2011 as demand in India weakened. This is the first time China’s demand outpaced India’s in 11 quarters. However, India did retain the gold demand crown for the entire year, purchasing 933 tons compared to China’s demand of 770 tons.
I always say the trend is your friend, and I believe China’s increasing demand for gold is one trend that is just getting started. Although gold imports from Hong Kong were cut in half in December, HSBC Global Research reports that overall gold imports from Hong Kong were 10 times the historical average from January through November 2011. HSBC expects a continued rise in Chinese incomes will keep demand at a robust pace. The WGC sees domestic demand for gold jewelry and investment driving 20 percent growth in Chinese gold demand during 2012.
China should consider its leadership as the No. 1 gold market a short-term position, though. While China’s presence in the bullion market is strong and growing for jewelry and investment, India’s ancient relationship with the yellow metal is such that “domestic drivers of demand are largely independent of outside forces,” says the WGC. The WGC does not see India’s role in the gold market diminishing over the long term.
Ajay Mitra, the WGC’s managing director for the Middle East and India, recently expressed India’s strong ties with gold in a 60 Minutes feature. Gold has always been a part of India’s history, culture and tradition. I have witnessed firsthand the strength of this bond many times over the years. As the famous saying goes, “no gold, no wedding.”
Don’t Forget About the Fear Trade
The Fear Trade was also recently reaffirmed by the Federal Reserve when it publicly stated its intention to keep inflation at “exceptionally low levels” through 2014. Inflation is the kryptonite to the Fed’s monetary efforts and it’s likely the Fed will take any measures necessary to prevent inflation spikes.
The Fed has targeted a 2 percent inflation rate, which means the U.S. dollar will lose 33 percent of its value over the next 20 years, says The Daily Reckoning’s Charles Kadlec. In the next four years alone, nearly 10 percent of the “value of Americans’ hard earned savings” will be destroyed, says Charles. Put another way, Charles estimates that it will take $150 in the year 2032 to purchase the same amount of goods you could get for $100 in 2012.
For four decades following the end of the gold standard, the purchasing power of the dollar has been plunging: A dollar worth 100 cents in 1970 is now valued at a measly 18 cents.
Charles isn’t the only one opposed to the Fed’s “monetary manipulation.” In his latest letter to shareholders, Warren Buffett faults the government and its “systemic forces” for destroying the purchasing power of investors. He argues stock investments offer the best long-term investment opportunity because interest rate levels don’t offset the loss of purchasing power due to inflation.
However, there is one group that benefits from the low interest rate environment—borrowers. This means the largest borrowers in the world, developed world governments, will be able to service their enormous amounts of debt more easily. This year alone, the U.S., Japan and Europe will roll over $8 trillion in federal debt.
read more on this article here
While You Were Sleeping, Central Banks Flooded The World In Liquidity
Zero Hedge
There are those who have been waiting to buy undilutable precious metals in response to a headline announcement from the Fed that it is starting to buy up hundreds of billions of Treasuries or MBS. This is understandable - after all that is precisely the trigger that the headline scanning robots which account for 90% of market action in the past year are programmed to do. And the worst thing that one can do is put on the right trade at the wrong time. Yet it may come as a surprise to some, that while the world was waiting, and waiting, and waiting, for Bernanke to hit the Print button, virtually every other central bank was quietly unleashing it own mini tsunami of liquidity. In fact, as Morgan Stanley puts it, "the Great Monetary Easing Part 2 is in full swing." But wait, there's more: in an Austrian world, where fundamentals don't matter and only how much additional nominal fiat is created is relevant, it is sheer idiocy to assume that the printers will stop here... or anywhere for that matter. They simply can't, now that the marginal utility of every dollars is sub 1.00 relative to GDP creation. This means that by the time the Global Weimar is in full swing, we will see much, much more easing. Sure enough, MS anticipates an unprecedented additional round of easing in the months ahead. So for those waiting to buy gold et al at the same time as DE Shaw's correlation quants do, the time will be long gone. Because slowly everyone is realizing that it is not the Fed that is the marginal creator of fake money. It is everyone.
Behold, the Great Monetary Easing part 2:
MS Summary:
The Great Monetary Easing Part 2 is in full swing – and begets inflation risks. Global monetary policy interconnectedness, the impact of central bank easing on commodity prices, and the possibility of an improved outlook for the real economy could mean a return of the Global Inflation Merry-Go-Round:1) Super-expansionary monetary policy in the major developed economies, particularly the US, a) contributes to commodity inflation and b) is imported by EM central banks through (US dollar) soft and hard pegs.
2) Price pressures rise in EM due to domestic overheating and higher commodity prices. Inflation is then re-exported to DM through more expensive goods exports.
3) More expensive imports from EM and dearer commodities raise inflation in DM. In turn, DM central banks initiate the next round by maintaining – or increasing – monetary accommodation.
2013 might yet look like 2011 on the inflation front.
...and Detail:
The Great Monetary Easing (Part 2), is in full swing … In response to a slowing global economy and further downside risks emanating from the possibility of an escalating Eurozone debt crisis, central banks all over the world – and across the DM-EM divide – have been deploying their arsenal for a while now, and should continue to do so. The result is aggressive monetary easing on a global scale – what we have dubbed the Great Monetary Easing, part 2 (GME 2 - see Sunday Start: What Next in the Global Economy, January 22, 2012); this follows on from GME1 in 2009-10. The GME2 is now in full swing. Last week, the Bank of England announced a further GBP 50bn of gilts purchases, to take place over the next 3 months. On Tuesday, the Bank of Japan upped the target of its Asset Purchase Program by 50%, from JPY 20trn to JPY 30trn, with the increment concentrated exclusively on JGB purchases. We think Sweden’s Riksbank will pick up the baton from the Bank of Japan on Thursday and cut the repo rate by 25 basis points.
A Few on FOMC Saw Need for More Bond Buys
Bloomberg
A few members of the Federal Open Market Committee meeting said the central bank may soon have to consider more asset purchases, while others said the economic outlook would have to deteriorate first.
A few members said economic conditions “could warrant the initiation of additional securities purchases before long,” according to minutes of their Jan. 24-25 meeting released today in Washington. “Other members indicated that such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain” below 2 percent in the medium run.
The central bank said at its meeting last month that it plans to hold interest rates near zero at least through late 2014 to spur growth and reduce unemployment, extending a previous date of mid-2013. Fed Chairman Ben S. Bernanke has since repeated the pledge, which was made before a report this month showing that the jobless rate fell to a three-year low of 8.3 percent in January.
Policy makers said it was unlikely that the Fed would soon begin reducing the size of its balance sheet by selling some of the Treasury and mortgage bonds amassed in the course of two rounds of large-scale asset purchases.
“Most participants saw sales of agency securities starting no earlier than 2015,” said the minutes, which included, for the first time, “qualitative information regarding participants’ expectations for the Federal Reserve’s balance sheet.”
Factory Production
Economic data since the Fed meeting have pointed to strength in the world’s largest economy. A Fed report earlier today showed output at factories increased 0.7 percent after a revised 1.5 percent gain in December, reflecting gains in demand for automobiles and business equipment that may keep manufacturing at the forefront of the expansion.
“The bias at the time of the meeting was clearly for additional asset purchases,” said Dan Greenhaus, chief global strategist for BTIG LLC in New York. “The improvement in various indicators since the time of the last meeting probably means that for the average FOMC member the appetite for additional purchases is lower.”
A Feb. 3 report from the Labor Department showed employers added 243,000 jobs to payrolls last month, exceeding the most optimistic forecast in a Bloomberg Survey of 89 economists.
‘Exceptionally Low’
The minutes said “almost all members agreed to indicate” that economic conditions would warrant an “exceptionally low” federal funds rate level “at least through late 2014.” The minutes said “several members” anticipated that unemployment would still be higher than their estimates of its longer-term normal rate, and inflation would be at or below the committee’s longer-run objective of 2 percent, in late 2014.
U.S. stocks extended declines amid concern Greece was moving closer to default. The Standard & Poor’s 500 Index lost 0.6 percent to 1,342.39 at 3:09 p.m. in New York. The index is up more than 6 percent this year on evidence of a strengthening economy. The yield on the 10-year Treasury note fell was little changed at 1.93 percent.
Fed policy makers said forward guidance on the federal funds rate would help provide more accommodative financial conditions. Still, “some members” said the rate outlook “would be subject to revision” in response to significant changes in the economic outlook.
Interest-Rate Path
For the first last month, policy makers published their own projections for the path of the Fed’s target interest rate. The central bank also announced a goal to hold inflation to 2 percent, along with a pledge to return the economy to maximum employment, which it currently sees as a jobless rate between 5.2 percent and 6 percent.
All FOMC members voted to adopt the Fed’s statement of its goals except Governor Daniel Tarullo, who abstained because he “questioned the usefulness of the statement in promoting better communication of the committee’s policy strategy.”
read more on this article here
Gold Up on China, Inflation Concerns; Greece Eyed
Reuters
Gold rose on Wednesday after Chinavowed to continue to invest in euro zone government debt, increasing gold's appeal as a hedge against inflation fueled by ample liquidity in the financial system.
Bullion broke ranks with the euro and U.S. equities, even though it was off session highs as the dollar recovered losses on news euro zone finance officials are looking to delay a second bailout program for Greece.
The metal rose as much as 1 percent after China's central bank governor said China and other emerging nations such as Brazil, Russia or India were waiting for the right time to help the euro bloc, but there were no concrete promises on fresh funding.
"For China to make a commitment like that is enough to give gold the psychological boost and to...increase the potential for inflating commodities and precious metals prices," said Jeffrey Sica, chief investment officer of SICA Wealth Management with more than $1 billion in assets.
Spot gold was up 0.4 percent at $1,725.79 an ounce by 3:04 p.m. EST (2004 GMT).
U.S. COMEX gold futures for April delivery settled up $10.40 at $1,728.10. Volume was about 30 percent below its 30-day average, in line with its recent pace.
Gold was lifted by crude oil's gains, while the euro and Wall Street fell after initial rallies fizzled.
The metal, though viewed as a safe haven, has tracked the fortunes of riskier assets in the past few months, as market turbulence caused by the euro zone debt crisis forces investors to sell gold to cover losses elsewhere.
"The correlation between gold in the short term and some of the risk markets is higher than people probably expect," said Pau Morilla-Giner, head of equities, commodities & alternative investments at London and Capital Asset Management.
"Gold continues to trade about 60 to 70 percent of the time as an alternative currency, which clearly has to do with being a better store of value than nominal currencies that are being abused by excessive quantitative easing (QE) across the board," he added.
A few Federal Reserve officials in January believed another round of central bank bond buying would be needed before long to support the U.S. economy, but others dissented, minutes of the Fed's last meeting showed.
read more on this article here
Make Gold Your Valentine
GoldSeek
1. Saudi Arabia’s top power brokers recently claimed they would not allow oil to trade over $100. Click here now to view the oil price trading above $100 this morning.
2. The power brokers have already failed. How big their failure will become remains to be seen, but things don’t look good for the oil bears.
3. When any major market might be about to embark on a strong rally or decline there are both bullish and bearish factors in play. The market’s direction is ultimately determined by liquidity flows.
4. Click here now to view the seasonal trend for the oil price at this time of year. At www.seasonalcharts.com you can view similar charts for all the major commodity markets.
5. The bottom line is that oil could rise strongly because of a new MACD buy signal, a large head and shoulders pattern, tension between Iran and Israel/America, and because it seasonally tends to do so about now.
6. An oil price shock to the upside could cause major problems for the stock market at a time when the European financial crisis is still strongly on the “liquidity flow minds” of institutional investors.
7. Click this stock market liquidity flows chart fromwww.sentimentrader.com. The picture painted by the liquidity flows on this chart is truly frightening.
8. You can see that the commercial group of traders are piling on short positions by aggressively shorting the Dow, the Nasdaq, and the Russell indexes.
9. My concern is not that they are shorting the broad stock market, but that they are shorting with this kind of size in such a short period of time. The current short position of the commercial traders is now larger than at any point in the last ten years.
10. Do they know that something very bad is coming your way? Are they simply shorting to profit from an over-extended stock market rally that has seen the Dow rally about 2500 points without any kind of serious correction?
11. You can’t know the answer, but you can be as professional as they are with your liquidity flows. High oil prices and a falling stocks are ultimately very positive for the price of gold, but there can be a substantial adjustment period before gold begins to rise.
12. When stocks fall hard the central banks tend to print money. Then they loan that money to commercial banks. They urge the banks to lend that money to institutions to buy stocks. That action is very positive for the price of gold.
13. I also have a concern about what the commercial traders are doing in the less transparent OTC derivatives marketplace right now. Are they placing giant short-side bets there too? Are those bets fully reportable, or are they “non-reportable”?
14. Click this Dow wedge chart now. I would call that wedging action, rather than an actual wedge pattern, because of the lack of definition in the upper part of the pattern. Still, the wedge-like action is a concern.
15. HSR (horizontal support and resistance) sits at about 12,300 and at about 11,700. I have little interest in naked-shorting the Dow. There is what I term a maniacal obsession in the gold community with “getting the Dow”. Somehow, the Dow is view as a person who must be “made to pay”.
16. I have great interest in accumulating the Dow asset about every 1000 points down that it goes on sale, and the HSR at 12,300 and 11,700 make decent first entry points. Sadly, an obsession with naked-shorting the Dow could define you as a dollar bug rather than as a gold king or queen.
17. Gamblers should buy at the 12,300 area, if it happens, and investors should wait for 11,700. Operate in this crisis like Sylvester the cat, rather than like Tweety the bird. Take from the weak, in their moment of greatest weakness. The greater the price sale, the stronger the buying hands are.
18. If you have not made money in the Dow by shorting it over your lifetime, you should throw in the towel on further attempts to build dollars of wealth by shorting it again. If you are long the stock market now, you should be adding some strategic short positions into this enormous price strength.
19. The dollar will not beat the Dow in a fight to the finish. The Fed will adopt money printing as official policy long before the Dow goes off the board. The Fed will destroy those who get carried away with making dollars by shorting the Dow.
read more on this article here
Tune out. Buy gold. Be happy.
MoneyWeek
Where we part company with Warren Buffett...
The Sage of Omaha explained in Fortune magazine why bonds are dangerous.
He went on to explain why he doesn’t like gold either. He points out that since 1965, the total return on gold (not adjusted for inflation) was 4,455%. But the total return on stocks was higher, at 6,072%.
The difference between the two is that gold is a ‘sterile’ investment, says Buffett. Stocks are not.
He’s right. Gold is only useful at protecting purchasing power when the monetary system is in danger. At almost all other times, you’re better off with stocks, businesses, farmland or another productive asset.
That’s why Buffett now prefers stocks. And it is why we now prefer gold.
Buffett willingly gives up the protection of gold in order to the get the upside from stocks. We willingly give up the upside from stocks in order to get the protection from gold.
Who’s right?
Only time will tell. Our guess is that time will tell us that Buffett is right in the near term. But we’re still not going to switch to stocks. Because the risk is too high that time will be on our side.
In other words, the most likely outcome, as far as we can tell, is that the financial world will stumble along more or less in the same direction it is going now. Perhaps for many years. Gold, already expensive in terms of purchasing power, may go nowhere or even down. After all, we’re still in a Great Correction. As long as we follow in Japan’s footsteps there’s no particular reason for gold to rise.
But we do not bet on the most likely outcome. We bet on the outcome that is underpriced. The outcome that is most likely to pay off or blow us up. In our view, investors do not yet fully appreciate the risks of a financial catastrophe, a war or a revolution.
In yesterday’s news, we learned that hundreds of thousands of Greeks had taken to the streets.
Meanwhile, hardly a day passes that we don’t hear of an impending attack on Iran.
The developed economies are borrowing money at two to five times the rate of GDP growth.
And the world’s major central banks eagerly print money.
Maybe Buffett will be right. Maybe the next 47 years will be like the last. But it seems like a bad bet to us. All the key circumstances are completely different – even opposite.
read more on this article here