28/04/2010 by Philinje.

As I’ve been mentioning for a few weeks, there have been signs that gold is re-gaining its safe haven status. The big difference between now and early 2008, when the stock market tanked and gold shot up to $1033, is that the dollar was falling then. Since the crash in Oct 08, the dollar has risen as a safe haven when risk aversion sentiment increases and in anticipation of the Fed raising rates.

Yesterday the S&P downgrade of Greek bonds to junk was a trigger in another bout of risk aversion that took the wind out of equities. But shortly before the announcement and then during it and afterwards, gold moved strongly through resistance at $1160 and even went as high as $1172. Interestingly, silver declined a bit and was generally choppy at its current high level. Lately silver has been less volatile than gold, which is unusual, and on the whole has not been as susceptible to down moves. Conversely, it didn’t move up as much either yesterday.

In short, yesterday was a clear signal that gold is separating from equities AND the dollar and beginning to shine again as a safe haven. This is not the same as saying that gold is the answer if Europe crashes.  Severe issues in Europe mean that the dollar will strengthen off of Euro weakness and that will hurt commodities and hard assets. But there is some glimmer of hope that gold may not suffer as much. And it strengthens the possibility that we might see a spike in gold in the near future.

Even in Oct 08, gold suffered the least of all commodities, and one would think that was due to its nature as a monetary alternative. Interestingy, gold fell about as much as the dollar rose, whereas silver, oil and all other commodities got crushed. Then it recovered quickly and stayed strong as equities continued on to their low in March 09. Since March 09, most asset classes have risen together and gold achieved a new high in December. That gave the impression that re-flation was fueling gold’s rise along with equities, especially as the dollar began to rise in December and gold fell.

Take a look at these charts of yesterday’s action, courtesy of Ino.com. First, the dollar, then gold, then oil.

Again, yesterday was NOT an all-clear signal for gold. The dollar will benefit as a safe haven and as the counter-balance to a falling Euro. But if gold also acts as a safe haven, then it could be reasonable to expect it would maintain some kind of parallel strength with the dollar. This line of thinking could reduce the risk of significant down moves in gold.

Certainly another factor in the mix is the overwhelmingly popular opinion that the dollar is in trouble too. The US debt looks staggering and the Greek crisis has underlined the sovereign risk of nations like the US and UK. While markets love to move in opposition to popular opinion, meaning the dollar could rally significantly, it is possible that gold will see some panic-driven spikes up, especially since US Treasuries have been quite weak (until yesterday of course, but the trend is down). With signs of a strong recovery in consumer spending and corporate earnings, the anticipation of inflation is increasing.

There is also a lot of chatter about China re-valuing the Yuan, which in essence weakens the dollar and gives China even more power to buy commodities. This may or may not happen any time soon, but markets anticipate such things. And let’s not forget the commercial short position in the Comex is at all-time highs, which leaves open the possibility of a short squeeze (yesterday could have been a small example).

All of this adds a nice pillar of support to gold, and somewhat increases the possibility of a spike up, along the lines of a near-term peak at $1350. This does not mean it will happen. But as time goes by the odds are getting better.

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27/04/2010 by Philinje.

This article says it all, very succintly and with simple, clear charts:

http://goldscents.blogspot.com/2010/04/on-brink-of-asset-explosion-ii.html

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24/04/2010 by Philinje.

Please read this excellent article by Ted Butler and then decide what to do:

http://news.silverseek.com/SilverSeek/1270647063.php

Monday is the deadline.

Here is my letter: 

Dear CFTC,

Thank you for the public commentary period on position limits and concentration of trading positions in gold and silver.

In futures markets the original intention of allowing businesses to hedge has become cloudy beyond recognition in gold and especially in silver. A simple speculative position limit would be a start and then strictly identifying hedgers and restricting any exemption from the position limit to legitimate hedgers only is an obvious solution.

Enforcing that will of course require a process of confirming business identities and intentions, and then monitoring violations with harsh consequences for repeated violations. This undoubtedly will expand the work you do, and there is always the possibility of circumvention through devious means, but a harsh penalty will go a long way toward reducing the illegitimate activity currently in plain sight.

Among speculative traders, the COMEX name has been tainted by the questionable activity of a small number of banks. Establishing clear rules as discussed above will go a long way toward separating the COMEX name from the manipulative activities of a few participants.

Thank you.

Best regards,

Phil Chang

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22/04/2010 by Philinje.

Gold and silver did decline a bit more on Monday and as of Wednesday both are back at resistance levels, roughly $1150 for gold and $18 for silver.

Here’s a CNBC interview that is interesting because some mainstream expert out of the blue references a super-spike in gold in the first half of 2010. This interview aired shortly after the peak in gold at its all-time high but by then gold was clearly declining as a dollar rally had started.

http://pragcap.com/gold-is-going-to-super-spike-in-2010

Obviously this guy is not a gold bug and views the whole commodity complex as a trading arena. He may be basing his super-spike opinion on the reverse Head and Shoulders formation, but it’s hard to say. More likely he is going with the feel of the market at that time, which was in admiration of the new all-time high. Remember, some gold bugs were getting spooked before the peak and were predicting a C leg down. It looks more and more like the a consolidation will occur as opposed to a severe decline.

As a matter of contrast, here is an article by a well-known gold expert. He is not exactly a gold bug but his fund is a well-regarded participant in the gold market. His views tend to be balanced and long-term, though it is hard to avoid the fact that he is biased.

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=103033&sn=Detail&pid=102055

The sovereign debt issue is something that is popping up in different places, and is the sort of analysis that tends to be astute but not exactly mainstream. Greece is a reminder that many nations, notably the US and UK, are running huge deficits and issuing massive amounts of new debt that has to be soaked up somehow. Quantitative easing, or the practice of a central bank to monetize the country’s debt, is a dangerous game. It basically means printing money at will.

Finally, James Turk of GoldMoney has written about the Havenstein moment. This references the head of the German Reichsbank during the Weimar Republic, who made the fateful decision to allow unlimited printing of money. What is interesting is how Turk compares the current observation that the US money supply is shrinking, with a comparable situation in Germany - namely that the money supply seemed to be shrinking just before hyper-inflation took hold.

Now, how could the money supply be shrinking if there are vasts amounts of new money being printed? I guess it depends on how the money is created, and the flow of money in the economy. Turk does not get into the intricate economic details, but simply makes the point that as price inflation picks up, it seems like there is less money available because everything is more expensive.

Actually, there is one more article I want to reference. This one makes the pojnt that deflation is good for gold mining stocks and that can be a leading indicator of a rise in gold prices, which in turn is a leading indicator of inflation. The logic is simple: deflation causes the cost of mining to go down. What the author sees now is a potential breakout in gold stocks, and speculates that even a small deflationary episode could be the trigger.

http://pragcap.com/a-deflationary-impulse-would-be-a-catalyst-for-gold-stocks

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19/04/2010 by Philinje.

Friday was options expiration for US stocks and I was watching SLV calls when the Goldman news hit. In case you missed it, the SEC is filing a civil suit against Goldman for misleading investors in subprime-related securities.

There seem to be two schools of thought about this: 1) this is a one-off news event that affects a single company and the market will shrug it off in a day or two, and 2) this will trigger a wave of risk aversion as more suits come to light.

I lean towards the former, though we also have the Greece crisis still brewing away as the IMF flies in to Greece on Wednesday (a meeting that was delayed due to the volcanic ash from Iceland). So it’s possible the dollar and Yen will remain strong until then. It’s interesting that US equities, gold, silver, dollar/Yen, Euro/Yen and GBP/Yen all dropped to support levels in one fell swoop on Friday.  At the very least this is a sign that market participants are still quite sensitive to bad news.

On the other hand, one cannot ignore the fact that Friday was options expiration for April options and that leading up to the announcement risk sentiment was fairly positive. Meaning, it may have been one of those manufactured train wrecks as the floor traders tried to prevent options from expiring in the money.

General equities are touchy as so many expect the rally to come to a screeching halt any day now. But gold is another story. If it was behaving as a safe haven, a fall in equities would not be mirrored in gold. On the other hand, the short position of the bullion banks is at an all-time high and they will jump on any convenient news to drive the price down. These wash-outs are a typical part of gold’s behavior because of that blatant manipulation.

To add to the confusion, the Martin Armstrong prediction of a turn date on April 16, 2010 could be interepreted in two ways: 1) a rally just ended or 2) a decline just ended. One could look at gold’s behavior since last December as a decline. But recently it has been rallying.

The most we can do right now is see how the market behaves over the next couple of days. If the sudden risk aversion is short-lived, we’ll see a snap-back effect pretty soon. If not, be prepared for some more selling.

The decline on Friday achieved a classic Fibonacci retracement of 38.2%, so the worst might be over. Sometimes markets will retrace to the 50% level, so that could be a possible bottom. This could be a buying opportunity, but be cautious.

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13/04/2010 by Philinje.

First, a quick note that some sources are seeing a decline in gold to $1140-45 over the next 10 days. Then a blistering rally into June. Who knows. The decline yesterday and today has gotten us close to this level so maybe the decline won’t take that long.

In case anyone is following the conspiracy theory side of gold, a former Goldman trader in London recently notified the CFTC (regulatory body for futures trading in the US) about manipulation by JP Morgan and others. The theory of several major banks capping the price of gold and silver with large naked short positions is old news, pushed heavily by GATA and Ted Butler and others. But now, despite strange machinations that removed any participation or mention of the whistleblower in the recent CFTC hearings on short selling, as well as a strange car accident that occurred two days after this trader went public, the New York Post has published an interview. This may be the first mainstream mention of the manipulation story in the futures markets for gold and silver.

Here it is:

http://www.nypost.com/p/news/business/metal_are_in_the_pits_2arTlGNbMK7mb1uJeVHb0O/0

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11/04/2010 by Philinje.

In the face of re-emerging risk aversion (meaning a strong dollar) and stalling (but strong) stock markets, gold cleared major resistance in the $1140-60 area. Silver came along for the ride.

Odds are shifting toward a major rally this month and possibly next. Next resistance is $1190 then the all-time high at $1227. Again, the near-term projection of $1350 is alive and well.

One very good sign is gold’s strength in the face of risk aversion, meaning it might be re-gaining its old status as a safe haven. One could even surmise that some of gold’s strength this week was due to risk aversion. The Euro is still wallowing around near its recent lows as the Greece story continues. But the dollar has been struggling to get much past 82 and finally caved in to under 81 on Friday.

General equities are still pushing upward in the kind of inexplicable rally that so often occurs. The sane point of view is that the rally since last March is overdone - way overdone. And yet it continues. It might keep going for a while, so be super cautious about taking a short position. In fact, going short might be the equivalent of insane behavior in this situation.

Overall, reflation is alive and well. There was trepidation this week but basically risk appetite is still the dominant sentiment. Next week should be interesting. I am anticipating a slight pullback in gold and then some strong moves up toward end of week. That could be it for this bull run, or the precursor to some big fireworks.

The commercial short position in the Comex is back at all-time highs, meaning the same big banks who have been shorting gold and silver are still fighting the bulls tooth and nail. If gold can break through its all-time high of $1227, there could be an explosion due to short covering. For example, we might see a steep incline toward $1250 and then bam! another $100 in one day. I’m not saying that will definitely happen. It’s just an example of how short covering could play out, and the levels mentioned are realistic for a variety of technical reasons.

To grab the peak is something even dedicated pros often can’t do. So there is no point in assuming you can get out at the right moment. I still feel there will be some decline after this peak, which could be at $1190, $1230 $1250, $1300, $1350 or $1400, so depending on how closely you pay attention to the daily movements, you might want to spread out some selling around those levels. At this moment, the only level that looks relatively assured is $1190. After that, who knows.

Good luck. I’ll be reporting after the fact, as usual, so be prepared to make some decisions in the coming weeks.

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03/04/2010 by Philinje.

Gold has held up pretty well over the past month despite some sharp moves up by the dollar. It looks like gold has consolidated in a tight range for just about 4 months.

In the past gold has had a habit of consolidating for long periods and then breaking out. We could see a repeat of that behavior in April-May. The near-term projection of $1350 still looks possible, but the chart looks quite congested with resistance in the $1140-60 area.

Will the markets in general have one last gasp upward in the next month or two? This could bring a burst of speculative fever into commodities and gold. The dollar will undoubtedly feel some upward pressure from the impending threat of rate hikes (maybe as early as Monday), but we finally saw the Yen start to collapse last week. March is the end of the fiscal year for Japanese companies, meaning there is upward pressure on the Yen as companies repatriate money, so the Yen may move down in a hurry from here as risk appetite returns.

The Non-Farm Payrolls report on Friday was a solidly positive number, though the unemployment rate stayed at 9.7%. This might be enough to light a bullish fire under the markets, while the dollar could remain supported by the threat of higher rates. If bonds continue to sag, that’s a good indication that speculation and risk appetite are alive and well.

Friday was a strange day because European participants were absent, and general markets were closed even in the US. The action in currencies seemed to be in the direction of risk appetite with the dollar supported as well, but we’ll have to see what happens Monday, especially because the Fed has announced an unplanned meeting.

Regardless, my personal plan is to get out of everything in May at the latest. I still feel there is a potential crash on the horizon and the bullish exuberance is over-extended, especially if it carries straight through into May. So we may yet see the dollar and Yen spike up later this year. After a good wash-out, it would be wise to get out of the dollar and Yen, and the coast should be clear for gold to run a lot higher.

If we hit a peak of $1350 in the next month or two, will gold then crash down to $600 or so? I think that is getting less and less likely. But it could be a prudent move to wait through the summer when gold is normally weak, and to see where it ends up.

Next week should be interesting.

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