Tuesday, October 6, 2009

New High For Gold

Gold ETF (GLD)
For the majority of 2009, GLD has been trading in a tight consolidation (Black Lines). I have mentioned on numerous occasions that these consolidations lead to violent moves either up or down. In September, GLD broke out of its trading range on big volume (Blue Arrow). GLD quickly rallied from $95 to $100.

Gold hit a new All Time High today. Gold has been in an 18-month trading range. It broke out of the trading range on significant volume today (Red Arrow). I hope the breakout holds.

Gold Stocks
Royal Gold (RGLD) has been in a trading range for 10 months.

Randgold Resources (GOLD)
This is a pretty educational chart. In 2008, GOLD was in a trading range and put in a triple top at about $57. The third attempt to break $57 failed miserably (Red Arrow). GOLD imploded and did not recover back to $57 again until April 2009 (Green Arrow), 9 months later.

I am hoping that GOLD breaks out above $75 and goes higher. There has been a lot of buying volume the last 2 months. I am hoping that means strong buying from the big boys. However, following the failed breakout last year, I am nervous about trusting the next breakout.

Canadian Dollar (FXC)
The Canadian Dollar is a Commodity-Based Currency. To me, that makes it an anti-US Dollar investment, so as the US Dollar, FXC should rise.

FXC broke out of a 2-month trading range today on large volume (Blue Arrow), hitting a new yearly high.

Crude Oil (USO)
USO is an interesting chart. USO has recently broken its uptrend from its early 2009 low. It then rallied right back up to touch the trendline from below. Normally, this is extremely bearish, but in this new World, where asset prices are not allowed to go down, this could be the perfect setup for a monster short squeeze.

I’ll bet a heck of a lot of shorts have stop losses set right around $38. If there are, then I also suspect that when the time is right, the computers will light up and throw a lot of buy orders at the market to trigger the short stop limits. Or maybe they just gap USO up hard one morning above $38 and trigger all the short stop losses all at once. Or USO just rolls over and crashes.

Any way you slice it, I expect some significant fireworks in Crude Oil in the near future.

Why Is Gold Potentially Breaking Out?

http://www.ny.frb.org/newsevents/speeches/2009/dud091005.html

William Dudley, The President of the New York Fed, gave a speech yesterday entitled “A Bit Better, But Very Far From Best”. Remember, the NY Fed is the group that has levered up the TARP to buy lots of Toxic Waste Bonds from the US Banking Industry and the Central Banks of Asia – so his input is pretty important. In his speech draws the following conclusions about the Economy -

“In summary, I believe the current balance of risks around the inflation outlook lie to the downside due to the very low level of resource utilization and the fact that long-run inflation expectations remain stable. This balance of risks is problematic because the current level of inflation is already so low—the core PCE (personal consumption expenditures) deflator has increased only 1.3 percent over the past 12 months. Thus, we would not need much of a decline in inflation to run the risk of an outright deflation. Outright deflation, in turn, would be a dangerous development because it would drive up real debt burdens and make it much more difficult for households and businesses to deleverage.”

So we face high Unemployment, low Capacity Utilization and falling prices (Deflation). Deflation is economic death in the eyes of Bernanke. They call him “Helicopter Ben”, because he has stated before that he will do such crazy things like drop money from helicopters before he allows Deflation to occur.

The speech by Dudley simply tells the World that the US Government will keep printing money and running up the largest deficits in history. They will do anything to keep asset prices from falling and Deflation from rearing its ugly head.

The US Dollar
Bernanke and Team Obama chose to fight the Credit Meltdown by using newly created Dollars and accounting tricks to prop up the prices of worthless bonds. They moved Trillions of Dollars of crap off the balance sheets of US Banks and Foreign Central Banks and onto the books of the US Taxpayer, via the NY Fed and Government Agencies. Foreigners are onto the game and probably extremely uncomfortable with holding Dollar-denominated assets.

In my opinion, at some point the Dollar will collapse under the weight of all the deficits and printing of new money – it can be a slow motion melt or an over crash. The long term goal no doubt is to lower the value of the Dollar, because that will make domestic manufacturing cheap and allow us to start rebuilding our Middle Class. Like Volcker has said, at some point you have to make the decision between cratering the economy and cratering the currency.

Australia
Overnight, Australia actually raised their Interest Rates by .25%. In the past, raising Interest Rates leads to a flood of money into your country as leveraged, cheap money chases returns. This should continue to put still more pressure on the US Dollar.

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