Friday, June 09, 2006


Gold Looks For Support At 100 Day Moving Avg.

Market Watch wraps up the trading week. "Gold futures fell Friday to close at their lowest level in two months, suffering a cumulative four-session loss of nearly $36 an ounce to end the week down more than 4%. Gold for August delivery closed at $612.80 an ounce on the New York Mercantile Exchange, its weakest closing level since April 13. The contract ended with a loss of $1 for the day and a loss of $28.20, or 4.4%, from last Friday's close of $641. It's also about 16% below its May peak of $732."

"Prices have lost a total of 5.5% since Monday's closing. On Thursday alone, gold gave up more than $18 as a rally in the U.S. dollar, sparked by a growing conviction that the Federal Reserve will raise interest rates at its meeting in late June, sapped demand for precious metals."

"Gold appears susceptible to pressure from fund managers squaring their books and from weakness in global stock markets, said Jon Nadler, an analyst at bullion dealers He said the assassination of al-Qaida in Iraq leader Abu Musab al-Zarqawi this week also put pressure on gold prices. 'A negative bias continues to pressure prices for the moment,' said Nadler."

"'Gold may have closed down, but as long as it holds that area of support the market has a decent chance of rallying sharply next week,' said Dale Doelling, chief market technician at Trends In Commodities, referring to the 100-day moving average of $608.90 as support. 'The market has reached such a severely oversold condition that the odds of a bounce here grow stronger each day,' Doelling said."

"'Fortunately, gold is not really a commodity,' Nadler said, because it isn't susceptible to a drop in the face of economic slumps. Instead, gold trades like a 'currency,' he said. So 'as the supply of dollars chasing a finite amount of gold has quadrupled since 1980, and as the current gold bull market started running at about $250 per ounce, the resulting math leads many to believe [the current] correction notwithstanding, gold's ultimate peak may well lie much higher,' he said."

"For now, 'it's just that not many are willing to stick their necks out and also say when that peak might take place,' Nadler said."

"Meanwhile, Merrill Lynch raised its 2006 gold price forecast to $650 an ounce from $525, and raised its 2007 outlook to $675 an ounce from $500 an ounce. Positive drivers for gold include potential inflationary pressures in the U.S., heightened geopolitical risk (Iran and South America), the Merrill Lynch FX team's forecast for a weaker U.S. dollar, continued de-hedging and lower central bank sales,' said analyst Jason Fairclough. Also for 2006, Merrill also raised its price forecast by 19% for platinum, to $1,159 an ounce."

"July platinum tacked on 10 cents to close at $1,190.20 an ounce, closing more than 4% below the week-ago level."

"July silver closed up 13.5 cents at $11.21 an ounce, down around 7% from last Friday's closing level. The September contract for palladium rose $3 to end at $325.55 an ounce, closing down almost $33 for the week."

From Bloomberg. "The dollar is headed for its biggest weekly gain since November against the euro as Federal Reserve speakers suggested they will raise interest rates this month to keep inflation in check. The U.S. currency has rallied five straight days against the euro as mounting expectations for higher U.S. rates led traders to exit bets on a dollar decline. This week's 2 percent gain in the U.S. Dollar Index is the biggest since March 2005."

"The dollar weakened to a record $1.3666 per euro in December 2004, partly on concern the U.S. would fail to attract enough international investment to compensate for the shortfall in the current account, the broadest measure of trade. The trade deficit reached a record $68.5 billion in January."

"The deficit in the current account, a measure of trade, services, tourism and investments, widened to a record $224.9 billion in the fourth quarter. The U.S. needs to attract about $2.5 billion a day to fund the gap and keep the value of the dollar steady."

IMO, fundamentals give us an idea of buy/don't buy, and technicals help us decide when. I recall Grandich said he is watching a technical support level between $570-580. Keep in mind the gentleman quoted on the 100 day moving average was talking about futures, which is higher than spot.

So at what level would you buy more gold?
I bit today. Au and Ag.

I may be biting my own ass later on, but at least I've stopped obsessing over when to do it.
42, I think you picked a good time. If you can't buy now, you never will. I agree that gold might drop as low as 575 or 550, but I would rather buy here than try to save $10 and miss the move up. No need to day-trade here, gold is a good long term play.
liquidity is certainly going into the art world.

Sliced Lamb in Formaldehyde and Other Market Indicators B
Published: June 9, 2006

STEVEN A. COHEN, the publicity-shy hedge fund manager, is rich and appears to love art: he has reportedly spent $700 million buying it in recent years.

And Mr. Cohen is not alone. Widespread global wealth creation has fueled record-setting auction seasons with jaw-dropping sales like the recent auction of Picasso's portrait of his mistress Dora Maar, which fetched $95.2 million (it was expected to sell for $50 million) and Jeff Koons's vacuum cleaners encased in a Plexiglas box, which sold for $5.3 million (estimate: $2.5 million to $5.3 million).

The aggregate numbers are startling: Sotheby's May Impressionist and modern art auction sold $207.6 million worth of art, compared with $91.3 million a year earlier. The contemporary art auction raised $128.8 million, compared with $68 million a year ago.

It is perhaps not surprising then that shares of Sotheby's — its ticker symbol is BID — rocketed to nearly $34 early last month from $14 a year ago. Considering the huge wealth created by surging oil and commodity prices, raging stock markets and easy credit, that would seem to be a logical trajectory for an art auction house.

Billionaires need outlets, and art is a particularly civilized and showy one. Perhaps the optimism that fuels investors to think there is no risk in emerging markets is similar to the hope that one feels in spending millions on Damien Hirst's lamb sliced and submerged in formaldehyde.

"Over time, there's a high correlation between auction sales and financial indices," acknowledged William S. Sheridan, the chief financial officer of Sotheby's.

From June 8, 2005, to May 9, the Standard & Poor's 500-stock index rose 11 percent. During the same time, the XBD, the broker-dealer index that includes the leading Wall Street banks and online trading companies, surged 58 percent. (If you are making money on the stock market, then you can be sure that Wall Street is making a lot more.) Over that period, shares of Sotheby's soared 128 percent. Thank you, Mr. Cohen.

Since May 9, of course, markets have become rockier. From May 9 through June 8, the S.& P. has fallen more than 5 percent, the XBD has sunk 11.2 percent and Sotheby's has slumped 23 percent.

If Wall Street stocks and Sotheby's are proxies for global wealth and hope, will the skepticism now being seen in markets from Japan to Nasdaq dampen hopes for Sotheby's London auctions this month? Has art reached its apex?

Don't bet your Dali on it. But while London may be big, a return to reasonable extravagance could be in sight. Art is more insulated from market skittishness and more associated with Big Money.

"Sotheby's customers are not your average-income customer," noted Kristine Koerber, an analyst with JMP Securities. "They are billionaires."

And billionaires don't change their spending habits after a slump in the markets.

Both Ms. Koerber and Mr. Sheridan say the art cycle has a ways to run. Art cycles, they point out, generally run five to eight years. This one started in the fourth quarter of 2003. And this one, unlike the 1980's, which was dominated by the Japanese, and the one in the 1990's, which was dominated by Americans, is dominated by global wealth: Russian oil magnates, Chinese millionaires, Japanese industrialists.

But recent market jitters have not been limited to the United States: Europe and Japan have been hammered and China had its worst day in more than five years on Wednesday. Still, even the rich may overbid based on expectations of the optimism of other bidders.

If global optimism wanes, the rich will not be excluded from the group making more rational decisions. Their rational decisions will just look different from ours, perhaps submerged in formaldehyde or with Picasso's signature in the corner.

So Modigliani's "Jeanne Hébuterne (Wearing a Hat)" will probably fetch a pretty price in London (estimate: $15.7 million to $22.1 million). But the exorbitant prices — prices that have defied estimates that analysts say were once right 90 percent of the time — will likely come back in line with the estimates.

That will make them viable estimates once again and bring back to earth the price of animals suspended in chemicals. What a relief.
I think 100dma is not good point.
I still believe 200 dma is more realistic. It could be much lower than today, but not necessary.
In any case correction is not over yet. I think no reasons to rush.
In my 10 years of interest in the market I have seen thousands of charts and I strongly believe that gold is not ripe yet to start new upleg. I tend to think we've got months rather than weeks ahead of us, before we see significant move up.

It's always the same... the top is in when art & classic cars are setting records!
Good on ya sticking with your convictions. I'd like to buy more, but there is some serious power that buying PMs is up against. Central Banks hate gold, and I mean hate it. As it rises, it is the people telling them that we are losing faith in their system, plain and simple. They aren't going down without a fight, and they hold all the cards and resources. The rise of gold is the one thing that REALLY tells the CB to get bent.

They have done a magnificent job of deceit with inflation numbers and simply talking the price of gold down without actually doing anything with rates. If you run the math based on our US reserves of gold (around 8,700 tonnes) versus our debt of around 9 trillion (and debt alone, not amount of money in circulation), that would put an ounce of gold at around $29,000. What does that mean about the value of gold? Absolutely nothing as long as gold isn't seen as a currency. If it ever is by the masses, hold onto your seat.

On a different note, I keep hearing the media saying how a drop in the stock market, or homes for that matter, is a vanish of wealth. Somebody please help me understand that one (being facetious). It is just money changing hands, nothing more. Someone bought low and sold high, and someone bought high and is holding as it goes down. It didn't just vanish. The same goes for houses decreasing in value. I bought for X and paid someone. Whatever happens to the price after I bought doesn't effect one iota the money I gave to Y. Not one bit. I lost money, and he made money. All the Fed is trying to do is get that money the hell out of things that are used to gauge inflation into something that isn't. Nothing more, nothing less. And after having been burned badly in the commodities market, hopefully they don't return for a good number of years. Memories are short, but I'd say they are at least 10 years or so when it comes to losing money.
No matter how much the Fed hates gold, they aren't as powerul as they'd like to believe. The Chinese and Russian governments, along with a billion people in India, love gold.

The Fed and the gold cartel can exert enormous downward forces. But not forever.

Gold is like anything else. It can be manipulated effectively for a period of time. But market forces ultimately prevail.

e.g. The US Dollar.
A poster over at Yahoo's gold message board posted this the other day. I hope the link works. Enjoy.

Bonner describes "Mamma" Dollar thusly:
Alas, the old girl ain't what she used to be. Too many wild parties. Too
much liquidity late at night. Too much smoke and mirrors. The years and
abuse have taken their toll. In the dark night of panic, speculators may
not notice the deep lines of debt on her face, the cheap makeup with which
she covers up her deficits, and the hidden girdles and padding that buff
out her faded posture and swindle her admirers. Wait until they get a good
look at her!

Speculators, a notoriously fickle crowd, are quite capable of changing
their minds - even in mid-flight. Right now, they see risk in gold and
safety in paper. That their eyesight will improve is the abiding faith of
The Daily Reckoning. It is what keeps us going.
I keep hearing the media saying how a drop in the stock market, or homes for that matter, is a vanish of wealth. Somebody please help me understand that one (being facetious). It is just money changing hands, nothing more. Someone bought low and sold high, and someone bought high and is holding as it goes down. It didn't just vanish.

You're right with respect to people who are actually buying and selling. Those who lose the illusory "wealth" are those who neither bought nor sold. Imagine your house was worth $300,000 in 2004 and in 2005 some idiot flipper paid $500,000 for an identical house down the street. Now your home and the ten others on the block just went up in "value" by $200,000 each -- that means that $2,00,000 in "wealth" was just created in an instant. Two years later, when the flipper goes bust and the house is sold at auction for $250,000, all of that "wealth" disappears. Same thing with gold or stocks or USD or anything else. Because prices are set at the margin, but everyone else assumes that the last price is the price that they themselves would get, a relatively small number of transactions can greatly affect people's perception of wealth. That's what drove the Housing ATM phenomenon.
Kerk, if there were a way for governments or CBs to destroy the value of gold they would have done it long ago. Manipulation is a temporary situation.
the problem is if someone sells you a stock, they usually buy another stock. how many people really cash out?

galbraith says the money "went the same place your lap did when you sit up."
I always find it hilarious when somebody starts harping about home equity is not being counted as savings.

I still maintain that when homes revert below their historical mean and the stock market plays submarine ("dive, dive!") as a result, people will turn to PMs because -- even if their value goes nowhere initially -- they'll look awesome by comparison.

Cash? The masses have been trained into thinking that cash itself is a non-performing asset. Given inevitable rises in the cost of energy, etc., inflation will further erode anyone's desire to hold dollars.

Psychology... it's all psychology.

I would buy more now if I could... a little cash poor at the moment!

Timing the market can be hazardous and stressful.

Most likely they'll drop a little more, but IMO there are just enough buyers out there to prevent much further declines.

OTOH, should the Fed see a string of bad economic news and suddenly reverse course, PMs would certainly take off again.
I know its a contrarian viewpoint, but I'm going to go out on a limb and bet that rates don't go up this time.

One of the hardest things about being a central banker is calculating the lag time for rate changes to take effect. When market volatility increases, the dangers of being wrong about lag increase dramatically. Its one of the reasons the FOMC has been confused lately: every day brings new data suggesting new policy directions.

Adding to this uncertainty is the "hedge fund factor": No one in the world has any idea just how leveraged the trillions in hedge funds are, and no one knows precisely where all those dollars (and more importantly, yen) are invested. As we saw with Japan's moves away from ZIRP, policy unwinding can have massive and wholly unpredictable implications for the US and global markets.

On top of all that, there is of course, the uncertainty that always accompanies the oil business.

What's frighening about Fed policy these days isn't so much that liquidity may rise or fall, its that the Fed (or anyone else) knows so little. Policy making is becoming in itself, a speculative activity.

But back to my point: Bernanke is a student of the Great Depression. And he knows that the Great Depression was not (as many believe) a result of the crash of '29. The Depression was a result of excessive monetary tightening by the Federal Reserve at precisely the wrong time, which caused massive deflation.

So I'm sticking to my guns and betting against the tide here: Rates will stay where they are... this round.
NYT article by floyd norris.

"Since 1983, the government has measured the price of homes not by looking at house prices but by computing what it calls "owner's imputed rent." That is the rental value of the house you own. It accounts for nearly a quarter of the entire Consumer Price Index.

When the change was made, the government provided statistics indicating that previous inflation rates would not have been very different under the new method, and that remained true until 1996.

Since then the home price index maintained by the Office of Federal Housing Enterprise Oversight has doubled, while the imputed rent figure has risen by less than a third.

Had the government computed the Consumer Price Index using actual home prices since 1996, I estimate that it would have risen by an average of 4.1 percent a year, as opposed to the 2.5 percent reported. The core rate — inflation excluding food and energy costs — would be 4.2 percent, not 2.2 percent.

Perhaps the Federal Reserve was too hesitant to raise rates, and thus allowed speculative bubbles to form, because it was seeing inflation through rose-tinted glasses."
Bernanke is a student of the Great Depression. And he knows that the Great Depression was not (as many believe) a result of the crash of '29. The Depression was a result of excessive monetary tightening by the Federal Reserve at precisely the wrong time, which caused massive deflation.

With respect to the comment above, I don't know for certain, since I wasn't around then, let alone in the banking industry. However, from what I've read/understand, what caused it was nothing different than what is going on now, for the most part. Let me explain.

I've heard BB say that the Depression was caused by the gold standard. That being, because there was only so much gold, the gov't couldn't print more money than it had backed by gold. OK. That may be legit, but I'd be willing to bet that it didn't stop the fractional reserve banking rig. A bank only has so much gold, but makes loans X% above the gold it does have. Then when folks go to the bank to collect, oops, not really as much there. What can the gov't do since it is held to the gold standard. They never should have been loaning all that money they didn't have to create the roaring 20s since it was never there to begin with.

Fast forward to 2006. Still the same fractional reserve thing going on, except absolutely nothing backing the dollar. I feel pretty confident that is why BB said a couple of years back that he'd drop money from helo's. Not bound by anything to stop him. OK. Sounds great in theory, and will probably work in reality. Unfortunately, that is going to be hyperinflation. I'd say he is correct in that he feels he can prevent another depression, temporarily. I'd say he'll attempt to inflate out of it, and it'll work for a short period, but ultimately we'll end up in a Depression. I really don't see any other way out, and I'd be willing to bet he doesn't either. I think it is just a matter of when, not if, the demand for PMs rises dramatically.
Perhaps the Federal Reserve was too hesitant to raise rates, and thus allowed speculative bubbles to form, because it was seeing inflation through rose-tinted glasses."

I agree 100%, john. The CPI is complete BS. The core numbers also excludes energy, food, healthcare, and just about everything else besides Chinese-made electronic gizmos, which have been falling in price and creating a deflationary offset.
All the talk about figuring inflation is a total waste of resources/time. Just tell me how much money was created. It's either positive, negative, or zero. (When was the last time, if ever, it was negative)? How it's calculated/where that money shows up is nothing more than manipulation. No more complicated than that. Raising rates doesn't put the monetary expansion negative, it just slows down the positive expansion.

I suppose the only probem the FED has is knowing exactly how much the individual banks are increasing the supply by the fractional lending.

It strikes me that Bernanke's claim that the Depression was *caused* by the Gold Standard, is like saying poverty is caused by not having credit cards. (The elimination of the latter only compounds the problems of the former).

The Gold Standard is simply another way of saying "fiscal responsibility". The banking industry needs Federal Intervention when it hits troubled waters is because banks leverage themselves too heavily and Federal minimum-balance requirements are far too low. (The new Basel accords just raised that minimum requirement, but its still way too low.)

What we need is not only a gold standard, but massive banking reform to secure that standard.

We have given banks almost unlimited freedom to do as they wish, and the profits for banks are beyond massive. With Federal guarantees, and the promise of salvation through monetary policy, we only perpetuate the absurdity of the banking industry and their utter lack of safeguards against mass withdrawal.
hey ben, can we have an open sunday thread?
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