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 Kitco.com. 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."

Comments:
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.
 
liquidity is certainly going into the art world.


Sliced Lamb in Formaldehyde and Other Market Indicators B
By JENNY ANDERSON
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.
 
john_law_the_II,

It's always the same... the top is in when art & classic cars are setting records!
 
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.

Enjoyhttp://www0.gsb.columbia.edu/students/organizations/follies/media/EveryBreath.wmv
 
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.
 
Ben,

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."
 
Kerk,

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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