Tuesday, March 13, 2007


Gold's Direction "Still Unclear"

The Associated Press reports on currencies. "The dollar traded mostly lower against the other major currencies Tuesday as investors sweated over the troubled subprime mortgage sector and U.S. retail sales data came in short of expectations. The 13-nation euro bought $1.3196 in late afternoon trading, up from $1.3187 late Monday. The British pound fell to $1.9303 from $1.9318, while the yen dropped to 116.52 yen from 117.61 yen."

"The Mortgage Bankers Association reported that mortgage delinquencies and foreclosures rose in the last quarter of 2006, indicating widespread problems in the industry. The mortgage troubles sent the Dow down 242.66, or 1.97 percent, to 12,075.96, according to preliminary calculations. The index is now down more than 710 points, or 5 percent, from its record close reached Feb. 20."

"The dollar's weakness against the yen renewed worries about traders unwinding their yen 'carry trades,' or pulling money out of high-yielding dollar assets bought with the low-yielding yen, said Michael Woolfolk, senior currency strategist at the Bank of New York."

"Also dragging down the dollar was a Commerce Department report that showed U.S. retail sales inched up by only 0.1 percent in February amid bad winter weather, well short of economists' forecast of a 0.3 percent rise."

From MarketWatch. "Gold futures closed lower Tuesday after earlier strength stalled at the $650-an ounce level, stretching the precious metal's losing streak to three sessions as traders eyed moves in the U.S. dollar and oil in the hope of predicting the precious metal's next direction."

"'Gold and the rest of the precious metals have seen another day of directionless two-way trade as players seem torn between looking to oil, the dollar and equities for direction,' James Moore, an analyst at TheBullionDesk.com said in afternoon comments."

"Gold for April delivery fell 90 cents to close at $649.40 an ounce on the New York Mercantile Exchange. The contract has now lost $6.10, or 0.9%, from Thursday's closing level of $655.50."

"'Gold's reversal momentum from last week has waned and is finding difficulty moving past the resistance in the mid to upper $650s,' said Peter Spina, chief investment strategist at GoldSeek.com. 'A bit of cautiousness has entered after the recent volatility. Investors are looking for direction; consolidation is the current market theme,' he said."

"In the short term, 'direction is still unclear and gold may have to weather further weakness, particularly with sliding energy costs reducing inflationary concerns, before reaching a level at which investors and speculators are happy to re-establish positions in the market,' said James Moore, an analyst at TheBullionDesk.com."

"'A little of the apprehension surrounding the direction of equities values has also resurfaced among bullion investors,' analyst Jon Nadler said. 'Stories of a hedge fund in difficulty added to the cautious tone across several trading markets.'"

"The gold-price target that 'needs to be conquered is in the area of $665 to $670,' he said. But support for prices remains 'decent near $645.'"

"Against this backdrop, most metals prices lost ground. May silver fell 12.5 cents to close at $12.96 an ounce while June palladium shed $2 to close at $354 an ounce, but sister metal platinum saw its April contract tack on $9.80 to close at $1,223.60 an ounce."

From Bloomberg. "Gold prices fell in New York for the third session in a row as declines in global equity markets revived concern that investors will sell commodities to cover losses."

"Gold has dropped 5.9 percent since Feb. 27, when Chinese stocks tumbled the most in 10 years and the selling spread to Japan, the U.S. and Europe. 'Gold's got a little more weakness to come,' said James Moore. 'Investors had their fingers burned in a lot of areas, and they're sort of trading cautiously for now.'"

IMO, for gold to add another down day when the dollar is off on economic issues is not a strong technical sign .
I think we'll see a government denial of deflation while we deflate, followed by a government denial of inflation while we inflate.

There'll be plenty of buying opportunities for gold ahead. And IMHO they really will be opportunities.

And rest assured if China sells dollar assets (assuming they're not already doing so) we won't know a thing about it.

The level of secrecy surrounding currency policy and the central bank has never been this high in history. Which will make for one hell of an uncomfortable guessing game -- and will effectively cloud what's really happening behind that wonderful smokescreen called "controversy".

This isn't going to be easy time to invest...
Ok guys, I am having real trouble with what the crappy mort. defaults will really mean to the overall markets.

Other than the screwing the MBS holders are going to take what is the fallout.

1)No more house ATM, big problem for starbucks and related unneeded consumer crap.

2)On the flip side wont defaults free up some FB income for consumer trinkets--raising rents when they need a new place to live--giving landlords more money for trinkets.

I don't pretend that these factors will wash, but the hit on the MBS holders will crush them while I don't think the consumer has been thrown under the bus (once they are out from under thier albatross of a home).

The question for gold must be does the dollar collapse or continue a slow devaluation?

A collapse (big equity market drop with it) caused by debtors need for cash to pay bills (margins, etc) would be bad for gold also. If the pleebs need cash to eat they will sell thier gold for whatever the market will bear.

On the other hand if we can manage this collapse of the dollar in an orderly fashion gold will inversely rise.

Like you said Ben, the drop in gold along with the drop in the dollar is troublesome.

I am heavy into the miners and am worried that no matter what the positive long term aspects for gold are that margin calls will cause the pleebs to sell everything.

These 5% dips don't bother me as long the miners have time to outperform during the upswings. It is when the margin debt of other pm holders forces them to sell that problems arise and we enter a self feeding downward spiral.

In the long run the bad mort. defaults, that IMO will run into the trillions, will be good for the economy as a whole. It will be a painful ride, but will eventually lead to highet disposable income in the US once the FB stop paying on thir death loans.

So is it rapid collapse (that will depress gold) at some point or slow meltdown that will let gold rise?
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