December Gold has sold off mildly so far after peaking within inches of a 1074.50 rally target drum-rolled here a while ago. We see little reason for concern, since the futures would need to fall all the way to 983.10 to create room on the daily chart for doubts. Actually, we’d view any pullback into the range 1057 (already achieved) – 1019 as a terrific buying opportunity, since it would take only a $20 booster rally thereafter to set gold in motion toward the next key threshold, 1134. The dollar’s bearish chart would seem to corroborate a bullish outlook for gold. Although mysterious forces caused the Dollar Index to spike higher during yesterday’s session, the flurry of buying was short-lived, and by day’s end the dollar was little changed. That’s about as good a day as the dollar seems capable of having any more.
While gold was getting roughed up, stocks were climbing out of a hole created by the cratering of financial stocks. They fell hard on the opening, ostensibly because Goldman Sachs reported a near tripling of earnings since the last quarter. If the logic of this seems unclear, you can take your pick from a slew of dumb explanations. Some pundits said Goldman’s spectacular performance underscored the relative weakness of its competitors. If that were true, however, then why should Goldman shares have fallen nearly $4? One tried-and-true explanation that we were surprised not to have heard is that Goldman’s $5.18 billion quarter somehow disappointed the analysts.
Willed by the Cosmos
Our explanation, as always, is that the financial stocks were cyclically primed to fall no matter what the news. And so they did, burning us mildly when we jumped on some out-of-the-money call options in Citi at the bell. They finished the day at a dime, 50 percent less than the 15 cents (i.e., $15) we’d paid for them. But we have no qualms about holding onto the little pups for a while, since it still seems like a good bet that Goldman, once it recovers from its manipulated swoon, will continue to drag the entire, blighted financial sector higher in the weeks and months ahead.
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Whilst I confer “legendary” status to most of Rick’s analyses, I have to disagree – USD Index has just hit it’s low and is due to rocket up to 90+ in the coming months as stocks crash. EUR & AUD topped out today. I base this on my own Elliott Wave analysis,, which is not of course infallible. Whilst fundamentals for Gold are hugely bullish, the rise in USD will dampen any gains from here (unless you’re in Aussie gold stocks where the gold price will rocket due to AUD being crushed.)
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Bullish on the dollar is a very hip thing to be right now, and I respect this as a deflationist. Even so, I’ll stick with my mildly ugly target on the Dollar Index before I turn bullish myself: 72.93. RA
Yes how about three more weeks of a weakening dollar along with a blow off top for stocks? Sounds entirely reasonable.
Whereby Bernanke drills the buck down to a 72 handle. Is that such a big deal. What a bunch of drama queens out there on the internets these days moaning about the precious 76 support breaking. The sky is falling? Really? If you were an amoral sociopath like Bernanke, wouldn’t you feel you had elbow room down to 71-72? That is right in his wheelhouse. Maybe another SDR purchase will get us there.
As if the ROW is about to dump the dollar?! Is that our situation? Really? I thought all those export economies sprinkled across the globe still desperately desire a strong dollar. But the late night forex guys are gonna kick their asses? Soros? Hmm. China, Japan, Korea, Canada and Europe will not be able to export diddly to us if the dollar crashes, but shadowy global forces are going to crash the dollar anyway? We’re headed to 60 in 2009? 50? 40? Right now? Really?!
Or maybe not. Maybe the notorious C wave commences circa first week of November and dollar doesn’t hit 40 until, say, 2012.
HJi Rick,
“will continue to drag the entire financial sector lower instead of higher, i pressume?
DarkestKnight 10.16.09 at 5:25 am : “Whilst I confer “legendary” status to most of Rick’s analyses, I have to disagree – USD Index has just hit it’s low and is due to rocket up to 90+ in the coming months as stocks crash. ”
I think you’re a year late on that 90 call, ‘knight (or perhaps early, depending how you look at it). There is one great difference from last year’s panic that I see, though: Gold is trending up this time around. Last year, gold had started to trend down well before the panic. At the same time, the dollar was already in the process of an upward surge, which eventually peaked just shy of 90. And the deleveraging that took place to thrust the $ index to near 90 last time… Well, there is less leverage now, isn’t there? I’m not really sure, myself, but that is what I have read. If that is so, then there won’t be as much demand for dollars as last time when the next panic comes around.
I just can’t see that the index would shoot to 90 this time around.
If I recall there were 2 targets and 75.47 was reached and the $ has moved up sharply since. hiccup in $ index , then dive is my bet.
Who is “Rosie”?
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Merrill’s former North American chief strategist, David Rosenberg — a bear’s bear who has been getting it right for years. RA
Great expectations versus WEBslingers GS and GE:
GS plopped the other day after a bright Q3 worse than Q2.
Now GE beat profit expectations by reporting only down 42%!
The rest of the story that GE considering an IPO spinoff of NBC.
How about a Fed purchase or spinoff of GE Capital,
which continues to neuter the industrial GE benefitting from a weak dollar
and global restocking?
The real story is that GE sales were off a surprise 20%, with weak orders suggesting this may not turnaround anytime soon.
Keeping those stops in place after GE burped from 5.65 to 17.52…
Busy day for making money on teenie puts.
Not only does consumer confidence sag in what is still being called the worst recession in decades rather than the Greatest Depression, but MB interviews TG on CNBS, talks about TARP and totally ignores the fact 33 TARP recipients defaulted on their payments…Incidentally, even the Huff thinks Biden should resign…
http://www.cnbc.com/id/33342777
http://www.huffingtonpost.com/2009/10/12/tarp-deadbeats-33-firms-m_n_317839.html
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4:44 p.m.: And now insider trading charges and arrest, yuk…
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What every trader needs dept;
http://www.cnbc.com/id/33323173/
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Dallas Fed Prez Fisher is also somewhat of a maverick for his 28 May 2008 Commonwealth Club San Francisco Speech, Storm on the Horizon. He detailed $99 T in unfunded government agency mandates. His anniversary speech on 28 May 2009 to Washington Money Managers, upped the IOUs to $123 T.
Insolvency always leads to depression.
http://abcnews.go.com/print?id=8840651
http://www.dallasfed.org/news/speeches/fisher/2009/fs090528.cfm
http://www.dallasfed.org/news/speeches/fisher/2008/fs080528.cfm
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Other Storms on the Horizon:
Free the Yuan. Seems Chinese mercantilism keeping the Yuan pegged to the Dollar at 7 after it traded much higher, is buggering uncompetitive Euro, Japanese and USA markets with deflation:
http://www.cnbc.com/id/15840232?video=1297057096&play=1
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“Too early to tell if we’re making money on TARP”
Right…;
http://blogs.reuters.com/rolfe-winkler/2009/10/08/tarp-deadbeats/
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Tops in retrospect often have hidden reasons revealed.
Could it be the new Putin Doctrine not revealed in US monopoly media?
American mm widely reported RusPutin would not see Hillarious and foisted her off on Gazprom’s President Medvedev. (He has a PhD in law and found a loophole to first conjoin St Petersburg government and gambling casinos with rents.)
Med told Hill, Frankly my dear, we don’t give a darn. We will not discipline Iran in the forseeable future. (Thus increasing the likelihood of an explosive international incident with $300 oil.)
In the meantime, the story reported all over Europe and the World, if not in America:
After Obama removed Czech and Polish missiles to rely on submarine defense, Putin just declared the opposite of the Clinton ‘No First Strike’ Nuclear Doctrine with the truculent declaration that Russia reserves the right for ‘First Strike Nuclears’ (not nuculars).
Could that hide the real reason for gold going ballistic?
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When bonds, dollars and oil rally while gold and stocks lag like now, it’s an interesting day, speaking of the Chinese curse re living in interesting times.
DK has good company with Rosie observing the Loonie beat the dollar 18% and world currencies 8% the last six months, and calling for a near term countertrend rally in the dollar. This may the incredible stuff of which turning points are made.
Meawnhile, Rosie offers another interesting observation, namely that bonds are priced for 2.5% GDP, while stocks are pricing in 4.8% GDP as they did the Fall of 2007 top.
Bilderberg Soros sees through this, describing the USA as a drag on world growth. (Or is that a US dragon world growth?)
No wonder the dollar rallied today.
Oh the times, they are a changin’…
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A Brit with a clear view on overnight CNBS:
http://www.cnbc.com/id/33339374
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Interesting CNBC slideshow on the latest gold reserve rankings.
Of note: China, Russia and IMF near the top.
While CNBS shows USA number one, other rankings including France, German, Italy and Portugal reserves as Eurozone reserves, have the Euros first in worldwide gold reserves.
Of note, Portugal’s gold 91% of their foreign reserves.
Great place for a vacation or retreat…
http://www.cnbc.com/id/33242464
I agree that today’s pullback was a good opportunity to buy the dip. I also saw at http://www.goldalert.com/gold_price_blog.php that some funds are flowing into gold mining stocks, traders are buying volatility in gold mining stocks, and also that credit spreads are widening out today as equities are heading down.
Once again Rick…. we can all learn from this guy
It’s also a warning for the technical analists…..
http://fofoa.blogspot.com/
Rich 10.16.09 at 4:20 pm: “Interesting CNBC slideshow on the latest gold reserve rankings.”
http://www.kitco.com/ind/nadler/oct142009.html
If Jon Nadler is to be believed, gold is “bearish” because jewelers in India are selling “at discount”. Ah, but wait… From the list you posted, India is now #14 .
Seems India loaded up. They were #17 back in March this year, according to the IMF list. That’s quite a leap, considering most other countries moved up only one space on the list (with a few staying put). Not really surprising, though. I mean, gold season approaches in India, as it does every year… They probably loaded up on the cheap for the occaison.
I am no chartist and timer on mid-term trends but I have a score card much better than average. In stating that I will once again stick my neck out and declare Gold will react like all commodities in the future. If you are in the deflation (overwhelming debt) camp, then Gold’s fate should run along with equities. I don’t think it will fall as hard, but fall it should. The dollar’s supposed endless fall should be answered within 6 months of the “real” equities crash. It can only fall against other currencies that are disconnected from a world wide depression (my assumption once again).
I called for a rally in equites (ala 1930) over 4 months ago. I gave a target of 1140 to 1225 on the SP500. I will still stick with that. Human nature after calamities seem to be very predictable. In fact I will move to the bull camp if the SP500 can crack the 1230 barrier. I give that very slim odds but I am open to the possibility. I give up on targeting the events but the SP500 is getting close to my window.
From a technical perspective the USD is right down at the pointy end of a huge bullish rising wedge, started from March 09 high of 89. This is part of a larger corrective pattern in the USD multi-year bear market and about to send it rocketing to 90+ in a wave C.
Stocks however, are having their own pointy trouble, now becoming squeezed at the peak of a big bad bearish rising wedge, not least Rick’s fave GS, heralding imminent collapse as wave 3 of the BIG correction is about to hit. Everybody stop for a moment and take a good look around at what Dow 10,000 looks like – this won’t be seen again a for at least a generation, if ever, in my book.
Despite a rising dollar, I think Gold should hold up pretty well- remember it ain’t just the dollar it responds to, people buy it too! and the fundamentals are apocalyptically good for it in the long-run. Plus the gold:silver ratio is about to rocket to 100+ from current level of 60-ish – indicating that gold will hold up well relative to silver.
Rick’s deflationary theme fits well with the technical outlook and it looks pretty grim for the US. Tell you what though, I’m glad I’m in Australia!
Gold’s fate tied to commodities?
I would assume that, as gold is a form of currency, and the only commodity that you can hold in a bank as an asset, the price of gold will be subject to interest rate changes. Mostly in the way lease rates narrow, similar to seeing credit spreads widen. Yield curves inverting sees commodities prices climb, and in reverse, steepening sees commodities prices decline precipitously, so gold lease rates inverting must have a very similar to the effect of the onset of a parabolic move in price upwards.
This should be watched, as it will probably be the determining factor. Demand didn’t change it, currency collapses didn’t change it, oil price collapses didn’t change it. It will have to be some form of inversion of rates where the short end is yielding higher than the long end of the curve.
This is why I believe that gold prices and commodities prices are different animals.
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