Bullion prices adjusted violently to a new reality yesterday. Now, if we can only figure out what that reality is. From a deflationist’s point of view, it could have been landfall for the perfect storm we’d all been expecting. To wit, some important news stories roiling the waters in recent days: 1) China’s economy is weakening, putting enormous pressure on commodities and resource-based currencies; 2) U.S. output, employment and income appear to be falling as well; 3) Draghi evidently thinks that European countries in need of financial rescue should surrender their gold, for starters; 4) military spending fell globally in 2012 for the first time since 1998; and 5) Japan’s last-ditch attempt to inflate seems more likely to end in bankruptcy than to pump up anything of economic value.
Concerning that last item – op-ed speculation at this point, we’ll admit – bullion markets gave BOJ’s hail Mary pass a big thumbs-down yesterday. Our take is that although making the yen nearly free to carry-traders a decade ago helped inflate financial assets around the world, it won’t work this time, even in Japan. With respect to the global carry trade, who needs to borrow yen when Big Players can borrow all the dollars they want – fungible in ways that the yen is not — for almost nothing? All Japan will have succeeded in doing is driving its savers elsewhere – into U.S. Treasurys, for one, where they can hope to survive a global banking meltdown for perhaps 90 minutes longer than the fools who have put their faith and savings in the euro.
Next Stop $1188
From a technical standpoint, we ran out of bearish targets yesterday when June Gold pulped a $1414 Hidden Pivot support in the early going. The intraday low was $1348, which as it turns out is just $7 shy of an exact 50% retracement of gold’s spectacular run-up from $732 to $1949 between October 2008 and September 2011. A durable bottom? We’re not confident about this, especially since the implied 50% point at $1341 is not a Hidden Pivot. However, we looked nonetheless for speculative buying opportunities yesterday, always with tight stops – but also with the knowledge that if support fails, Comex Gold could grope its way down to $1188 in search of traction. That would represent an exact 0.618 retracement of the 2008-11 bull. More immediately, we’d be inclined to regard $1188 as “magnetic” if the futures were to settle below $1341 for two consecutive days or trade more than $12 below that price intraday. Trading stocks, options and commodities in these treacherous times calls for great patience and skill. Click here if you’d like to see how Rick’s Picks approaches the challenge.
Unemotional selling…. a picture worth a 1000 words
http://stockcharts.com/h-sc/ui?s=$GOLD:GLD&p=D&yr=0&mn=1&dy=0&id=p68705069753