Global Market Comments
May 24, 2018
Fiat Lux
Featured Trade:
(FRIDAY, JULY 27, 2018, ZERMATT, SWITZERLAND GLOBAL STRATEGY SEMINAR),
(ANNOUNCING THE MAD HEDGE TESTIMONIAL CONTEST),
(THE SECRET FED PLAN TO BUY GOLD),
(GLD), (GDX), (PALL), (PPLT)
The Armageddon crowd must be slitting their wrists today watching gold hit a new four month low in the wake of the global interest rate rally.
No flight to safety here.
The Armageddon crowd are the guys who are perennially predicting the collapse of the dollar, the default of the US government, hyperinflation, and the end of the world.
Better to keep all your assets in gold and silver, store at least a year?s worth of canned food, and keep your guns well oiled and supplied with ammo, preferably in high capacity magazines.
If you followed their advice, you lost your shirt.
I have broken many of these wayward acolytes of their money-losing habits. But not all of them. There seems to be an endless supply emanating from the hinterlands.
The Oracle of Omaha, Warren Buffet, often goes to great lengths to explain why he despises the yellow metal.
The sage doesn't really care about gold whatever the price. He sees it primarily as a bet on fear.
If investors are more afraid in a year than they are today, then you make money on gold. If they aren't, then you lose money.
The only problem now is that fear ain't working.
If you took all the gold in the world, it would form a cube 67 feet on a side, worth $5 trillion. For that same amount of money, you could own other assets with far greater productive earning power including:
*All the farmland in the US, about 1 billion acres, which is worth $2.5 trillion.
*8 Apples (AAPL), the largest capitalized company in the world, at $634 billion.
Instead of producing any income or dividends, gold just sits there and shines, making you feel like King Midas.
I don't know. With the stock market at an all time high, and oil trading at $50/barrel, a bet on fear looks pretty good to me right now.
I'm still sticking with my long term forecast of the old inflation-adjusted high of $2,300/ounce.
It is just a matter of time before emerging market central bank buying pushes it up there.
And who knows? Fear might make a comeback too.
Loyal followers of the Mad Hedge Fund Trader are well aware that I have been bearish on gold for the past five years.
However, it may be time for me to change that view.
A number of fundamental factors are coming into play that will have a long-term positive influence on the price of the barbarous relic. The only question is not if, but when the next bull market in the yellow metal will begin.
All of the positive arguments in favor of gold all boil down to a single issue: they?re not making it anymore.
Take a look at the chart below and you?ll see that new gold discoveries are in free fall. That?s because falling prices have caused exploration budgets to fall off a cliff.
Gold production peaked in the fourth quarter of 2015, and is expected to decline by 20% for the next four years.
The industry average cost is thought to be around $1,400 and ounce, although some legacy mines can produce for as little as $600. So why dig out more of the stuff if it means losing more money?
It all sets up a potential turn in the classic commodities cycle. Falling prices demolish production, and wipe out investors. This inevitably leads to supply shortages.
When the buyers finally return, there is none to be had and price spikes can occur which can continue for years. In other words, the cure for low prices is low prices.
Worried about new supply quickly coming on-stream and killing the rally?
It can take ten years to get a new mine started from scratch by the time you include capital rising, permits, infrastructure construction, logistics and bribes. It turns out that the brightest prospects for new gold mines are all in some of the world?s most inaccessible, inhospitable, and expensive places.
Good luck recruiting for the Congo!
That?s the great thing about commodities. You can?t just turn on a printing press and create more, as you can with stocks and bonds.
Take all the gold mined in human history, from the time of the ancient pharaohs to today, and it could comprise a cube 63 feet on a side. That includes the one-kilo ($38,720) Nazi gold bars stamped with German eagles upon them, which I saw in Swiss bank vaults during the 1980?s.
In short, there is not a lot to spread around.
The long-term argument in favor of gold never really went away. That involves emerging nation central banks, especially those in China and India, raising gold bullion holdings to western levels. That would require them to purchase several thousand tonnes of the yellow metal!
So watch the iShares Emerging Market ETF (EEM). A bottom there could signal the end of the bear market for gold as well.
Sovereign wealth funds from the Middle East have recently been dumping gold to raise money. The collapse of oil prices has made it impossible to meet their wildly generous social service obligations.
Hint: governments in that part of the world that fail to deliver on promises are often taken out and shot.
When this selling abates, it also could well signal the final low in gold. That?s why I have been strongly advising readers to watch the price of Texas tea careful, as both it an gold should bottom on the same day.
Let me throw out one more possibility for you to cogitate over. Another big winner of rising precious metal prices is residential real estate, which people rush to buy as an inflation hedge. Remember inflation?
Tally ho!
Looks Like A ?BUY? to Me
I have not done a gold trade in yonks. That?s because it has been the asset class from hell for the past five years, dropping some 46% from its 2011 $1,927 high.
However, we are now in a brave new, and scarier world.
Given the extreme volatility of financial markets in recent months, all of a sudden keeping hedges on board looks like a good idea. I?m sure the next time stocks take a big dive, the barbarous relic will post a double digit gain.
So, this makes it an excellent hedge for my outstanding long S&P 500 (SPY) and short Treasury (TLT) ?RISK ON? positions.
Also supporting the yellow metal is what I call the ?Big Figure Syndrome?. And there is no bigger number than $1,000, the upper strike on this trade.
While rising interest rates is always bad for gold, the realization is sinking in that it is definitely NOT off to the raises now that the Federal Reserve has at last begun a tightening cycle.
Personally, I expect ?one and done? to gain credence by midyear, once implications of six months of Fed inaction starts to sink in. As long as rates rise slowly, or not at all, we have a gold positive environment.
The Treasury bond market has already figured this out, with yields now lower than when the Fed carried out its 25 basis point snugging.
In addition, gold has recently found some new friends. Russia has come out of nowhere in recent months and emerged as one of the world?s largest buyers. This is because economic sanctions brought down upon them by the invasion of Crimea and the Ukraine is steering them away from dollar assets.
Keep in mind that this is only a trade worth about $200 to the upside. Then, I?ll probably sell it again.
I am avoiding the Market Vectors Gold Miners ETF (GDX) for now, as the next stock market swoon will take it down as well, no matter what the yellow metal does.
But get me a good price and a rising stock market, and I?ll be in there with another Trade Alert.
My interest might even expand to include the world?s largest gold miners, Barrick Gold (ABX) and Newmont Mining (NEM).
The new bull market in gold is still at least five years off. That?s when it picks up a huge tailwind from a massive demographic expansion by the Millennials, which eventually leads to much higher inflation.
Also by then, China and other emerging nations will begin to raise their gold reserve holdings to western levels. This will require the purchase of several thousand metric tonnes! That?s when my long-term forecast of $5,000/ounce will finally come true.
With conditions as grim as they were in 2015, you would have thought the price of gold was going to zero.
It didn?t.
While no one was looking, the average price of gold production has soared from $5 in 1920 to $1,300 today. Over the last 100 years, the price of producing gold has risen four times faster than the underlying metal.
It?s almost as if the gold mining industry is the only one in the world which sees real inflation, which has seen costs soar at a 15% annual rate for the past five years.
This is a function of what I call ?peak gold.? They?re not making it anymore. Miners are increasingly being driven to higher risk, more expensive parts of the world to find the stuff.
You know those tires on heavy dump trucks? They now cost $200,000 each. Barrick Gold (ABX) didn?t try to mine gold at 15,000 feet in the Andes, where freezing water is a major problem, because they like the fresh air.
What this means is that when the spot price of gold falls below the cost of production, miners will simply shout down their most marginal facilities, drying up supply. That has recently been happening on a large scale.
This inevitably leads to a shortage of supply, and a new bull market, i.e., the cure for low prices is low prices.
They can still operate and older mines carry costs that go all the way down to $600. No one is going to want to supply the sparkly stuff at a loss.
That should prevent gold from falling dramatically from here.
I am constantly barraged with emails from gold bugs who passionately argue that their beloved metal is trading at a tiny fraction of its true value, and that it is really worth $5,000, $10,000 or even $50,000 an ounce.
They claim the move in the yellow metal we are seeing is only the beginning of a 30-fold rise in prices similar to what we saw from 1972 to 1979, when it leapt from $32 to $950.
To match the 1936 monetary value peak, when the monetary base was collapsing and the double top in 1979 when gold futures first tickled $950, this precious metal has to increase in value by eight times, or to $9,600 an ounce.
I am long term bullish on gold, other precious metals, and virtually all commodities for that matter.
The seven year spike up in prices we saw in the seventies, which found me in a very long line in Johannesburg, South Africa to unload my own Krugerrand's in 1979, was triggered by a number of one off events that will never be repeated.
Some 40 years of demand was unleashed when Richard Nixon took the US off the gold standard and decriminalized private ownership in 1972. Inflation then peaked around 20%. Newly enriched sellers of oil had a strong historical affinity with gold.
South Africa, the world?s largest gold producer, was then a boycotted international pariah and teetering on the edge of disaster. We are nowhere near the same geopolitical neighborhood today, and hence my more subdued forecast.
But then again, I could be wrong.
The previous bear market in gold lasted 18 years, from 1980 to 1998, so don?t hold your breath.
What should we look for? When your friends start getting surprise, out of the blue pay increases, the largest component of the inflation calculation. That is happing now in the technology and the new US oil fields, but nowhere else.
It could be a long wait, possibly into the 2020?s, until shocking wage hikes spread elsewhere.
Ready For a BounceOne of the most impressive moves in the wake of the Fed?s Thursday move to maintain ultra low interest rates was to be found in gold.
In the run up to the flash headline on the Fed non-announcement, the yellow metal rocketed $40. The action was even more impressive in silver (SLV), which tacked on 90 cents, or 6.6%.
Now, here is the really bad new.
The fundamentals for the barbarous relic are about to turn from bad to worse. The prospect is sending perma bulls rushing to update their life insurance policies.
This is the dilemma. To sell, or not to sell?
Gold does well when interest rates are low or falling. That reduces the opportunity cost of owning the barbarous relic, which doesn?t pay any interest or dividends. It just sits there, shines, and collects dust.
It also runs up storage and insurance fees, effectively hampering it with a real negative yield.
So what happens when the fundamentals flip from good to bad?
WARNING: if you have been carefully salting away one ounce American gold eagle coins in your safe deposit box for the past several years, you are not going to want to read this.
If I am right, and we have put in a generational high in bond prices and a low in yields, interest rates are going to rise. Initially, for the first couple of years, they may not do it a lot. But eventually they will.
That is terrible news for gold owners.
The market clearly thinks this is happening. Take a look at the charts below. Gold is making its third run at support at $1,100 over the past 18 months. Break this and cascading, stop loss selling will ensue, taking gold down to $1,000.
That, by the way, is my jeweler?s downside.
Caution: My jeweler is always right. There he plans to load the boat with bullion, which his business consumes in creating baubles for clients, like me.
It wasn?t supposed to be like this, as the arguments in favor of buying the yellow metal were so clear five years ago.
The exploding national debt was about to force the US government to default on its debt. It almost did, thanks to congressional gamesmanship.
Massive trade deficits with China and the Middle East were supposed to collapse the value of the US dollar.
The election of Barack Obama was predicted to lead to the creation of a socialist paradise. We were all going to need gold coins to bribe the border guards in order to get out of the country with only what we could carry.
The problem is that none of this happened.
The US budget deficit is falling at the fastest rate in history, from a $1.5 trillion peak to as low as $400 billion this year. Foreign capital pouring into the US has pushed the greenback to multiyear highs, and loftier altitudes beckon.
Since the 2009 inauguration, the S&P 500 has tripled off its intraday low. This has enriched the 1% more than any other group, who have seen their wealth increase at the fastest pace on record.
The trade deficit with China is now balancing out with America?s own burgeoning surpluses in services and education. As for the Middle East, we make our own oil now, thanks to fracking, so why bother.
To see such dismal price action in the barbarous relic now is particularly disturbing. Traditionally, the Indian ?Diwali? gift giving season heralded the beginning of a multi month bull run in gold. It ain?t happening.
In fact the dumping of speculative long positions by long-term traders used to this is accelerating the melt down. That?s because gold, silver, or any other inflation hedges have no place in a deflationary, reach for yield world.
Mind you, I don?t think gold is going down forever.
Eventually, emerging central banks will bid it back up, as they have to buy an enormous amount just to bring their reserve ownership up to western levels. Inflation is likely to return in the 2020?s, as my ?Golden Age? scenario picks up speed.
In the meantime, you might want to give those gold eagles to your grand kids. By the time they go to college, they might be worth something.
?
Better to Look than to BuyThe news from Australia?s Perth Mint was horrific last week. The refiner for the world?s second largest producer reported that sales hit a new three year low.
And the worst is yet to come.
Shipments of gold coins and bars plunged to 21,671 ounces in May, compared to 26,545 ounces in April. Silver sales have seen similar declines.
I have been warning readers for the last four years that investors want paper assets paying dividends and interest, not the hard stuff, now that the world is in a giant reach for yield.
Ten-year US Treasury yields jumping from 1.83% to 2.43% this year is pouring the fat on the fire.
This all substantially raises the opportunity cost of owning the barbarous relic. With bond yields now forecast to reach as high as 3.0% by the end of the year, the allure of the yellow metal is fading by the day.
The gold perma bulls have a lot of splainin? to do.
Long considered nut cases, crackpots, and the wearers of tin hats, lovers of the barbarous relic have just suffered miserable trading conditions since 2011. Gold has fallen some 39% since then during one of the great bull markets for risk assets of all time.
Let me recite all the reasons that perma bulls used your money to buy the yellow metal all the way down.
1) Obama is a socialist and is going to nationalize everything in sight, prompting a massive flight of capital that will send the US dollar crashing.
2) Hyperinflation is imminent, and the return of ruinous double-digit price hikes will send investors fleeing into the precious metals and other hard assets, the last true store of value.
3) The Federal Reserve?s aggressive monetary expansion through quantitative easing will destroy the economy and the dollar, triggering an endless bid for gold, the only true currency.
4) To protect a collapsing greenback, the Fed will ratchet up interest rates, causing foreigners to dump the half of our national debt they own, causing the bond market to crash.
5) Taxes will skyrocket to pay for the new entitlement state, the government?s budget deficit will explode, and burying a sack of gold coins in your backyard is the only safe way to protect your assets.
6) A wholesale flight out of paper assets of all kind will cause the stock market to crash. Remember those Dow 3,000 forecasts?
7) Misguided government policies and oppressive regulation will bring financial Armageddon, and you will need gold coins to bribe the border guards to get out of the country. You can also sew them into the lining of your jacket to start a new life abroad, presumably under an assumed name.
Needless to say, things didn?t exactly pan out that way.
The end-of-the-world scenarios that one regularly heard at Money Shows, Hard Asset Conferences, and other dubious sources of investment advice all proved to be so much bunk.
I know, because I was once a regular speaker on this circuit. I, alone, a voice in the darkness, begged people to buy stocks instead.
Eventually, I ruffled too many feathers with my politically incorrect views, and they stopped inviting me back. I think it was my call that rare earths (REMX) were a bubble that was going to collapse was the weighty stick that finally broke the camel?s back.
By the way, Molycorp (MCP), then at $70 a share, recently announced it was considering bankruptcy. Rare earths didn?t turn out to be so rare after all.
So, here we are, five years later. The Dow Average has gone from 7,000 to 18,000. The dollar has blasted through to a 14 year high against the Euro (FXE).
The deficit has fallen by 75%. Gold has plummeted from $1,920 to $1,150. And no one has apologized to me, telling me that I was right all along, despite the fact that I am from California.
Welcome to the investment business. Being wrong never seems to prevent my competitors from prospering.
Gold has more to worry about than just falling western demand. The great Chinese stock bubble, which has seen prices double in only nine months, has citizens there dumping gold in order to buy more stocks on margin.
This is a huge headache for producers, as the Middle Kingdom has historically been the world?s largest gold buyer. As long as share prices keep appreciating, demand there will continue to ebb.
So now what?
From here, the picture gets a little murky.
Certainly, none of the traditional arguments in favor of gold ownership are anywhere to be seen. There is no inflation. In fact, deflation is accelerating.
The dollar seems destined to get stronger, not weaker. There is no capital flight from the US taking place. Rather, foreigners are throwing money at the US with both hands, escaping their own collapsing economies and currencies.
And with global bond markets having topped out, the opportunity cost of gold ownership returns with a vengeance.
All of which adds up to the likelihood that today?s gold rally probably only has another $50 to go at best, and then it will return to the dustbin of history, and possibly new lows.
I am not a perma bear on gold. There is no need to dig up your remaining coins and dump them on the market, especially now that the IRS has a mandatory withholding tax on all gold sales. I do believe that when inflation returns in the 2020?s, the bull market for gold will return for real.
You can expect newly enriched emerging market central banks to raise their gold ownership to western levels, a goal that will require them to buy thousands of tons on the open market.
Gold still earns a permanent bid in countries with untradeable currencies, weak banks, and acquisitive governments, India, another major buyer.
Remember, too, also that they are not making gold anymore, and that all of the world?s easily accessible deposits have already been mined. The breakeven cost of opening new mines is thought to be around $1,400 an ounce, so don?t expect any new sources of supply anytime soon.
These are the factors which I think will take gold to the $3,000 handle by the end of the 2020?s, which means there is quite an attractive annualized return to be had jumping in at these levels. Clearly, that?s what many of today?s institutional buyers are thinking.
Sure, you could hold back and try to buy the next bottom. Oh, really? How good were you at calling the last low, and the one before that?
Certainly, incrementally scaling in around this neighborhood makes imminent sense for those with a long-term horizon, deep pockets, and a big backyard.
Oops!
Maybe It Doesn?t Look So Good After AllAfter a prolonged, four year hibernation, it appears that the gold bulls are at long last back.
Long considered nut cases, crackpots and the wearers of tin hats, lovers of the barbarous relic have just enjoyed the first decent trading month in a very long time.
The question for the rest of us is whether there is something real and sustainable going on here, or whether the current rally will end with yet another whimper, to be sold into.
To find the answer, you?ll have to read until the end of this story.
Let me recite all the reasons that perma bulls used to buy the yellow metal.
1) Obama is a socialist and is going to nationalize everything in sight, prompting a massive flight of capital that will send the US dollar crashing.
2) Hyperinflation is imminent and the return of ruinous double digit price hikes will send investors fleeing into the precious metals and other hard assets, the last true store of value.
3) The Federal Reserve?s aggressive monetary expansion through quantitative easing will destroy the economy and the dollar, triggering an endless bid for gold, the only true currency.
4) To protect a collapsing greenback, the Fed will ratchet up interest rates, causing foreigners to dump the half of our national debt they own, causing the bond market to crash.
5) Taxes will skyrocket to pay for the new entitlement state, the government?s budget deficit will explode, and burying a sack of gold coins in your backyard is the only safe way to protect your assets.
6) A wholesale flight out of paper assets of all kind will cause the stock market to crash. Remember those Dow 3,000 forecasts?
7) Misguided government policies and oppressive regulation will bring the Armageddon, and you will need gold coins to bribe the border guards to get out of the country. You can also sew them into the lining of your jacket to start a new life abroad, presumably under an assumed name.
Needless to say, it didn?t exactly pan out that way. The end-of-the-world scenarios that one regularly heard at Money Shows, Hard Asset Conferences, and other dubious sources of investment advice all proved to be so much bunk.
I know, because I was a regular speaker on this circuit. I alone, a voice in the darkness, begged people to buy stocks at the beginning of the greatest bull markets of all time, which was then, only just getting started.
Eventually, I ruffled too many feathers with my politically incorrect views, and they stopped inviting me back. I think it was my call that rare earths (REMX) were a bubble that was going to collapse was the weighty stick that finally broke the camel?s back.
So, here we are, five years later. The Dow Average has gone from 7,000 to 18,000. The dollar has blasted through to a 12 year high against the Euro (FXE). The deficit has fallen by 75%. Gold has plummeted from $1,920 to $1,100. And no one has apologized to me, telling me that I was right all along, despite the fact that I am from California.
Welcome to the investment business.
Except that now, gold is worth another look. It has rallied a robust $200 off the bottom in a mere two months. Some of the most frenetic action was seen in the gold miners (GDX), where shares soared by as much as 50%. Even mainstay Barrick Gold (ABX) managed a 30% revival.
The gold bulls are now looking for their last clean shirt, sending suits out to the dry cleaners, and polishing their shoes for the first time in ages, about to hit the road to deliver almost forgotten sales pitches once again.
The news flow has certainly been gold friendly in recent weeks. Technical analysts were the first to raise the clarion call, noting that a string of bad news failed to push gold to new lows. Charts started putting in the rounding, triple bottoms that these folks love to see.
The New Year stampede into bonds gave it another healthy push. One of the long time arguments against the barbarous relic is that it pays no yield or dividend, and therefore has an opportunity cost.
Well guess what? With ten year paper now paying a scant 0.40% in Germany, 0.19% in Japan, and an eye popping -0.04% in Switzerland, nothing else pays a yield anymore either. That means the opportunity cost of owning precious metals has disappeared.
Then a genuine black swan appeared out of nowhere, improving gold?s prospects. The Swiss National Bank?s doffing of its cap against the Euro (FXE) ignited an instant 20% revaluation of the Swiss franc (FXF).
In addition to wiping out a number of hedge funds and foreign exchange brokers around the world, they shattered confidence in the central bank. And if you can?t hide in the Swiss franc, where can you?
This all accounts for the $200 move we have just witnessed.
So now what?
From here, the picture gets a little murky.
Certainly, none of the traditional arguments in favor of gold ownership are anywhere to be seen. There is no inflation. In fact, deflation is accelerating.
The dollar seems destined to get stronger, not weaker. There is no capital flight from the US taking place. Rather, foreigners are throwing money at the US with both hands, escaping their own collapsing economies and currencies.
And once global bond markets top out, which has to be soon, the opportunity cost of gold ownership returns with a vengeance. You would think that with bond yields near zero we are close to the bottom, but I have been wrong on this so far.
All of which adds up to the likelihood that the present gold rally is getting long in the tooth, and probably only has another $50-$100 to go, from which it will return to the dustbin of history, and possibly new lows.
I am not a perma bear on gold. There is no need to dig up your remaining coins and dump them on the market, especially now that the IRS has a mandatory withholding tax on all gold sales. I do believe that when inflation returns in the 2020?s, the bull market for gold will return for real.
You can expect newly enriched emerging market central banks to raise their gold ownership to western levels, a goal that will require them to buy thousands of tons on the open market.
Gold still earns a permanent bid in countries with untradeable currencies, weak banks, and acquisitive governments, like China and India, still the world?s largest buyers.
Remember, too, that they are not making gold anymore, and that all of the world?s easily accessible deposits have already been mined. The breakeven cost of opening new mines is thought to be around $1,400 an ounce, so don?t expect any new sources of supply anytime soon.
These are the factors which I think will take gold to the $3,000 handle by the end of the 2020?s, which means there is quite an attractive annualized return to be had jumping in at these levels. Clearly, that?s what many of today?s institutional buyers are thinking.
Sure, you could hold back and try to buy the next bottom. Oh, really? How good were you at calling the last low, and the one before that?
Certainly, incrementally scaling in around this neighborhood makes imminent sense for those with a long-term horizon, deep pockets and a big backyard.
Oops!
Mad Day Trader Jim Parker is expecting the first quarter of 2015 to offer plenty of volatility and loads of great trading opportunities. He thinks the scariest moves may already be behind us.
After a ferocious week of decidedly ?RISK OFF? markets, the sweet spots going forward will be of the ?RISK ON? variety. Sector leadership could change daily, with a brutal rotation, depending on whether the price of oil is up, down, or sideways.
The market is paying the price of having pulled forward too much performance from 2015 back into the final month of 2014, when we all watched the December melt up slack jawed.
Jim is a 40-year veteran of the financial markets and has long made a living as an independent trader in the pits at the Chicago Mercantile Exchange. He worked his way up from a junior floor runner to advisor to some of the world?s largest hedge funds. We are lucky to have him on our team and gain access to his experience, knowledge and expertise.
Jim uses a dozen proprietary short-term technical and momentum indicators to generate buy and sell signals. Below are his specific views for the new quarter according to each asset class.
Stocks
The S&P 500 (SPY) and NASDAQ have met all of Jim?s short-term downside targets, and a sustainable move up from here is in the cards. But if NASDAQ breaks 4,100 to the downside, all bets are off.
His favorite sector is health care (XLV), which seems immune to all troubles, and may have already seen its low for the year. Jim is also enamored with technology stocks (XLK).
The coming year will be a great one for single stock pickers. Priceline (PCLN) is a great short, dragged down by the weak Euro, where they get much of their business. Ford Motors (F) probably bottomed yesterday, and is a good offsetting long.
Bonds
Jim is not inclined to stand in front of a moving train, so he likes the Treasury bond market (TLT), (TBT). He thinks the 30-year yield could reach an eye popping 2.25%. A break there is worth another 10 basis points. Bonds are getting a strong push from a flight to safety, huge US capital inflows, and an endlessly strong dollar.
Foreign Currencies
A short position in the Euro (FXE), (EUO) is the no brainer here. The problem is one of good new entry points. Real traders always have trouble selling into a free fall. But you might see profit taking as we approach $1.16 in the cash market.
The Aussie (FXA) is being dragged down by the commodity collapse and an indifferent government. The British pound (FXB) is has yet to recover from the erosion of confidence ignited by the Scotland independence vote and has further mud splattered upon it by the weak Euro.
Precious Metals
GOLD (GLD) could be in a good range pivoting off of the recent $1,140 bottom. The gold miners (GDX) present the best opportunity at catching some volatility. The barbarous relic is pulling up the price of silver (SLV) as well. Buy the hard breaks, and then take quick profits. In a deflationary world, there is no long-term trade here. It is a real field of broken dreams.
Energy
Jim is not willing to catch a falling knife in the oil space (USO). He has too few fingers as it is. It has become too difficult to trade, as the algorithms are now in charge, and a lot of gap moves take place in the overnight markets. Don?t bother with fundamentals as they are irrelevant. No one really knows where the bottom in oil is.
Agriculturals
Jim is friendly to the ags (CORN), (SOYB), (DBA), but only on sudden pullbacks. However, there are no new immediate signals here. So he is just going to wait. The next directional guidance will come with the big USDA report at the end of January. The ags are further clouded by a murky international picture, with the collapse of the Russian ruble allowing the rogue nation to undercut prices on the international market.
Volatility
Volatility (VIX), (VXX) is probably going to peak out her soon in the $23-$25 range. The next week or so will tell for sure. A lot hangs on Friday?s December nonfarm payroll report. Every trader out there remembers that the last three visits to this level were all great shorts. However, the next bottom will be higher, probably around the $16 handle.
If you are not already getting Jim?s dynamite Mad Day Trader service, please get yourself the unfair advantage you deserve. Just email Nancy in customer support at support@madhedgefundtrader.com and ask for the $1,500 a year upgrade to your existing Global Trading Dispatch service.
Volatility Weekly
Volatility Monthly
Euro to the Dollar
The ?Oracle of Omaha? expounded at length today on why he despises the barbarous relic. The sage doesn?t really care if the yellow metal hit an all-time high today of $1,440. He sees it primarily as a bet on fear. If investors are more afraid in a year than they are today, then you make money. If they aren?t, then you lose money. If you took all the gold in the world, it would form a cube 67 feet on a side, worth $7 trillion. For that same amount of money, you could own other assets with far greater productive power, including:
*All the farmland in the US, about 1 billion acres, which is worth $2.5 trillion.
*Seven Exxon Mobil?s (XOM), the largest capitalized company in the US.
*You would still have $1 trillion in walking around money left over.
Instead of producing any income or dividends, gold just sits there and shines, letting you feel like you are King Midas.
I don?t know. With the stock market peaking around here, and oil trading at $115/barrel in Europe, a bet on fear looks pretty good to me right now. I?m still sticking with my long term forecast of the old inflation adjusted high of $2,300.
Maybe Feeling Like King Midas is Not So Bad
Sometimes, the best trades are the ones you don?t do. I actually wrote up a Trade Alert to buy gold on Thursday, figuring that it would bounce the first time it hit my downside target of $1,500.
But then I scanned the entire hard asset landscape, and saw that everything was selling off huge; silver (SLV), platinum (PPLT), palladium (PALL), oil (USO), copper (CU), and iron ore. I took a long nap. When I woke up, I decided that there was something much bigger going on here, and the urge to buy the barbarous relic suddenly vaporized. I sent the Trade Alert to my recycle bin.
The selloff that ensued on Friday was of Biblical proportions, with the yellow metal taking an unbelievable $86, 5.5% swan dive. They say this is the commodity that takes the stairs up and the elevator down, and that was no more true than today.
I have been pounding the table trying to get readers out of gold since early December. It is clear what is going on here. The world is dumping hard assets of every description and pouring the money into paper ones. Commodities you can drop on your foot are getting dumped, and generous premiums are being paid for anything that can be created with a printing press. It?s as simple as that.
This is why you are having both bonds and stocks going up at the same time, a rare event in capital markets. In effect, everything is now a bond, both the wide array of fixed income securities that are getting chased, along with dividend yielding stocks. This is why a wide swath of technology stocks, like Apple (AAPL), are not participating in the game.
I called around to some of the leading technical analysts to see how much pain gold was in for. The tidings were grim. The 200-week moving average at $1,433 looks like a chip shot. If that doesn?t hold, then $1,300 is in the cards. My favorite target is the old October, 2009 breakout level where the Reserve Bank of India came in out of the blue and bought 200 tonnes of the sparkly stuff, punching it through to a new all time high. The previous resistance should now become support. This is the number my jeweler favors.
To make matters particularly fiendish for traders, we may see a breakdown well into the $1,400?s that sucks in tons of capitulation sellers, then a big bounce before a downtrend resumes. It is a scenario that will be enough to test even the most devoted of gold bugs.
At risk is nothing less than the end of a bull market that is entering its 12th year. The shares of gold miners suggest that the demise of gold is already a foregone conclusion. The index for this group (GDM) has breached major support once again and is looking for a new four year low. Since this index usually correlates very highly with the barbarous relic, the writing is on the wall.
There are a host of reasons why the yellow metal has suddenly become so unloved. The largest holder of the gold ETF (GLD), John Paulson, is getting big redemptions in his hedge fund, forcing him to sell. This is why the selling is so apparent in the paper gold markets, like the ETF?s, but not in the physical bars and coins.
India has suddenly seen its currency, the rupee, drop against the greenback. That reduces the buying power of the world?s largest gold importer. With years of pernicious deflation ahead of us, who needs a traditional inflation hedge like the yellow metal anyway?
The hyper quantitative easing announced by the BOJ last week has created an entire new class of gold liquidators. Gold has actually risen dramatically in yen (FXY) terms over the past five months, so retail jewelers across Japan have had to expand business hours to accommodate long lines of eager sellers. The overflow is hitting the international markets big time.
Here is the final nail in the coffin for gold. Gold has had a dozen reasons to rally over the past six months. Those include the European monetary crisis, the Italian elections, the Spanish elections, the Cyprus bank account seizures, sequestration, the fiscal cliff, Ben Bernanke?s QE3, the Japanese ultra QE, rising capital gains taxes, and even the reelection of president Obama. It has utterly failed to do so.
Any trader long in the tooth, such as myself, will tell you that if a market can?t rally on repeated fabulous news, then you sell the daylights out of it. That is what we got with gold, in spades, on Friday.
