As the Wall Street Journal Online reports, gold has partially recovered from its $91/oz plummet. In mid-afternoon, spot gold rallied to over US$1160 and pulled back a little; it ramped up to over $1165 in the evening. This morning, however, that gain has largely evaporated. As of the writing of this post, spot gold's down to $1144.20.
The WSJ article explains why: Fed Chairman Bernanke "reaffirmed that interest rates are likely to stay low." An expert quoted there said that too many dollar/gold traders were caught with their pants down when the greenback shot up.
Another inflation-related commodity's having a difficult time. Oil's down to below $73/barrel, thanks to a strengthening U.S. dollar.
Tuesday, December 8, 2009
Monday, December 7, 2009
The Correlation Reverses, In The Other Direction
Last Friday, the recent positive correlation between gold and U.S. stocks reversed, to the benefit of the stock market. This afternoon, though, the correlation has gone negative to the favor of gold.
As of the time of this post, the Dow is down 0.09%, the S&P 500 is down 0.22%, and the NASDAQ is down 0.29%. On the other hand, gold bottomed at the US$1140/oz range this morning and climbed back up to $1160 at about 1:30 PM ET. As of the time of this post, it's down but still above the morning low range. Spot gold's at $1155.70.
As of the time of this post, the Dow is down 0.09%, the S&P 500 is down 0.22%, and the NASDAQ is down 0.29%. On the other hand, gold bottomed at the US$1140/oz range this morning and climbed back up to $1160 at about 1:30 PM ET. As of the time of this post, it's down but still above the morning low range. Spot gold's at $1155.70.
The Weekend Respite Over, Gold's Still Dropping
After electronic trading resumed at 6 PM ET, gold continued to drop. That drop was largely erased overnight, but continued this morning. As I write this post, spot gold's down to US$1143.50, slightly up from the day's low of about $1138. This Marketwatch story explains why: the U.S. dollar is still rising.
So does this other one. U.S. stock futures have slipped, on the fear that good economic news will encourage the Fed to raise rates sooner than expected. This fear means hope for U.S. dollar buyers, as higher rates should stimulate buying greenbacks for investment purposes and/or lessening carry-trade selling of them. That's part of the topsy-turvy world of investment expectations, one that's easy to satirize as Orwellian:
"Expectations Are Facts."
"Future Is Present"
"Good News Is Bad News."
It's not that bad, as the reaction to a good (or lousy) earnings report will reveal. We're coming off a bad recession, one that seems to have ended but may not have, and the uncertainties combined with hopes of getting in early does make for unusual interpretations. We're not really at the stage where some wag could get away with writing "The Theory of Oligarchic Expectationism."
...'though someone may be tempted to try.
Update: A Wall Street Journal report explains the drop as driven by traders taking profits, and (later) by automatic sell orders kicking in at about $1150. Unmentioned is the possibility that shorters are "playing the stop-loss orders." As I write this update, the stock market's shaken off the pre-market decline and gold's bottomed at about $1140. Currently, spot gold's at $1141.50.
As luck would have it, I also have an Orwell-bit-related update: an article that makes a serious try at making sense of current markets. It's entitled "Markets confusing you?"
So does this other one. U.S. stock futures have slipped, on the fear that good economic news will encourage the Fed to raise rates sooner than expected. This fear means hope for U.S. dollar buyers, as higher rates should stimulate buying greenbacks for investment purposes and/or lessening carry-trade selling of them. That's part of the topsy-turvy world of investment expectations, one that's easy to satirize as Orwellian:
"Expectations Are Facts."
"Future Is Present"
"Good News Is Bad News."
It's not that bad, as the reaction to a good (or lousy) earnings report will reveal. We're coming off a bad recession, one that seems to have ended but may not have, and the uncertainties combined with hopes of getting in early does make for unusual interpretations. We're not really at the stage where some wag could get away with writing "The Theory of Oligarchic Expectationism."
...'though someone may be tempted to try.
Update: A Wall Street Journal report explains the drop as driven by traders taking profits, and (later) by automatic sell orders kicking in at about $1150. Unmentioned is the possibility that shorters are "playing the stop-loss orders." As I write this update, the stock market's shaken off the pre-market decline and gold's bottomed at about $1140. Currently, spot gold's at $1141.50.
As luck would have it, I also have an Orwell-bit-related update: an article that makes a serious try at making sense of current markets. It's entitled "Markets confusing you?"
A "Sober Second Thought" For Gold Bugs
It's a short one, but worth a linger over: buying gold at the 1980 peak, and holding on to today, would have earned a lesser return than leaving the money in a checking account.
Gold bulls shouldn't be too surprised at this calculation. Several of them have already said that the 1980 peak was well below even last Thursday's record price, once inflation is taken into account. The original calculation comes from a Bloomberg article which is balanced, not only in terms of quoted opinion but also in alternate scenarioizing. Gold bought in 1971, right when Nixon closed the gold window, would have matched the S&P 500's performance in the same timeframe.
And, of course, buying gold in 2001 - or even 2002, right around the end of the last bear market in U.S. stocks - would have handily beat any of the three major averages. But who was buying then? And, of them, how many sold into earlier rallies for a then-unbelievable gain? Perhaps sadly, buy timing is often secondary to blind faith when realizing a gain from the bottom.
I should know. I sold a turnaround stock earlier this year, after buying it in the middle of last year's financial crisis, for about a 25% profit. I then saw the thing increase far more than tenfold subsequently. I lacked that faith. What I had instead was frustration (as it went nowhere when the general market was surging up in Dec. '08-Jan '09) and later relief (as it finally jumped up in April.) That relief and the 25% profit impelled me to sell, to a subsequent opportunity detriment.
One nit I gotta pick with the checking-account comparison: tax consequences. A checking account yields taxable interest each year; the S&P yields taxable dividends, plus capital gains when one stock's replaced by another. Anyone who bought gold in 1980, or 1971, and held on to all of it would not have paid a cent in tax; there'd just be a potential long-term-capital-gain levy. In accountant's jargon, the tax would be an accrued but not a cash liability. (The same accrual status applies to the unrealized capital gains portion of S&P 500 stocks.) Taxes on interest and dividends would be cash liabilities for the tax year they were received.
Gold bulls shouldn't be too surprised at this calculation. Several of them have already said that the 1980 peak was well below even last Thursday's record price, once inflation is taken into account. The original calculation comes from a Bloomberg article which is balanced, not only in terms of quoted opinion but also in alternate scenarioizing. Gold bought in 1971, right when Nixon closed the gold window, would have matched the S&P 500's performance in the same timeframe.
And, of course, buying gold in 2001 - or even 2002, right around the end of the last bear market in U.S. stocks - would have handily beat any of the three major averages. But who was buying then? And, of them, how many sold into earlier rallies for a then-unbelievable gain? Perhaps sadly, buy timing is often secondary to blind faith when realizing a gain from the bottom.
I should know. I sold a turnaround stock earlier this year, after buying it in the middle of last year's financial crisis, for about a 25% profit. I then saw the thing increase far more than tenfold subsequently. I lacked that faith. What I had instead was frustration (as it went nowhere when the general market was surging up in Dec. '08-Jan '09) and later relief (as it finally jumped up in April.) That relief and the 25% profit impelled me to sell, to a subsequent opportunity detriment.
One nit I gotta pick with the checking-account comparison: tax consequences. A checking account yields taxable interest each year; the S&P yields taxable dividends, plus capital gains when one stock's replaced by another. Anyone who bought gold in 1980, or 1971, and held on to all of it would not have paid a cent in tax; there'd just be a potential long-term-capital-gain levy. In accountant's jargon, the tax would be an accrued but not a cash liability. (The same accrual status applies to the unrealized capital gains portion of S&P 500 stocks.) Taxes on interest and dividends would be cash liabilities for the tax year they were received.
Gold Over At Seeking Alpha This Morning
Dian Chu has written a good summary of the gold market and its drivers. She concludes with the standard long-term-bullish, short-term-cautious recommendation typical of bull markets.
Prieur du Plessis uses the notorious Mark Dice video to make the point that "gold fever" has not arrived yet, becuase too few U.S. investors know or care about gold as of now. Gold hasn't been mainstreamed yet.
Joe Kunkle, though, notes that gold is in the process of being mainstreamed. He also makes the point that recent forecasts were suspiciously bullish, given the "easy money" trade of going long gold and short the greenback had worked so well for months: "Between CNBC guests calling for $2,500 gold (more than double current prices), the US Mint running out of gold coins, gold companies unravelling hedges, and even my grandparents beginning to talk to me about the price of gold, it is obvious that a bubble is forming, although it takes a certain fortitude to bet against John Paulson,..." The rest of his analysis uses option market data to show similar frothiness. He makes it clear that he's not calling for an all-out pop of a bubble.
Finally, TraderMark shows Fed-funds futures market data indicates that the market sees a good chance of a Fed rate increase as early as next March, and a greater than 50% chance for June. He reiterates his own call that the Fed won't do so until 2011, and expresses his confidence that the long gold/short greenback trade will work (though not automatically, of course) for the next several years.
Prieur du Plessis uses the notorious Mark Dice video to make the point that "gold fever" has not arrived yet, becuase too few U.S. investors know or care about gold as of now. Gold hasn't been mainstreamed yet.
Joe Kunkle, though, notes that gold is in the process of being mainstreamed. He also makes the point that recent forecasts were suspiciously bullish, given the "easy money" trade of going long gold and short the greenback had worked so well for months: "Between CNBC guests calling for $2,500 gold (more than double current prices), the US Mint running out of gold coins, gold companies unravelling hedges, and even my grandparents beginning to talk to me about the price of gold, it is obvious that a bubble is forming, although it takes a certain fortitude to bet against John Paulson,..." The rest of his analysis uses option market data to show similar frothiness. He makes it clear that he's not calling for an all-out pop of a bubble.
Finally, TraderMark shows Fed-funds futures market data indicates that the market sees a good chance of a Fed rate increase as early as next March, and a greater than 50% chance for June. He reiterates his own call that the Fed won't do so until 2011, and expresses his confidence that the long gold/short greenback trade will work (though not automatically, of course) for the next several years.
Goldbug Consensus: Buying Opportunity
As explained by Peter Brimelow in Marketwatch, gold bugs have come up with a few reasons for why the gold bull market is still intact. One of them deals with silver, which hasn't plummeted to the extent which gold has. The case is made with comparisons to the past: the gold-silver ratio rises, not falls, during a precious-metals bear market. In the latest spill, it's fallen.
One example of a long-term bull turned short-term cautious is Minyanville's Przemyslaw Radomski, who writes that gold and gold stocks are in for some rough rides in the immediate term. He reiterates his case for gold going up in the long term: high sovereign debt financed at short terms. Particularly, U.S. short term debt is above the levels that the Guidotti-Greenspan rule would deem safe.
One example of a long-term bull turned short-term cautious is Minyanville's Przemyslaw Radomski, who writes that gold and gold stocks are in for some rough rides in the immediate term. He reiterates his case for gold going up in the long term: high sovereign debt financed at short terms. Particularly, U.S. short term debt is above the levels that the Guidotti-Greenspan rule would deem safe.
Sunday, December 6, 2009
This Week's Take-Out From Financial Sense Newshour Podcast
Financial Sense Newshour is a gold-bull podcast, so Friday's plummet was explained as a pullback. Part of the first segment was spent debunking the Friday jobs report, with the help of John Williams at ShadowStats. The drop in the unemployment rate was attributed to seasonal factors, and listeners were told to wait for January and February's reports to get the real score.
Regarding gold, it was speculated that China may be moving in to take advantage of the drop.
The same point made last week about gold-mining junior exploration companies was repeated this week: they're undervalued, although they're also quite volatile and are only for the patient and strong-stomached. I'll make the same point I made last week: at the climax of a gold bubble, the juniors would be flying - even the ones with little more than hopes and dreams propelling them. Right now, they're not.
To shift to a different Website: last Wednesday, Tim from "The Mess That Greenspan Made" pointed out that, for gold, what appeared to be a bubble from late 2008 until mid-last week is actually comparable to two previous upswings in the current bull market. The implication being, the current run-up isn't uniquely manic.
[I got the above link courtesy of "FromLori" over at the Free Republic.]
Regarding gold, it was speculated that China may be moving in to take advantage of the drop.
The same point made last week about gold-mining junior exploration companies was repeated this week: they're undervalued, although they're also quite volatile and are only for the patient and strong-stomached. I'll make the same point I made last week: at the climax of a gold bubble, the juniors would be flying - even the ones with little more than hopes and dreams propelling them. Right now, they're not.
To shift to a different Website: last Wednesday, Tim from "The Mess That Greenspan Made" pointed out that, for gold, what appeared to be a bubble from late 2008 until mid-last week is actually comparable to two previous upswings in the current bull market. The implication being, the current run-up isn't uniquely manic.
[I got the above link courtesy of "FromLori" over at the Free Republic.]
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