Dollar Clears Resistance as Euro Falls Below Support

 

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

As the U.S. trade-weighted dollar (DXY) breaks out from a four month consolidation pattern, the euro (FXE) is falling below major support. The movements of these currencies have important implications for the rest of the market.

The dollar has been stuck trading roughly between 79 and 82 since January. There is strong chart resistance at these levels both from recent times and two decades ago. In the last couple of years, the dollar made a double top at just under 82 in late 2010 and early 2011. In the late 1980s and early 1990s the dollar made a triple bottom at three different points in this year's trading range. The dollar finally broke above 82 on May 23rd. While there is minor resistance just under 84, major resistance is from 88 to 89 — the highs during the Credit Crisis in late 2008 and early 2009 and in mid-2010 during the first phase of the Greek debt crisis. It should be assumed the dollar will get to that level again (and possibly higher). How long it takes to do so is still an open question.

As is almost always the case, the euro is moving opposite to the dollar. The euro has strong support at and just above 125. It made a double bottom at this level while the dollar was peaking during the Credit Crisis. Recently in January, it made another low at this level. There was a clear break below on May 24th. Next stop for the euro is the low around 119 established in June 2010 when the dollar was just above 88. If the euro breaks this support, it will try to head toward parity with the dollar. The powers that be will of course do everything possible to try to prevent this.

The commodity markets are heavily influenced by the dollar/euro price actions. All commodities are priced in dollars, so a rising dollar will lower commodity prices all else being equal. Oil (USO) and gold (GLD, IAU) are generally at the forefront of this price dampening. This is one reason spot gold was down 30% during the Credit Crisis, despite its safe-haven status. WTI Oil dropped almost 80% at the same time. Stocks of the commodity producers usually fall even more than the commodity itself. Multinational stocks in general are also negatively impacted by a rising dollar because their earnings are mostly made in other currencies.

Since large moves in major currencies are destabilizing, central bankers are always concerned when they happen. They will continue to do everything possible to prop up the euro, although the currency union cannot continue to exist in its current incarnation. There is a long history of governments trying to prop up weakened currencies however and while devaluations can be delayed, they can't be avoided altogether.  

Disclosure: None

Daryl Montgomery
Author: "Inflation Investing - A Guide for the 2010s"
Organizer, New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

Are Gold and Silver Breaking Out?

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Gold hit an all-time high yesterday. Silver is trying to challenge its high from March 2008. Both are inflation indicators and new highs indicate paper money is losing its value.

Spot gold came within a whisker of $1275 an ounce yesterday and was up 2% at its high. Spot silver traded around $20.54 at its peak and has so far been a bit higher today. Unlike the U.S. stock indices, both gold and silver are in secular (long-term) and cyclical (short-term) bull markets. Their recent rise was based on reports that the Federal Reserve would likely engage in more quantitative easing. The trade-weighted dollar (ETF: DXY) dropped significantly on the news and fell below its 200-day simple moving average. The dollar has been in a secular bear market for many years and usually moves in the opposite direction of the precious metals.

The technical indicators for gold (ETF: GLD) are somewhat overbought and look like they are losing strength. Silver (ETF: SLV), is more clearly overbought than gold, but the technicals look better overall. In strong bull markets, rallies can continue on weakening technicals however. News, as is always the case, can override all other considerations - although it will have to be news about liquidity and central bank money pumping and money printing.

As I have stated many times, there is already a lot of liquidity flowing into U.S. stocks and other investment markets in the last few months. Prices for almost all assets are rising because of this. Stocks continually went up on bad economic news during the summer and while some incorrectly interpret this to mean that the market is forecasting a better economy, this is wishful thinking. Look inside a number of economic reports and you will notice that rising prices are an important reason they don't look worse. The mainstream media does not report this however because the Federal Reserve keeps telling them that 'there is no inflation'. Apparently though, the Fed forgot to inform the gold and silver markets. Perhaps they should get a memo out right away and put 'rush delivery' on it.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

What's Behind the Move in Gold and Silver Prices

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


The euro rescue plan announced pre-market Monday morning has yet to calm jittery financial markets. Gold hit a record high yesterday on rumors that Germany was planning on leaving the currency union and going back to using Deutsche marks. Silver has benefited from a U.S. government investigation of JP Morgan and its possible manipulation of global silver trading.

Gold has been rising for several years now against all major paper currencies and this indicates a massive global devaluation of fiat money (currencies that are not backed by hard assets) is taking place. We are still only in the early stages of that devaluation. When the Greek debt crisis surfaced, gold fell from December to February. Superficially, this makes sense because gold usually trades with the euro and the euro was dropping. After February, gold recaptured its usually safe haven status and starting rising as the euro continued to fall. The trade-weighted U.S. dollar was of course going up at the same time. The dollar is also traditionally a safe haven whenever there is a crisis in the world. In this case though, the dollar is hardly more sound than the euro and a good case can be made that U.S. government finances are even worse than Greece's.

There is no question that the euro currency union cannot continue to operate the way it has up to this point. When the eurozone was created, there seems to have been no consideration of how matters would be handled if problems arose - a truly amazing lack of foresight. The Greek debt crisis also revealed that the eurozone authorities were unwilling to take necessary action to enforce the standards supporting their currency. Greece lied to the EU about it fiscal position for years and its budget deficit to GDP ratio for 2009 is more than four times what is permissible by currency union rules. If this doesn't get it thrown out of the union, it appears that nothing could ever happen that would get a country removed from the eurozone. This is how the rumors that Germany would withdraw from the euro could take hold and gain some credence. At this point in time though, there is a zero percent chance that this would take place. Such an action would create a crash in the world financial system that would be much greater than what occurred after Lehman's collapse. The authorities are well aware of this.

Silver, which trades with gold, has its own unique issues. News sources on May 9th reported that parallel civil and criminal investigations had been launched into whether or not JP Morgan has engaged in manipulative practices to keep down the price of silver. The CFTC (Commodities Futures Trading Commission) is looking into civil charges, and the Department of Justice's Antitrust Division is handling the criminal probe. The CFTC has had complaints for years that a few big banks were manipulating silver prices, but just as the SEC ignored complaints against insider Bernie Madoff, the CFTC paid no attention. The CFTC hearings this spring on the silver market blatantly exposed the corrupt practices taking place. Nevertheless, the mainstream media ignored the story (just as a number of press outlets had the Madoff story for years, but failed to publish it). The hearings did get a lot of attention from blogosphere and on You Tube however and this may have finally put enough heat on the CFTC to take action.

From a technical perspective, gold has broken out from a cup structure (without a handle). Going to new highs is always a sign of strength.  Gold price action is being fed by and is in turn feeding a great deal of bullishness.  Too much bullishness though is not a good sign. The dangers for gold are a recovery in the euro (which is extremely oversold) and the market gaining some confidence in the bailout. The situation in Europe is likely to calm down into the summer. In the long-term problems will resurface however. Investors should also keep in mind that the IMF has a lot of gold and has decided to start selling it to pay for its programs (such as the euro bailout for instance). These sales can cause gold to experience a sharp and sudden price drop.

Investors can purchase gold and silver through ETFs (exchange traded funds). Gold ETFs that hold physical metals include GLD, IAU, and SGOL. Silver ETFs include SLV, USV and SIVR. The euro ETF is FXE and the trade-weighted dollar ETF is DXY.

Disclosure: Not relevant.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Silver Breaks Out of Trading Range

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

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Precious metals had a spectacular rally on Monday. While spot gold was up 1.9% on the day and hit another all time high at $1140.80, spot silver and palladium were the stars, rising 5.6% and 5.7% respectively (platinum was up 4.2%). At more than one point silver was up over a dollar and ended trading at 5:15PM New York time up 98 cents to close at $18.42. Silver has been stuck in a trading range between $16 and $18 since September and this was the first decisive break and first close above that range. Trading volume on the EFT SLV was approximately double normal levels and was highly supportive of the move up.

Now that silver has made its move higher, the spot price needs to stay above $17.70 (the low for the day) to maintain the breakout. The reason silver was stuck at the $16 to $18 level was because of a band of resistance at those prices established in March to July 2008. There is a further resistance point around $19.00 that still needs to be taken out. After that, a test of the 2008 high just under $21 will be possible. Some more consolidation should be expected around those levels and this is likely to take place in December. Silver and gold are seasonally strong in the early part of the year though and tend to form intermediate tops in March or April, so a move to the $25 area, long-term resistance from the late 1970s, is a target price for silver next spring.

As the precious metals continue to rise, you will hear more and more talk about a bubble. Ignore it. One well-known market guru said gold was in a bubble just yesterday. While gold and silver will eventually be in a bubble, this is a long way off. They are in bull markets. The two should not be confused. The simplest way to distinguish the two is by the price patterns and extent of the rallies. Bubbles have spectacular price rises that have been preceded by long multi-year continual rallies. Silver had a price collapse from almost $21 to under $9 in 2008. It is rallying up from the bottom. This is not a bubble pattern. Gold is up 53% off of its bottom from last year. When it was in a bubble at the end of the 1970s, it went up 400% the last year. Silver was up 1000%. When you see price rises like those in a single year, that is when you need to worry about a bubble. Until then, the trend is your friend.

The other nonsense floating around the media concerning the precious metals is they are not at inflation-adjusted highs and this is somehow a negative. Is it really? The same could have been said about U.S. stocks in the 1980s. Stocks had a major rally from those levels until they reached their inflation adjusted highs in the 1990s. Then, stocks had an even bigger rally after they reached this level. When an asset isn't trading at its inflation-adjusted high, this is a reason to invest in it because it means big profits can be made. Gold and silver have been reminding us of this almost every day lately.

Disclosure: Long gold and silver.

NEXT: U.S. Inflation Reports - Contradictions and Absurdity

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Gold Rumbles as Dollar Crumbles

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

Our Video Related to this Blog:

If the U.S. dollar chart was a person, it would be a stroke victim. The trade-weighted dollar has been falling since March and can't seem to rise for more than a few days before falling down again. The dollar's latest rally (triumphed by the American mainstream media) in the second half of October took it from 75 to just below 77 where it bounced down from its rapidly declining 50-day moving average. After a major gap down on Monday, instead of rallying strongly to fill the gap, the dollar remained comatose. It broke the 75 level decisively this morning trading as low as 74.77. This is another 18-month low. Comments by Fed officials on Tuesday led to the latest round of selling.

In contrast to the dollar chart, the gold chart looks like someone training for the Olympics. Gold hit another all time record high this morning. Spot gold traded as high as $1117.60 and spot silver as high as $17.71 so far. Technically speaking gold is in a textbook perfect breakout from a solid 18-month base, which is over 300 points deep. A technician would expect the rally to be at least the depth of the base. In a bullish market, double the depth is quite possible. Since the breakout took place at $1025, this would take gold to the $1300 or $1600 level. Gold is in a seasonally strong period until next March, so the rally should last until around then before a significant pause would be needed.

Gold is rising on the flood of liquidity that is being pumped into the global financial system. The same flood of liquidity is drowning the U.S. dollar. A number of Federal Reserve officials made comments Tuesday about U.S. employment likely continuing for a long time and the need for the Fed to maintain super low interest rates. In an eye popping comment, the Dallas Fed president acknowledged that the easy money was damaging the dollar, but he was unconcerned as long as the decline was orderly. So as long as the U.S dollar collapses slowly instead of suddenly, everything is fine. This is the wisdom from the people in charge folks.

The economic geniuses at the Fed are not worried about inflation, as is also the case across the pond in the other quantitative easing powerhouse, the Bank of England. There is no case in history where significant excess money creation didn't lead to inflation, but why be bothered by historical fact. How excessive the money creation is this time is indicated by a gauge kept by Morgan Stanley which measures the amount of cash circulating in the global economy as a percent of total economic activity. It is at a record high by far. Of course, you don't need complex money measures to determine if there is inflation. Gold has been the inflation thermometer throughout the ages and it indicates quite clearly that inflation is heating up.

Disclosure: Long gold, silver. No positions in the U.S. dollar.

NEXT: Action Speaks Louder than Words for U.S. Dollar

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Dollar Breaks Down; NovaGold Breaks Out

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The U.S. dollar had a serious technical breakdown last night. The trade-weighted dollar traded as low as 75.44 in the pre-market this morning, well below important support at 76.00. Almost every currency on earth is rising against the greenback in a global orgy of dollar dumping. Behind the scenes buying efforts of central banks to prop up the U.S. currency have failed so far. They have yet to bring out the big guns, although they have little ammunition to put in them if they do. Even under the best of circumstances holding up a collapsing currency is like trying to stop a tsunami.

Gold and silver have become the collateral damage of the central bank efforts, but this is only evident in U.S. trading. Gold hit another record high last night in Hong Kong, selling for over $1070 at one point. It traded in the mid $1050s in early New York trading. Silver hit $18.09 in Hong Kong, another yearly high, but was $17.71 shortly after U.S markets opened. You can expect the battle for gold and silver pricing will eventually be won in Asia.

The best performing mining stock in North America yesterday was NovaGold (NG). This has been the favorite mining stock of the New York Investing meetup for a few months now and members have been encouraged to accumulate it at $4 and under this summer. Nova closed at $6.02, a new yearly high, yesterday and broke out of the handle of a cup and handle formation. While earnings were released yesterday, current income is not the relevant factor in NovaGold's stock price. It owns probably the biggest untapped gold deposit in the world. This asset only becomes more valuable as the price of gold goes up. The bears have been trashing Nova all the way from its recent low around $3.30 to the current $6.00 price telling everyone to sell the stock. Expect them to come out of the woodwork now that the breakout has taken place and they are really getting killed in their short positions.

The falling dollar is helping to prop up other commodities (all of which are priced in U.S.dollars). Light sweet crude oil almost hit $74 this morning and looks like it might finally reach an important Fibonacci retracement around $77. Seasonal weakness is likely to restrain oil prices this fall and early winter however. There may be more follow through today in the big rally in grains that started Monday (GRU is the ETF for this investment). There should be a pull back within the next couple of weeks or so that provides another entry point however. Long term bonds were also selling off this morning and interest rates rising. Double short ETF TBT, which rallied strongly off a bottom last Thursday and Friday should be watched. Holding a country's paper assets when its currency is declining is never a good idea.

NEXT: The Dollar, the Fed, Housing and the Economy

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Fed Hits Dollar Panic Button

RThe 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The very first headline I saw this morning was "Bernanke Boosts Dollar, Commodities Down" (stock futures were also down, but this wasn't emphasized). As pointed out in this blog yesterday, the invisible hand of the Treasury looked like it was active in supporting the dollar in market trading after the opening and there were rumors that smaller central banks in Asia were buying dollars to try to push down their own currencies (new reports today confirm that South Korea, Hong Kong, Taiwan, Thailand, the Philippines have indeed done this and Indonesia probably has as well). Russia bought dollars overnight and has been doing so all week. The U.S trade-weighted dollar actually fell through critical support at 76.00 first thing in the morning on Thursday and closed just below that level in the afternoon. It fell to a new intraday yearly low of 75.77 and yearly closing low of 75.97.

PR support from the Fed to try to jawbone the dollar up was inevitable. You can expect a lot more of this in the future as well. Bernanke's remarks were essentially meaningless, but the mainstream media gave this non-news item major coverage (you should ask yourself why). Specifically, Bernanke said that the Fed will tighten monetary policy "when the economic outlook improves sufficiently," "the time will come when we have to tighten", "at some point" and "we will look at the broad outlook to decide". There is certainly a lot of new information in those statements ... at least for people who thought the Fed would not raise rates during an economic expansion on until the year 3000. What would investors do if we didn't have the media to keep us informed?

In the statement from its most recent meeting a couple of weeks ago, the Fed said that its accommodative policies will likely be warranted for an extended period. This was a blatant admission that they don't really believe the economy is recovering. The Fed has also continually assured the public that there is no danger of inflation. In his remarks though Bernanke admitted that the Fed can't keep monetary policy accommodative indefinitely for fear of triggering an inflationary surge. The gold breakout this week has already made the market's opinion on this matter quite clear - it's already too late.

So far this morning the trade-weighted dollar is at 76.33, having gapped up to 76.25 on the open from the below 76.00 close yesterday. The monetary authorities are clearly worried about the dollar falling and staying below 76.00. A test of the old low at 71.50 is almost inevitable if this happens... and they know it. Gold, which was began selling off last night, before the Fed news appeared, is trading at $1052 as I write this. $1050 is a minor resistance level for gold and it is trading just above and below this level so far today. Expect the gold dollar struggle to continue for some time.

NEXT: Subprime Crisis #2 Coming Soon

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Gold Makes History

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

Yesterday, gold finally broke its intraday high of $1033.90 set in March 2008. Not only did it break it, but it closed above it. The COMEX close was $1039.70 and at 4:00PM New York time gold was trading at $1042.70. The breakout was text book perfect - a gap out of a long base to all time highs on high volume. The technical indicators were extremely bullish as well with the RSI above 50 and rising after having bounced off 50; the MACD above zero after having just made a positive cross and the DMI trend line announcing a new up move (see a daily chart of the major gold ETF GLD as a reference)

Yesterday's move in gold will be mentioned in financial history books well into the future. It will be seen as a significant turning point announcing a long period of inflation and the early phase of a huge bull market in gold and silver. There are analogies to the Dow breaking above the 1,000 level in 1982 and rallying over 10 times in the following 18 years. Gold may indeed rally that much and possibly considerably more, but it is not likely to take nearly as long. For those who have not been following the blog, the New York Investing meetup first recommended gold at $740 in September 2007 and we recommended selling it at $1000 in March 2008. We then recommended buying gold again when it fell back to $740 (gold traded as low as the very high $600s). We did not recommend selling gold again last spring when gold hit a $1000 again with the idea that the following drop would be considerably less this time. This trade did indeed remain continually profitable. We have been anticipating the current breakout for the last few months and telling people to position their portfolios for it.

What should investors do now assuming you already have your full positions in precious metals and their miners? You can consider taking profits some time around next March. Gold tends to peak in the spring. However, the peak this time may be either shallow or short. It is possible that this gold rally will last for around the time length of the base, which is 18 months. This would mean a significant peak could take place around March 2011. So if you sell gold in March 2010, you may have to be nimble about buying it back. It is likely that it will be worthwhile taking some profits in precious metals and buying oil with them some time early next year, so keep this trade in mind.

As for price points, there are two areas of significant resistance on the upside. The first is in the $1300 area and the next one in the $1600 area. If gold is selling at one of these points by next March, that's the time to sell some of your holdings. The $1300 resistance comes from the top line of a channel that gold prices are moving in. Some forecasters have this number below $1300 at the moment while others have it as high as $1370. This number continually moves up over time and it will be much higher next March. You can also project a rally move as being at least the depth of the base, which is around $340. Add this to $1034 and you get about $1370. However, this is likely to be much too conservative in this case. The base for gold is quite long and should be good for a rally that is at least double the depth of the base. This would take gold to around $1700. There is also a Fibonacci extension at $1673. Some pause will be needed around $1300 before gold can move up to this higher target. If gold can get to the $1300 area by the end of this year, the $1600 area is a highly likely by next March.

As for a high in 2011, this could be anywhere between $2,000 and $2,600. We will revisit this in the future. New York Investing meetup's long term projection for the peak price of gold is between $5,000 and $10,000 (we made this in March 2008) and this assumes that hyperinflation will not take place... not necessarily a good assumption any longer. We do not currently anticipate a high for precious metals until around 2017, so there will lots of profitable opportunity in these assets for many years to come.

The New York Investing meetup will be having a class on Commodity Investing at PS 41, 116 West 11th Street (at 6th Avenue) on Thursday, October 8th. I will be reviewing the gold and silver markets at the beginning. The class will run from 6:45PM to 8:45PM. If you haven't preregistered just show up and you can register and pay at the door ($20) Please see our website for more details (http://investing.meetup.com/21).

NEXT: Desperation Time for the Dollar

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Quadruple Witching Today; Market Update

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Once every three months there is a quadruple witching day. This is when market index futures, market index options, stock options, and stock futures all expire on the same day. Volatility can result, but that is more likely to take place a few days before. In general, prices will move to minimize the profits of the buyers of most outstanding options. Reversals of price movements can take place the following week or two and you need to watch out for these.

The trade-weighted U.S. dollar is the key to many market movements currently. It has been selling off as U.S. stocks have rallied since March. A dollar rally should cause market weakness at this point. This dollar/stock relationship is abnormal and would make much more sense for gold. The dollar/gold relationship has actually been much weaker than might be expected. The trade-weighted dollar ETF DXY traded as low as 76.01 yesterday. There is chart support at this level, since there is a sharp low at 75.89 that was made almost exactly one year ago from today. Any break of last years low could cause the dollar to test its all time low of 71.50. A short term rally might be in the offering first however because the dollar is well below its falling 50-day moving average and it tends to move back toward that line when it gets too extended.

A dollar rise could affect both stocks and gold. Spot gold closed at $1013.30 yesterday, its fifth day above the key breakout point of $1004. Gold has made three all time closing highs in the last 5 trading days and this is very bullish. It still needs to break the $1033 intraday high before a longer term rise to the $1200/$1300 area is possible. Gold stocks have been selling off the last two days and may be volatile for several more. Large drops should be considered buying opportunities. Look for gaps to be touched or filled. The most profitable buying is done either on major breakouts or at bottoms (buying after a long run up is a good way to lose your money). Gold is at the cusp of a major breakout.

The current bottoms in the inflation trade are in natural gas, food commodities and possibly long-term interest rates. Buying natural gas on any day with a big drop looks like a good strategy. Food commodities have been trading around their lows since last December, which is a long time. The chart for RJA is quite bullish and it looks like it wants to rally soon. I have started buying it. The food related ETFs are generally much less volatile than precious metal and energy ETFs, so you are not likely to make money as quickly from them. Long term interest rates bottomed last December,with the 10-year bond hitting 2%. The 10-year rate was around 4% in June. Since then, long-term rates have declined. TBT, the leveraged short ETF for bonds of 20+ years duration has sold off a third since June. I have started slowly accumulating it. Long-term rates may not have bottomed just yet, but they are likely to be going much, much higher in the future.

NEXT: IMF Selling Gold to Dampen Rally

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Gold Breaks $1000!

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

As of this morning, gold has been above $1000 an ounce three times. The first time was in March 2008 when it reached $1033 and the second was February 20th of this year when gold reached $1006. Slightly after 4 AM New York time, gold traded at $1007. Gold also traded close to the $1000 mark in July 2008 and early this June. Unlike previous attempts to break the $1000 an ounce level, this one is taking place at the beginning of gold's bullish seasonal period that runs from August to February.

Gold has had a spectacular rise that began only last Tuesday. Most of the technical indicators on both the daily and weekly charts are not even remotely overbought. The technical patterns look more like a pre-rally. They have not even reached the usual rally formations yet. Until they do, choppy trading around the strong resistance level of $1000 is quite likely. A break higher now is possible, but is not likely to last too long initially. A rally will take hold after awhile however. Gold now has a long 18-month base and that can act as a springboard for a long and powerful breakout that can last for several months.

Silver was as high as 16.80 this morning and is trading at a yearly high. It is trading in a band of resistance between 16 and 19. It may get stuck in this area for awhile as well. Once it clears the 19 area it is likely to go to new highs breaking through the 21 level reached in March 2008. Silver always follows gold.

As would be expected the U.S. dollar is not doing well this morning. DXY, the ETF for the trade-weighted dollar, traded as low as 77.14 pre-market. This is a new low for the sell off that began in March and well below the breakdown level of 78.33. This is the third time this level has been breached. The dollar is weak and the precious metals are strong because the G20 made a pledge this weekend to keep their unprecedented stimulus efforts going. Stocks are rallying as well, not reflecting any potential growth in the global economy as the mainstream media is reporting, but because more liquidity rallies stocks. If it is interpreted as inflationary, it also causes gold and silver to rally and the U.S. dollar to tank. The market's message today is quite clear.

NEXT: Inflation Versus Recession

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

Gold Shining, Silver Lustrous

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Gold traded as high as $970 in the futures markets yesterday. It is once again getting close to that magic $1000 level. Silver traded as high as $14.73, well above important resistance of $14.50. Meanwhile, the trade-weight U.S. dollar closed at 77.77. Tuesday was the second day below its breakdown level of 78.33. So far this morning it's trading lower.

A basic idea in technical analysis is that if a resistance point is tested enough, it will eventually be broken. Gold's all time high so far is $1032.70 set in European trading in March 2008. It broke 1000 again this February. It almost got back to 1000 again in early June. The end of the year starting in August is when gold is strongest seasonally. So, things look promising for the breakout from 1000 at some point fairly soon. A breakout after several tests is usually very bullish.

The fly in the ointment is of course the U.S. dollar. The key 78.33 level is the low during the late 1980s, early 1990s sell off. It was THE low for the trade-weighted dollar until it was broken in September 2007. The new low established after that sell off was under 72 when the dollar made a multi-month low between March and July 2008. While this is major support, there is some lesser support at 76.00. If gold is knocked down from the 1000 area again, that is where the dollar is likely to be trading when this happens.

In the long-term silver will do even better than gold. First though it has to break resistance as 16.00, which is bounced down from in the last rally and then it will head toward 21.00. Silver is both a monetary metal and an industrial metal. Economic recovery will increase demand (silver has been in a chronic shortage situation on and off for years as is). Inflationary worries will also increase demand. While silver ultimately outperforms gold, gold always moves first. Watch the yellow metal closely in the next few weeks.

NEXT: The Latest From Fantasy Land

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

So Far This Doesn't Look Like a Top

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

The S&P 500 broke through its 200-day moving average yesterday following the Nasdaq's successful breakout last week. The Dow only managed to pierce this line and then it bounced down. If all the averages can break through and hold above the 200, this rally will continue to have legs. The next key test will be if the 50-day moving averages can cross the 200 days. This is the classical confirmation that a bull market has begun. This is at least a couple of weeks off. A failed cross of the 50-day is not out of the question, so we will have to wait and see. Oil continued its impressive rally yesterday, rising for the 6th day in the row. Rallies like the one we are currently seeing should make you start to think of selling if you got in at the bottom. It all depends on the technical picture of course and your investing time horizon.

I sold Nova Gold (NG) this morning because it had gone up too far, too fast. The price was way above the 10-day moving average (use 20% above as a rule of thumb for overextension) and the RSI had gone above 80 on the daily charts and had stayed at the level for several days (this is mega-bullish blow off behavior and is not sustainable). On the other hand, Harry Winston (HWD) just broke and closed above its 200-day moving average yesterday, which indicates a likely continuation of its bullish pattern. It is not overextended from its 10-day, so I am willing to keep it for the moment.

Many oil stocks are getting overdone however. The rally which has taken place since the beginning of last week has taken oil up quite a bit in a short period of time. At this point, it looks like the resistance around 70 could cause a temporary sell off before a further rise to the 75-78 area. I might be taking some profits today or Wednesday morning with the intention of buying back lower. For investors who can't pay attention to the market closely, it is best to leave well enough alone until oil gets into the mid 70s. Even then, I think higher highs will be in store for oil during the summer.

One thing I have been accumulating is Natural Gas (UNG). Gas can rally into the October/ November time frame and there is potentially a lot of profit to be made there, since it is barely off of its bottom. I have held onto all of my silver, which is around its resistance of 16 today. Gold is pushing for the key 1000 level. I have no intention of selling any of it until the breakout and move up to around 1200 level. Watch the trade-weighted dollar. It is in the high 78's right now and a breakdown below 78 will be bullish for all commodities and will definitely set off the gold rally.

NEXT: Market at Key Juncture

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.