Gold in Technical Correction as Dollar Rallies

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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Gold had a sharp drop on Friday, December 4th. It was down more than 5% at one point, but closed at $1161.40, off its low. Gold was overbought on both the daily, weekly, and by one measure even on the monthly charts. It needed some pressure taking off after rallying almost every day and hitting one all-time high after another in November. While the bears are coming out of the woodwork and claiming the gold rally is over (as many have claimed was imminent for several months now), there is merely a needed technical correction taking place. The gold charts are so bullish that it would take a lot more selling before the technical picture became damaged. While gold is selling down, the U.S. dollar is not surprisingly rallying since they tend to move in opposite directions. As is the case with gold, it will require a lot more than a few days to change the technical picture of the dollar.

Almost the entire drop in gold prices on the 4th took place during New York trading. What supposedly set off the drop was the U.S jobs report for November, which had much better numbers than expected. While even a cursory analysis of the report indicates that the picture is not so rosy - large numbers of part-time positions suddenly appeared out of nowhere and retailers cut employment during the height of the holiday selling season - the mainstream U.S. media trumpeted the 'good' news, while ignoring the inconvenient facts. Talk of possible sooner than expected Fed rate hikes was cited as the cause of the selling in the precious metals and the rally in the dollar. A Fed rate hike would damage U.S. stocks a lot more than gold, but stocks rallied strongly on the jobs news. So much for that theory. The price of gold is related closely to inflation and future U.S. inflation is already baked in the cake because of all the money printing the Federal Reserve has been doing. It will take years before all the inflation damage from the current bout of easy and fake money fully manifests itself.

It will also takes years before the Credit Crisis money printing operations are finished damaging the U.S. dollar. That doesn't mean it will go down every day in the interim, just like gold won't go up every day. The trade-weighted dollar has been selling off since March. It has been trading continually below its falling 50-day moving average since April. It managed to peak above the 50-day once in early November. December 4th was the first day it managed to close above it in more than seven months. To return to rally mode, the dollar would have to stay above the 50-day, rally to its 200-day moving average (well above its current level), stay above the 200-day then the 50-day would have to cross the 200-day. This would require two or three months minimally and around six months would be more likely -assuming that it is going to happen. That assumption as of now is based on one day's trading activity indicating a change in an eight month trend.

Dollar rallies in the last several months tend to be concentrated in only one or two currencies in the trade-weighted basket, indicating a helping hand from the respective central banks. The last rally in early November was based on a strong move down in the euro and Canadian dollar. The weak British pound actually went up during that time. This dollar rally has been more concentrated in the Japanese yen and Bank of Japan intervention should be assumed. The falling dollar is a risk to major exporting countries and they want to drive their currencies down versus the dollar. U.S. authorities seem quite complacent about the falling dollar however because they believe it will increase U.S. exports. Without macro policy changes such as significantly higher interest rates (that would be well above the current zero level in the U.S and a quarter, half or even a whole point rise wouldn't do it), central bank intervention to alter currency relationships gets undone pretty quickly.

The technical picture in gold is not fully resolved yet. A little more selling will be necessary. This can be mixed in with a lot of volatility. The intermediate picture is still up for gold and the other precious metals. So far, this looks like a mid-rally correction. The correction is merely taking place a lot faster than is usual. As of now, the most probable peak for the current gold rally is still in the March to May 2010 time frame.

Disclosure: Long gold and silver.

NEXT: More Government Stimulus and More Debt

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.

Market Sells Off as Dollar Rallies...As Usual

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 is rallying today for a change. Yesterday DXY, the ETF that represents it, fell as low as 75.83, below key support at 76.00. As of this moment DXY is 76.73. There is strong resistance at 78.00. The key breakdown level is 78.33, which was the multi year low made during the dollar sell off in the late 1980s and early 1990s. For the last two years the U.S. dollar has usually illogically rallied the day after the Fed meeting. There is also danger that some statement will come out of today's G20 meeting about the desire for a stronger dollar. If this happens, the talk is unlikely to be met with any action.

Gold was strong first thing in the morning, but sank to below a $1000 as trading progressed. Silver was selling off even more and may have resolved its overbought condition. The key breakout level for gold is $1003.50. It has closed above this level eight days in a row. So far, it doesn't look like today will be the ninth.

A number of gold and silver stocks have gaps made approximately ten trading days ago. These gaps may have to be filled. Nova Gold (NG) filled this gap four days ago. It was trying to test it today. It is not unusual for a stock's price to fall somewhat below the bottom of a gap. This is frequently a very profitable buy point. Nova Gold has made a cup and looks like it is making a handle. Many gold and silver miners' charts have similar patterns.

About the only thing up in today's market is UNG. The Natural Gas report seemed bearish this morning. GAZ is down. Both UNG and GAZ should move together, but they don't. HZBBF, introduced in this blog 2 weeks ago now trades under another ticker symbol: HNUZF (special thanks to New York Investing member Joyce K. for first reporting the change). The new trading symbol can't be found on Big Charts yet. The symbol changed after a 5 to 1 reverse split. This split and the symbol change make no sense whatsoever. Both have made it much harder for the individual investor to trade natural gas. Perhaps that the idea.

NEXT: So Much for That Recovery

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.

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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.

Disaster Stalks the Dollar

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.

Gold and silver were down this morning, while the U.S. dollar was attempting a recovery. The trade-weighted dollar fell back below 80 though and the precious metals started to recover. It must be requiring superhuman efforts on the part of the central banks to prevent a major drop of the currency at this point after the body blow struck by the Russians yesterday. The natural gas storage report was mildly bullish today. Oil trade remains listless although light sweet crude was above 72 earlier today.

As usual, the mainstream media is not informing the public about a major financial story that it needs to know about. Russia is the third biggest purchaser of U.S. treasuries. Yesterday it said it is reducing its holdings by not buying new bonds when the current ones expired. Put this together with China altering its holdings of U.S. treasuries from long term to short term bonds and this spells major trouble for the U.S. When our budget deficits were hoovering around $400 billion a year, we managed through great efforts to get foreign governments to lend us enough to support our proliferate spending. This year's budget deficit will be around $1800 billion. It is estimated that only 53% of U.S. federal government expenditures will be covered by taxes (when this number fell to 69% in Weimar Germany, hyperinflation devastated the country only 5 years later - the U.S. in is much worse shape currently). To cover our budget deficit, we need to borrow or print money to make up the difference. Just as our borrowing needs are skyrocketing, foreign lending sources are drying up. It is inevitable that U.S. money printing will be ratcheting up soon.

The Russian story is even more significant however. All the foreign bond holders know there is a lot of inflation on the horizon, but most haven't acted yet. The situation is analogous to a crowded theatre where everyone smells smoke, but is ignoring it because they are busy watching the play. Suddenly someone jumps up out of their seat, runs toward the exit and shouts fire once they get there. Is everyone else going to just remain in their seats or will there be a stampede to the exits? This is the danger the dollar is now facing.

Oil is drifting up today and natural gas is doing well. The natural gas storage report was mildly bullish with expectations for an increase of 108.5 BCFs and the actual increase coming in at 106 BCFs. Oil is getting closer to its Fibonacci retracement around 77. A spike up to or above the level would be a good sell signal.

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NEXT: Gold, Oil, Dollar and Market Update

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.

GM Saga Continues; Gold Becomes the New Oil

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:

This is the last week for GM to arrange a deal with its bondholders in order to avoid bankruptcy - and things don't look good at the moment. While this has been weighing on the market for some time, it didn't prevent a huge rally yesterday that saw the Nasdaq zoom and close well above its 200-day moving average. This picture would be extremely bullish, if volume had been heavy instead of just average. Gold and silver were down slightly in the stock rally and this was odd behavior to say the least considering the Korean nuclear test. News coverage on the precious metals is beginning to resemble the negative coverage that oil experienced from February to just recently. Oil wound up basically flat on the day Tuesday, but was as high as $63.45 in European trading this morning. Look for $67.00 as the next resistance.

What has been going on with GM in the last few months highlights the extent of recent government incompetence in handling the U.S. economy. Federal policy from the last several presidential administrations has undermined our industrial base and built up the FIRE (Fire Insurance Real Estate) economy to replace lost manufacturing. Obama claims he wants to restore the balance. Unfortunately, none of his actions support his rhetoric. GM, which is the first major opportunity to help revive U.S production, has been handled disastrously. The Obama administration has interfered with the operations of the company as if somehow they know more about how to run a large industrial enterprise than people in the industry. They don't. While GM has been poorly managed for decades, it is still run better than the U.S. government.

Furthermore Obama's people have made demands that are improper and unlikely to be met in order for GM to get more bailout funds. No such demands were made on any financial institution that received TARP funds. While the unions have been more than cooperative, the unsecured bondholders have balked about accepting equity in exchange for their holdings. This was inevitable since they would be entitled to more in a bankruptcy, either through distribution of assets or by cashing in their credit default swaps - an action that would cost the financial companies receiving TARP funds a lot of money. Trying to force bond holders to accept equity is also an attempt to violate their rights under law. Who would want to lend capital in a country that does this? If the Obama people sat down in a room and tried to figure out an economic policy that would lose in the short term, lose in the intermediate term, and lose in the long term, they couldn't have done any better.

Lack of confidence, along with the massive money-printing operations of the major central banks, will continue to drive up the price of gold and silver. Don't expect to hear this from the mainstream media however. Some tidbits from today: 'Gold off for second day amid broad metals selling' (gold was down $2.20, a minor intra-day blip); 'The strong dollar has sapped some of the resilience that gold has been showing' (a quote from someone who has a $600 price target on gold and has been wrong about the price direction of gold for months, but that's not mentioned in the article and doesn't keep the media from quoting him); and 'silver skidded 4.5 cents' (but was still above the key breakout level of $14.50). I also particularly liked the coverage in the Wall Street Journal yesterday that said 'gold could go to a $1000 by the end of the year'. Now that's an earth shattering prediction. And to think investors who get their information from the media have trouble making money in the markets. I can't imagine why.

NEXT: Oil Takes Gas, Silver's Shining Moment, GM Watch

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.