Market Keeps Going as Stimulus Keeps Flowing

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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Spot gold hit another record high on Friday, breaking the $1100 barrier for the first time. While gold hit $1102 intraday, it closed at $1097 at the end of New York trading at 5:15PM. So far this morning, gold has traded as high as $1110.60. This is another record intraday high and perhaps today will be gold's first close ever above $1100. Spot silver traded as high as $17.75 in the early going. It is still stuck in its trading range between $16 and $18. A break and close above $18 will be significant.

As the precious metals go up, the trade-weighted U.S. dollar is going down. So far this morning, the dollar has traded as low as 74.98. It is trying to take out its low of 74.94 from October 21st. There is an approximately 0.75 gap on the DXY chart today. This huge gap will have to be filled eventually. The euro broke above its 1.50 resistance again this morning and once it can remain above this level (this may take awhile), it will head toward its old high of 1.60. The U.S. dollar will in turn head toward its old low of 71.50.

As has been the case with dollar weakness since March, stocks are rallying as well. The technical damage from late October is getting undone on the S&P 500 and Nasdaq charts, both regained their 50-day moving averages last Thursday. It never existed on the Dow chart. The small cap Russell 2000 still has a severe limp however and needs to be watched carefully. Just as the Dow is holding the stock market up and trying to lead it higher, the Russell will take the lead in bringing the market down. The market survived serious technical problems last July and is trying for an encore. Just as was the case this summer, central bank stimulus which is flooding the financial system with liquidity is pushing prices higher.

The market is getting its adrenalin shot today from the G-20 meeting held over the weekend in Scotland. The finance ministers from the world's biggest economies pledged to "continue to provide support for the economy until the recovery is assured". The smart money knows this is some point well into the future. Even more eye opening was a note prepared for the meeting by the IMF. The IMF stated bluntly that the U.S. dollar is "now serving as the funding currency for carry trades" and is "still on the strong side" (so expect it to go lower). Warnings about the abrupt end of the U.S. dollar carry trade have already been appearing in media reports for several weeks now. The same thing happened when the Japanese yen became the source of a global carry trade in the 1990s. I remember hearing warnings year after year after year after year after year that this would end abruptly. Apparently it finally did in 2009. So don't get your hopes up for the dollar carry trade lasting beyond 2024!

NEXT: Bond Auction Puts Focus on Interest Rates

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! Record High Knocking on Heaven's Door

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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So far this morning gold has reached $1035.00 in New York trading. This is an all time record high! The previous all time high that gold made was $1033.90 in March 2008. GLD and DGP also hit record highs in pre-market trading this morning. Silver has traded as high as $17.20 so far. While yearly highs are bullish, records highs are mega-bullish, especially for a commodity. It indicates an entire new trading range is being established with limited upside resistance.

The current move up in gold began around noon yesterday New York time. It started when the G7 meeting, which took place over the weekend, made no comments about supporting the U.S. dollar in the communique they released after the meeting. Even if they had, it would only have been talk. None of the countries have the funds to engage in currency intervention since it is very expensive. Their money is already committed for government stimulus efforts. Gold is telling us these stimulus efforts are causing inflation. The U.S. dollar traded as low as 76.22 yesterday, just above important support at 76.00. Any significant break of this level means that 74.00 and then 72.00 will be tested... and then a new all time low is possible.

The gold rally was further juiced by explosive coverage coming from the Independent in London. The paper reported that secret talks between the Gulf Oil States, China, Russia, Japan, and France were taking place with the objective of repricing oil in a basket of currencies instead of U.S. dollars. With the exception of France, all of these countries are major holders of U.S. debt. Saudi and Russian sources later denied the reports. Gold continued to push up after the denials. The implementation of such a plan would be devastating for the dollar. The emerging economic powers, lead by China, are determined to topple the reserve currency status of the U.S. dollar and they will eventually be successful even though it may take several years for them to accomplish this goal.

Meanwhile, in a surprise overnight move, Australia was the first country to raise interest rates. The Australian dollar, probably the best currency for the next several years, hit a new yearly high against the U.S. dollar. Australia's economy is in much better shape than Americas because it is commodity-based. Almost all commodities are priced in U.S. dollars and they go up in price if the dollar weakens. Gold today is telling us that the huge money-printing effort by the U.S. Federal Reserve has weakened the dollar considerably already, even though the dollar has yet to hit a new all-time low against other paper currencies. It did this morning however against the world's most solid currency...gold.

NEXT: Gold Makes History

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 Closes at Record High

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:

Gold closed at a record high in New York on Friday. The settlement price of $1004.90 broke the previous record of $1003.20 set on March 18, 2008. The daily intraday high was $1011.90. This is gold's third serious attempt at trying to break to new all time highs. The $1000 level has been tested 5 times so far. A basic rule of technical analysis is that when a price is repeatedly tested, it will eventually break.

A yearly high is bullish and a record high is extremely bullish for any stock or commodity. You would never know it from reading the media reports on gold however. I have seen one article after another warning about how dangerous it is to buy gold at these prices, how a pullback is likely, how the small investor had better stay away, etc., etc. This is actually very bullish for gold. If the media liked it and was saying how great it was, it would probably be time to sell.

Negative media reports all focus on lack of physical gold demand at the moment, particularly in India (Indian consumers own 20% of the world's gold - at least as much as all central banks combined). While this is likely a temporary phenomenon based on when Indians consider it a propitious time to buy gold, you don't usually see that mentioned in articles. You frequently don't see inflation mentioned either and that the demand for investment gold is skyrocketing. This type of demand will eventually overwhelm all other forms of demand. You can also find many articles that report that the ETF GLD isn't buying gold and how negative this is for the market. What is not mentioned is that there are 10 ETFs on world markets that buy physical gold. Overall, there has been net buying recently. Only one of the ten ETFs had decreased holdings and that was GLD. Long gold futures positions have increased by 17% in the last week to 10 days and many investors are likely moving away from physical metal to more leveraged plays.

Gold's recent performance has been helped by the U.S. dollar. The trade-weighted dollar was as low as 76.46 on Friday, well below its breakdown level of 78.33. It is up slightly this morning and gold is hoovering around $1000. The dollar is in danger of hitting a yearly low soon (75.89 at the moment) and if that happens it could fall to its all time low below 72. Some short term rally is likely because the dollar is trading below its falling 50-day moving average. This could in turn cause a short-term drop in gold prices. This would just be another buying opportunity however.

We will be discussing the gold and silver markets at the New York Investing meetup's 'Technical Analysis - Chart Patterns' class this Tuesday night at PS 41 (116 West 11th Street). The class will be held from 6:45-8:45PM.

NEXT: Gas Takes Gas

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.