10-9-2008
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Today's report will focus on Gold only.
History in the making
At a point in the very near future my hope is that we will look back at what has occurred in the past 16-weeks with awe and learn something from this disaster. Course in schools will without doubt begin lecturing about what took place, government actions that were employed and yet to be learned lessons from the excess deregulation America and other free governments allowed that created this mess.
For a long time I have been writing that what is at the root of world economic problems goes back to mortgages. However, it is and was more than simply that. It was the greed of investors, lack of government oversight, loans that should never have been made and so on.
Real estate was the engine, but in the end it is people who are to blame. All who had a hand in constructing buildings, servicing them and so on are part of the problem, which in essence means that the real estate boom trickled down to every aspect of life as it provided funds to invest, funds to improve life styles and so on. We are all to blame.
A way of life is changing before us. Shakeouts bring change. We saw this in the aftermath of the Savings and Loan debacle and the crash of 1987, where stocks lost 20% in value in practically one day.
America Nationalizes the Banks?
Right now the "free world" is looking at the Central Banks of world governments to bail us out of the downward spiral we find ourselves in. This will come with a cost. Not just a financial one, but one in terms of government intervention and more government control.
Today the "talk" is about getting the Libor Rate to come down, which is the rate that banks charge each other to lend funds amongst themselves. Simply put, it is out of whack because banks don't trust other banks. Who can blame them? Loaning out money that you may not get back can wreck havoc upon banks balance sheets, putting them in jeopardy of either going out of business or being taken over by larger banks.
The solution? The "new idea" of the day is to have our government directly buy into banks and guarantee loans, which many believe should lower the Libor Rate as banks most likely will loan to banks with government guarantees on funds being loaned. In essence, government ownership of banks is being floated. Not 100% ownership, but ownership of a sort.
Last I looked, owners had a say in how things operate. As such, it seems to me that allowing the government to own stakes in banks can only increase regulation going forward. This may not be a bad thing right now, but in a couple of years it will be a bad thing. History shows that once government controls are put into place, freedom to wheel and deal before those regulations take place rarely exist as it did before.
Deflation versus Inflation
Deflation, not inflation has been and is what is taking place in commodity markets. In large part this is because money to buy goods is simply not available or is being rationed out, rather than being spent. Fear has gripped both lenders and spenders, locking up credit markets. Those that are in Index Funds can't get out quick enough, as investors dump their shares. As this is done, additional pressure is put on the underlying assets of these funds.
In time, all the money being pumped into the world economies eventually will cause a change of attitude. When that happens, retailers and manufactures will end up being caught "short bought". Shelves in retail stores will be short of supply, manufactures will have little product on hand and demand for goods, well it will magically and "suddenly" pick up, catching the market off guard.
When this occurs, inflation will take hold. Given the magnitude of the breakdown in pricing and the speed in which it occurred, the question going forward will be how long before inflation takes hold. I think it will be before the first half of next year ends.
Safe Haven
Without doubt, gold is a "Safe Haven". Yes it is well off its highs, but in comparison to Crude Oil, Grain, Interest Rates and so on it has held up very well.
Keep in mind that the Dollar has rallied. The Dollar has risen from its low about the same percentage that Gold has fallen from its high. This does not mean that Gold isn't holding up. It is, especially when pricing it in terms of Euros, Pounds and other foreign currencies.
Seasonally speaking, October is typically not a strong month for Gold. As such, even with the meltdown we're witnessing in financial markets, I don't look for Gold to surge. Rather, I look for back and forth price action; base type trading, with an eventual breakout to the upside, sometime in early November.
I do not see Gold losing its "Safe Haven" status for a long time to come.
Gold's Seasonal Story
A pull back in prices into mid September has occurred. This pullback skewed this chart. Look at the Seasonal Chart below provided to us by the good folks at Moore Research Center, Inc.
If a low was made, it was made in September. Any new low simply doesn't fit in if the Seasonal trend is to kick in.
December Gold
Lets start out by looking at a Daily Chart of December Gold Futures
The first and most obvious thing is that December Gold is now trading over both the 18 and 100-Day Moving Average of Closes. Second, prices are NOT overbought according to the Stochastic Study on the bottom of the above chart. A reading over 70 would be necessary for an overbought condition to be present.
The 18 and 100-Day Moving Average of Closes are converging near the 880 level.
In terms of trend, the market is now making higher highs and high lows, which means the current chart pattern is bullish. It will take a move under 822.5 to change the current chart pattern to one of making a "lower low".
What I am looking for is the trading range to narrow in, while prices stay over the 880 price level. If this occurs, a move over a lower Swingline High, one that has not yet developed, would be a buy signal.
We are getting close to a buy signal. At this time, I recommend simply getting yourself in a position to get long. The seasonals kick in around the first of November. However, given the financial crisis, I would not be surprised to see them move forward.
I am looking to get long and will keep you updated via my Twice Daily Recommendations.
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Let's start off by looking at a Seasonal Chart of Silver as provide to us by The Moore Research Center...http://www.mrci.com/.
Like Gold, the Silver Seasonals Chart ended up with a lower September low than that of August, which has pressured prices
December Silver
Next week I will pick up on Silver analysis.
I want you to keep your existing exisiting position on. There isn't enough remaining value to give up the profit potential at this time. Since there is nearly 2-months left to run, hold.
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