Is Gold Going To Stabilize ... Or Fall Lower In Price?
Wednesday, 10. September 2008, 04:46:16
Introduction
Today, gold maintained its value relative to US stocks, as the yen carry trade further unwond, sending commodities, currencies, world stocks, and basic material stocks tumbling lower.
The continued timing and fall potential of the EURO, should be considered by every investor, as it is coming. The Euro will fall, the question is when; if it continues to fall this week, then it will be decimation unto gold, oil and commodities. If the fall of the Euro, comes later, then the US Dollar will likely fall and gold will likely rise as well.
Gold represents genuine wealth and provides protection against the financial consequences of systemic risk events. The question for all investors is "when should one own gold".
The risk of loss suffered from a falling price of gold needs to be balanced with the advantage that gold provides against systemic risk breakdown.
Do you think you should be invested in gold? ... $GOLD
Or do you think it wise to go long a bear market investment like DEE, EEV, and FXP? ... DEE, EEV, or FXP
The Euro Carry Trade Unwound Sending Commodities, Currencies, World Stocks, And Basic Material Stocks Tumbling Lower.
Stockcharts.com reported that the EUR/JPY, that is FXE:FXY, commonly called the yen carry trade, better called the Euro carry trade, fell from 1.54 to 1.52: this caused the massive stock sell off in commodities, currencies and stocks worldwide ... FXE:FXY fell to 1.52
Charts Show Commodities Have Been Taken Down Lower By The EUR/JPY
The gold ETF, GLD, fell 3% lower for the week to 76.50 ... GLD
The ongoing MSN Finance chart of GLD relative to overall US Stock market, VTI, shows that gold started to break down and fall lower in price on August 28, 2008: it is now 8% lower, while the ETF UUP reflects that the US Dollar has remained strong.
One ehcouraging fact about gold is that it has maintained its value relative to stocks, as the GLD to VTI weekly ratio, stands as 1.24 which is above support at 1.20 ... GLD VTI Weekly
Gold daily, $GOLD, shows a close at $777. Perhaps this lucky number will be the floor for gold to now head higher .... $GOLD daily closed at $777
The US Dollar, $USD, shows a close at $79.43 ... $USD daily closed at 79.43.
The Yahoo Finance five day ongoing chart of USD to EUR (USDEUR=X) relative to GLD, shows the US Dollar has risen to .7055 and that gold has lost 3% of its value in the last week.
Gold weekly goes back to its rise immediately after the Citigroup CDO Bust of October 2007 .... $GOLD Weekly
Oil, USO, fell 4% for the week to 8.35.
The commodity ETF, RJI, fell 3% for the week to 10.50 ... RJI
Currencies Have Been Selling Off
The unwinding of the yen carry trade can be seen in the daily Euro chart, and the weekly Euro chart ... FXE Daily shows June 24, July 14, and July 25-27 as important days in world economic affairs ... FXE Weekly shows how a falling Euro has been the instigator of disinvestment world wide and presents the risk of keeping the US Dollar up and pushing gold down even lower.
Said another way, a falling EUR/JPY has been the force behind many Deflationary Hurricanes.
I am "hoping" the USD/JPY falls lower, and "hoping" the EUR/JPY bounces higher; then we will see ongoing disinvestment from the US Stock market, and a rise in the price of gold.
All of the commodity currencies have fallen sharply lower ... FXA, FXS, FXC
Yen carry traders have been forced to sell their stock investments; and buy Yen, FXY, to repay their 0.5% Bank of Japan loans ... FXY
The reader of this article needs to give great heed to the fall potential of these currencies, especially the EURO; it is coming. But the question is when. I pray and hope it will not be tomorrow or later this week like the author Holistic Forex below believes; as if the fall comes now, it will be decimation unto gold. I do own a few gold coins that I bought when gold was $375, so I am not too concerned; but to those invested in the gold ETF GLD, there is concern and should be concern.
Then again the risk of loss suffered from a falling price of gold needs to be balanced with the advantage that gold provides against a systemic risk breakdown, as when it comes, hard assets like gold, cigarettes, and booze and even silver will be in demand.
World Stocks Fell Lower Today
The unwinding of the yen carry trade caused the emerging markets, EEM, to fall 5.5%, and the world shares, EFA, 3%.
Russia, RSX, -9 was the BRIC, EEB, loss leader followed by Brazil, EWZ, -7% China, FXI, -5% and India, INP -4%. Investors expressed their concerned today about a future war in the Caucasus possibly extending as far south as Syria and Israel.
Commodity intensive Australia, EWA, fell 6%.
Taiwan, EWT, fell 5% and South Korea fell 3.5%.
Commodity Stocks Fell Hard Today
The basic material stocks, IYM, that is XLE, OIH, GDX, XME, KOL, SLX all fell lower ... xle, oih, gdx, xme, kol, slx ... IYM -6%, XLE -7%, OIH -7%, GDX -9%, XME -9%, KOL -10%, SLX -7%
Potash Corporation, POT, and Rio Tinto, RTP, were yen carry trade darlings; both lost 8% today ... POT and RTP.
The HUI Indexed precious metal mining shares began to disconnect from the price of gold in November 2007 .... GDX began to disconnect from GLD late last year
Silver proved itself to be an industrial metal; and not an investment metal in March of this year as it fell sharply lower in respect to gold ... GLD compared to SLV yearly ... GLD compared to SLV six month.
Silver Standard Resources Inc has had a lot of yen carry trade investment over the years as investors bought long ago at the low price of $2 to $4. This week the investors sold out of this speculative silver mining exploration company which has never made any money producing silver ... SSRI fell 19% this week
Solar energy stocks, TAN, -12% and KWT, -12%, fell on today's lower EURO, FXE, and higher yen; and on lower oil, USO, which fell 4% on the day.
It was on June 24, 2008 that the yen carry trade began to sharply unwind and cause severe disinvestment in the resource intensive emerging markets as concerns grew over rising inflation and diminished growth opportunities; today's sell off continues to reflect these fundamental investment concerns.
The unwinding is seen here in the Yahoo Finance chart of gold, GLD, compared to EEM, SLV, GDX, XME, and SLX -- gold has held up fairly well where as the commodity stocks and silver have not.
US Stocks Fell Sharply As The US Financial Sector Went Into Meltdown
The US Stocks, VTI, fell 3.5%, as the the US financial shares, IYF, fell 6%, on concerns of Lehman's liquidity; it fell 52%. Stockbrokers and dealers, IAI, -8% investment bankers, KCE, -8% banks, KBE, -6%, Insurance, KIE, -5%.
Home construction stocks, ITB, fell 7% lower.
Clean energy stocks, PBW, fell 7% lower.
Real estate, RWR, fell 4%.
The growth shares fell more than the value shares today, as evidenced by their relative fall in value: IWP, -4%, and IWO -4%.
Semiconductors, SMH, fell 3% lower; leading the Nasdaq, QQQQ, 2% lower; Sandisk, SNDK, fell 7% and Cypress Semiconductors 9% ... SNDK, CY
Indices fell as follows:
the Russell 2000, IWM, $RUT, -2%, ... IWM
the S&P, SPY, $SPX, -3%
the Dow, DIA, $INDU, -2%
the Nasdaq, QQQQ, $NDX -2%
The ratio of the Russell 2000 Value Shares compared to the Growth Shares, IWN:IWO, remains elevated at 0.91, which is the January 2007 to April 2007 level, as the growth shares, IWO, fell more than the value shares, IWN, ... IWN:IWO Weekly ... IWN:IWO Daily
The IWN:IWO weekly chart is important to understanding the coming fast fall of the Russell 2000, which is comprised of small US companies highly dependent upon a functional banking system. The US system is in desperate shape. Therefore as the banks and investment bankers go into greater meltdown; the Russell 2000, will be lead by its value shares quickly lower.
Yet a fall in the bank stocks, IAT, definitely turned down the value stocks FTA, RZV, IWN and FAB .... IAT turned down FTA, RZV, IWN and FAB
The Bear Market Definitely Reasserted Itself As Transportation And Utility Shares Fell Lower
The bear market picked up speed again as the transportation shares, IYT, joined in turning dramatically lower: they fell 3% lower, on a lower price of oil. In theory they should have risen on the lower oil price ... IYT
With both transportation, IYT, and industrials, XLI, now falling lower, we have Dow Theory confirmation of a bear market ... XLI
Utility shares, VPU, continued to fall lower, they closed off 3%. Look at how they have sold off since June 23, 2008; I believe the yen carry traders went short utilities at that time. The double down in the utility shares suggests that short sellers of this sector should take profit at this time. And the double down in the utility share suggests we should see a bounce up in gold, GLD. ... VPU
We are well into Kondratieff Winter
Being well into Kondratieff Winter, there will be an ever increasing application of the Liquidation Thesis where government services and payments, service sector jobs, public and private debt of all types, and unfunded retiree benefits are going to be liquidated, that is done away with.
Health care REITS such as LTC Properties, LTC, which invests in long-term care properties whose services are paid for by the US Government will see their stock value rapidly depleted ... LTC
Bear Market ETFs Rose In Value
My perspective is these have two have topped out:
The 200% inverse of the emerging markets EEV rose 12% to 117.
The 200% inverse of China, FXP, rose 12% to 101.
My perspective is that these three are in cup and handle pattern breakout:
The 200% inverse of the Nasdaq 100, QTEC, QID, rose 3%, QID
The 200% inverse of the Dow 30, DXD, rose 4%.
The 200% inverse of the S&P, SDS, rose 6%
I personally am invested in SKF, currently at a loss.
The 200% inverse of the Financial Sector, SKF, rose 11% to 114 ... SKF
Since July 24, 2008, DEE, EEV and FXP have gone up and SKF has gone down. Is a change about to occur? I think so and I think the change will be good for gold; that is why I recommend an investment in gold ... SKF vs EEV and FXP have gone up since July 24 as seen in this chart beginning in early June 2007
Peak Dollar Likely Arrived Today
UUP rose 0.04% to close at $24.50, and manifested a lollipop hanging man candlestick, suggesting that a top is in for this ETF and for gold ... UUP
The US Dollar, $USD, closed 0.05% lower at 79.43, manifesting a long legged bearish doji ... $USD
The US Dollar had been supported by a strong USD/JPY; but today it turned lower in addition to the EUR/JPY, falling lower, as can be seen in the 5 day ongoing Yahoo Finance chart of the USD/JPY relative to the EUR/JPY ... USD/JPY compared to EUR/JPY
Peak US Treasuries Likely Arrived Today As Well
Tomorrow, there will likely be a bounce up in stocks, and a corresponding fall lower in US Treasuries making for the likely beginning of a run on the US Treasuries, as concern grows over the cost of the bailout of Freddie Mac, FRE, and Fannie Mae, FNM, and ongoing concern over the level two and level three assets at banks, investment bankers, insurance companies, and in real estate organizations world wide.
A lifetime high was likely put in today, in US Government Bonds, TLT, and in the zero coupon mutual bond fund BTTRX ... TLT Daily and TLT Weekly and BTTRX
The futures market place US Treasuries, $USB, barely moved higher ... $USB
The ratio of the cash Treasuries to its futures companion, TLT:$USB, shows TLT, to be over extended and suggests the wisdom of an investment in TBT, or better yet DXKSX ... TLT:$USB and DXKSX
The interest rate on the 10 Year US Treasury Bond, $TNX, is likely putting in a double bottom ... $TNX
And the interest rate on the 30 Year US Treasury Bond, $TYX, likely put in a spiked bottom today ... $TYX
A top is likely in DXKLX, suggesting the wisdom of purchasing DXKSX .... DXKLX and DXKSX
The 5 day ongoing Yahoo Finance chart of the interest rate on the 10 Year US Treasury, ^TYX, suggests the bond market place may call interest rates higher as concerns grow over a number of investment factors ... ^TYX
Higher interest rates will be bullish for gold ... eventually ... if it is not injured by the EUR/JPY turning lower this week or next.
The Battle Between The US Dollar And Gold Can Be Followed In These Web Places
The ongoing 5 day Yahoo Finance of UUP compared to GLD.
The INO.com Dollar, Dow and Gold Page.
The Yahoo Finance five day ongoing chart of USD to EUR (USDEUR=X) relative to GLD.
The ongoing MSN Finance chart of GLD relative to overall US Stock market, VTI.
The 5 day ongoing Yahoo Finance chart of the USD/JPY relative to the EUR/JPY.
For reference and insight in the ongoing Gold and US Dollar, 321Gold.com, provides good daily reference with both charts and timely articles.
Although, there is a bullish cross in the US Dollar chart; and a bearish cross in the gold chart, I believe the dollar will capitulate; and gold arise the victor to rule currency trade world wide.
Yes it's reasonable to believe that the Dollar is topping out: the day off Peak Dollar is fast approaching. As stocks fall from here, risk aversion will manifest to being long the US Dollar. I fully expect the USD/JPY to sell off from 108.035 as is seen in this on going FXStreet chart of the USD/JPY, aiding in the fall of the Dollar.
And I am hoping that the EUR/JPY will rise from 152.62 as is seen in this ongoing FXStreet chart of the EUR/JPY.
If the EUR/JPY continues to fall lower this week from 152.62, which would come from trader reaction to Trichet' remarks due out tomorrow, then it will likely mean decimation for the gold.
It's unfortunate that we live in a world that is now driven by the currency traders, and their interplay with central bank rates. This interplay once benefited gold, but in a world of deflationary concerns, currency leverag is taking gold sharply lower.
The trouble in the world financial system stems largely from the 0.5% interest rate loans that the "well connected" currency and stock traders get from the Bank of Japan.
Stockcharts.com shows the EUR/JPY to be 1.52 today August 9, 2008; it is likely to bounce higher from here: in as much, as I own gold coins, and am suggesting others invest in gold, we need to see a rise from 1.52.
My Investment Maxim Is Two Fold
Sell at market tops; buy at market bottoms.
In a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength.
Please understand that I am not a licensed investment professional, I am a low income blogger who writes to document the investment demand for gold, the soon coming enforcement of the Security and Prosperity Partnership, the SPP, and the Liquidation Thesis. I have a very limited portfolio consisting of some SKF, and few gold coins in the sock drawer. One should always consult an investment professional before making any investment decision.
The Investment Application
We are definitely in a bear stock market, therefore I recommend the use a trust account to
1) buy 200% inverse of the financial sector SKF
2) sell short the guarantors: MBI, ABK;
3) sell short the suretors: RDN, MTG, SUR, AGO, SCA,
4) sell short homebuilders: XHB,
And I recommend the purchase of gold at BullionVault.com and GoldMoney.com as protection against systemic risk events -- the risk of a financial marketplace breakdown.
And for corporations the purchase of DXKSX in as much as we are in a market bottom at 13.25.
A major reason for for buying gold is that the former well springs of liquidity, the USD/JPY and the EUR/JPY, have now gone toxic on risk aversion to inflation, debt and decreased profit and growth opportunity.
These currency pairs will now be the 'saws of destruction' working to cut asunder fiat wealth; and in the process of sawing, gold will fall out as the world's currency and measure and means of garnering and preserving wealth.
In as much as gold relative to US Stocks, GLD:VTI continues to stay above 1.15, there is an measurable ongoing investment demand for gold.
The investment demand for gold is seen in the 3 month ongoing Yahoo Finance chart of GLD compared to GDX, XME, SLX, EEM, SLV. The story here two fold: First, the unwinding yen carry trade, FXE:FXY, has caused disinvestment from the natural resource stocks. And second, disinvestment from commodity currencies, the Euro, FXE, the Australian Dollar, FXA, and the Canadian Dollar, FXC, has caused disinvestment from the emerging markets as risk aversion has grown to being invested long, due to rising producer price inflation, diminished growth prospects, and the level two and level three assets at banks and investment bankers ... GLD, GDX, XME, SLX, EEM, SLV
And the investment demand for gold is communicated in the three month on going Yahoo finance comparison of the gold ETF, GLD, to the commodities ETF, RJI, and the oil ETF, USO .... three month GLD, RJI and USO
West Texas Intermediate Crude, $WTIC, closed at 106.00; which is approximately near the level in Rick Pendergraft article How the Government’s Short-Selling Ban Killed Oil Prices.
The Potential Of Systemic Risk Is The Most Compelling Reason For Investment In Gold
Systemic Risk potentialities abound ... yes little fires continually burn and can become monster blazes that burn entire nations, and even the world financial system to the ground ... that is why one should be invested in gold.
Here is just one of many systemic risk potentials that exists at the current time:
Oliver Biggadike and Shannon D. Harrington of Bloomberg in article Fannie, Freddie Credit-Default Swaps May Be Settled report that investors may be forced to settle contracts protecting more than $1.4 trillion of Fannie Mae and Freddie Mac bonds against default after the U.S. seized control of the companies in a bid to bolster the housing market.
Thirteen ``major'' dealers of credit-default swaps agreed ``unanimously'' that the rescue constitutes a credit event triggering payment or delivery of the companies' bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Market makers for the privately traded contracts will discuss how to settle them in a conference call at 11 a.m. in New York, the document said.
``This is a big deal,'' said Sarah Percy-Dove, head of credit research at Colonial First State Global Asset Management in Sydney. ``The market is not experienced at settling a credit event for a name of this size, so it is a bit of an unknown.
Systemic Risk events do happen. Rob Kirby writing in Financial Sense.com article The Stars are Aligning - But For What? writes that Fannie and Freddie were finally nationalized on Sunday, September 7, 2008 – a date that may very well live in infamy. Shareholders of the mortgage behemoth mortgage giants have been effectively wiped out ... yes wiped out by the US Government ... that's why I recommend gold.
Summary Comments
Capitalism and sound investing opportunities died this last weekend as Freddie Mac and Fannie Mae were nationalized, state corporate rule now governs commerce, finance, trade and investment.
As Jesse relates succinctly == Word For The Day: State Capitalism
This alone should be the reason for investing in gold.
Contrary Cautions Come From Holistic Forex
Trade Team Update by Holistic Forex relates:
To be honest I'm not even really sure what to say about all these events happening and resulting chaos in the markets. You can read some really great articles at the Financial Times if you're not able to watch the markets all day long.
For the rest of us that do this full-time I don't see a whole lot of mystery here and things are very self-explanatory. We knew this madness was coming and we know it's not going away anytime soon.
Tomorrow
I hope I'm not catching the market madness that's going around the trade rooms of the world but I'm sensing there's a high probability the euro takes another extended leg down between tomorrow and Friday.
Tomorrow's big event is Trichet of course. He speaks right as London opens and he will be testify before a government panel on economic and monetary issues. This certainly puts the euro at tremendous risk because as we talked about before last week's rate meeting, I do not see there is much Trichet can say to help the euro. And that the higher probability is that his comments will hurt the euro. Same potential holds true tomorrow.
The other factor tomorrow will be the Crude Inventories. I'm still calling $100 or lower crude this week. We dipped below $102 and I believe if the data prints negative for crude that we can hit the target.
Gold certainly has more room to drop. Just a few days ago gold was able to hold onto gains above $800 but this is no longer the case. Should crude break the $100 level this could easily spark a strong sell-off in gold and then in the euro. Be advised.
EUR/USD
Today's housing data printed strong to the downside, exceeding my forecast. There was almost no move against the dollar based on this abysmal housing news. It's signs like that keeping me shorting the euro because it takes away any potential to form a bottom.
The weakness in commodities will also prevent the euro from finding a bottom. Simply put, the euro will not stop falling until crude and gold stop selling off. If crude has to test the low $90's or high $80's, the euro is just going to keep falling with it until crude buyers emerge and the bulls are firmly in control of the game.
As far as trading goes, I've been using price action to make a certain move and it's been paying out beautifully. Basically, whenever we retrace back up close to a round number, I short. For example, on Sunday I shorted at 1.4406 and 1.4412. Today I shorted at 1.4195 and 1.4216. I've been taking those kinds of trades on those types of moves for the past week and a half and as I said, the results are been awesome. You may want to look for those opportunities as long as these types of conditions continue in the short-term.
Tomorrow's trading is looking to be volatile in all markets across the board. We could easily see another extended move with the euro tomorrow as all the big players to continue to re-position themselves, liquidate positions, suffer margin calls, redirect money flows, and pour liquidity into certain sectors.
My trades will be nothing but euro shorts for the next 20-hours unless the market shows me otherwise. If I see opportunities on other pairs like the yen I may even short those especially if the equities market moves in a way to cause pairs like the USD/JPY and EUR/JPY to fall.
More Caution Comes From Afraid To Trade
Corey Rosenbloom relates in article Foreign Currencies Plunge that intermarket analysis frequently begins with the US Dollar Index as a base to build the structure for cross-market trends, and the Dollar Index trend must be declared officially as “up” since forming higher lows, higher highs, and breaking above these levels and the weekly moving averages. A positive moving average cross (which now looks inevitable) would be a further confirmation of a trend reversal underway.
Continue to watch currencies even if you’re not specifically a FOREX trader - you may pick up on insights you may have missed before!
Speaking of FOREX, Adam Hewison of the Market Club released a brief video on signals in the FOREX market entitled “FOREX in 90 seconds” which shows a brief overview of the Market Club strategies (using multiple time frames) and trading signals - it’s definately worth considering.
Suggested Reading On The Potential Of The Response To A Systemic Risk Event
Soon Coming Enforcement Of The SPP Places Ones Investments At Risk
Today, gold maintained its value relative to US stocks, as the yen carry trade further unwond, sending commodities, currencies, world stocks, and basic material stocks tumbling lower.
The continued timing and fall potential of the EURO, should be considered by every investor, as it is coming. The Euro will fall, the question is when; if it continues to fall this week, then it will be decimation unto gold, oil and commodities. If the fall of the Euro, comes later, then the US Dollar will likely fall and gold will likely rise as well.
Gold represents genuine wealth and provides protection against the financial consequences of systemic risk events. The question for all investors is "when should one own gold".
The risk of loss suffered from a falling price of gold needs to be balanced with the advantage that gold provides against systemic risk breakdown.
Do you think you should be invested in gold? ... $GOLD
Or do you think it wise to go long a bear market investment like DEE, EEV, and FXP? ... DEE, EEV, or FXP
The Euro Carry Trade Unwound Sending Commodities, Currencies, World Stocks, And Basic Material Stocks Tumbling Lower.
Stockcharts.com reported that the EUR/JPY, that is FXE:FXY, commonly called the yen carry trade, better called the Euro carry trade, fell from 1.54 to 1.52: this caused the massive stock sell off in commodities, currencies and stocks worldwide ... FXE:FXY fell to 1.52
Charts Show Commodities Have Been Taken Down Lower By The EUR/JPY
The gold ETF, GLD, fell 3% lower for the week to 76.50 ... GLD
The ongoing MSN Finance chart of GLD relative to overall US Stock market, VTI, shows that gold started to break down and fall lower in price on August 28, 2008: it is now 8% lower, while the ETF UUP reflects that the US Dollar has remained strong.
One ehcouraging fact about gold is that it has maintained its value relative to stocks, as the GLD to VTI weekly ratio, stands as 1.24 which is above support at 1.20 ... GLD VTI Weekly
Gold daily, $GOLD, shows a close at $777. Perhaps this lucky number will be the floor for gold to now head higher .... $GOLD daily closed at $777
The US Dollar, $USD, shows a close at $79.43 ... $USD daily closed at 79.43.
The Yahoo Finance five day ongoing chart of USD to EUR (USDEUR=X) relative to GLD, shows the US Dollar has risen to .7055 and that gold has lost 3% of its value in the last week.
Gold weekly goes back to its rise immediately after the Citigroup CDO Bust of October 2007 .... $GOLD Weekly
Oil, USO, fell 4% for the week to 8.35.
The commodity ETF, RJI, fell 3% for the week to 10.50 ... RJI
Currencies Have Been Selling Off
The unwinding of the yen carry trade can be seen in the daily Euro chart, and the weekly Euro chart ... FXE Daily shows June 24, July 14, and July 25-27 as important days in world economic affairs ... FXE Weekly shows how a falling Euro has been the instigator of disinvestment world wide and presents the risk of keeping the US Dollar up and pushing gold down even lower.
Said another way, a falling EUR/JPY has been the force behind many Deflationary Hurricanes.
I am "hoping" the USD/JPY falls lower, and "hoping" the EUR/JPY bounces higher; then we will see ongoing disinvestment from the US Stock market, and a rise in the price of gold.
All of the commodity currencies have fallen sharply lower ... FXA, FXS, FXC
Yen carry traders have been forced to sell their stock investments; and buy Yen, FXY, to repay their 0.5% Bank of Japan loans ... FXY
The reader of this article needs to give great heed to the fall potential of these currencies, especially the EURO; it is coming. But the question is when. I pray and hope it will not be tomorrow or later this week like the author Holistic Forex below believes; as if the fall comes now, it will be decimation unto gold. I do own a few gold coins that I bought when gold was $375, so I am not too concerned; but to those invested in the gold ETF GLD, there is concern and should be concern.
Then again the risk of loss suffered from a falling price of gold needs to be balanced with the advantage that gold provides against a systemic risk breakdown, as when it comes, hard assets like gold, cigarettes, and booze and even silver will be in demand.
World Stocks Fell Lower Today
The unwinding of the yen carry trade caused the emerging markets, EEM, to fall 5.5%, and the world shares, EFA, 3%.
Russia, RSX, -9 was the BRIC, EEB, loss leader followed by Brazil, EWZ, -7% China, FXI, -5% and India, INP -4%. Investors expressed their concerned today about a future war in the Caucasus possibly extending as far south as Syria and Israel.
Commodity intensive Australia, EWA, fell 6%.
Taiwan, EWT, fell 5% and South Korea fell 3.5%.
Commodity Stocks Fell Hard Today
The basic material stocks, IYM, that is XLE, OIH, GDX, XME, KOL, SLX all fell lower ... xle, oih, gdx, xme, kol, slx ... IYM -6%, XLE -7%, OIH -7%, GDX -9%, XME -9%, KOL -10%, SLX -7%
Potash Corporation, POT, and Rio Tinto, RTP, were yen carry trade darlings; both lost 8% today ... POT and RTP.
The HUI Indexed precious metal mining shares began to disconnect from the price of gold in November 2007 .... GDX began to disconnect from GLD late last year
Silver proved itself to be an industrial metal; and not an investment metal in March of this year as it fell sharply lower in respect to gold ... GLD compared to SLV yearly ... GLD compared to SLV six month.
Silver Standard Resources Inc has had a lot of yen carry trade investment over the years as investors bought long ago at the low price of $2 to $4. This week the investors sold out of this speculative silver mining exploration company which has never made any money producing silver ... SSRI fell 19% this week
Solar energy stocks, TAN, -12% and KWT, -12%, fell on today's lower EURO, FXE, and higher yen; and on lower oil, USO, which fell 4% on the day.
It was on June 24, 2008 that the yen carry trade began to sharply unwind and cause severe disinvestment in the resource intensive emerging markets as concerns grew over rising inflation and diminished growth opportunities; today's sell off continues to reflect these fundamental investment concerns.
The unwinding is seen here in the Yahoo Finance chart of gold, GLD, compared to EEM, SLV, GDX, XME, and SLX -- gold has held up fairly well where as the commodity stocks and silver have not.
US Stocks Fell Sharply As The US Financial Sector Went Into Meltdown
The US Stocks, VTI, fell 3.5%, as the the US financial shares, IYF, fell 6%, on concerns of Lehman's liquidity; it fell 52%. Stockbrokers and dealers, IAI, -8% investment bankers, KCE, -8% banks, KBE, -6%, Insurance, KIE, -5%.
Home construction stocks, ITB, fell 7% lower.
Clean energy stocks, PBW, fell 7% lower.
Real estate, RWR, fell 4%.
The growth shares fell more than the value shares today, as evidenced by their relative fall in value: IWP, -4%, and IWO -4%.
Semiconductors, SMH, fell 3% lower; leading the Nasdaq, QQQQ, 2% lower; Sandisk, SNDK, fell 7% and Cypress Semiconductors 9% ... SNDK, CY
Indices fell as follows:
the Russell 2000, IWM, $RUT, -2%, ... IWM
the S&P, SPY, $SPX, -3%
the Dow, DIA, $INDU, -2%
the Nasdaq, QQQQ, $NDX -2%
The ratio of the Russell 2000 Value Shares compared to the Growth Shares, IWN:IWO, remains elevated at 0.91, which is the January 2007 to April 2007 level, as the growth shares, IWO, fell more than the value shares, IWN, ... IWN:IWO Weekly ... IWN:IWO Daily
The IWN:IWO weekly chart is important to understanding the coming fast fall of the Russell 2000, which is comprised of small US companies highly dependent upon a functional banking system. The US system is in desperate shape. Therefore as the banks and investment bankers go into greater meltdown; the Russell 2000, will be lead by its value shares quickly lower.
Yet a fall in the bank stocks, IAT, definitely turned down the value stocks FTA, RZV, IWN and FAB .... IAT turned down FTA, RZV, IWN and FAB
The Bear Market Definitely Reasserted Itself As Transportation And Utility Shares Fell Lower
The bear market picked up speed again as the transportation shares, IYT, joined in turning dramatically lower: they fell 3% lower, on a lower price of oil. In theory they should have risen on the lower oil price ... IYT
With both transportation, IYT, and industrials, XLI, now falling lower, we have Dow Theory confirmation of a bear market ... XLI
Utility shares, VPU, continued to fall lower, they closed off 3%. Look at how they have sold off since June 23, 2008; I believe the yen carry traders went short utilities at that time. The double down in the utility shares suggests that short sellers of this sector should take profit at this time. And the double down in the utility share suggests we should see a bounce up in gold, GLD. ... VPU
We are well into Kondratieff Winter
Being well into Kondratieff Winter, there will be an ever increasing application of the Liquidation Thesis where government services and payments, service sector jobs, public and private debt of all types, and unfunded retiree benefits are going to be liquidated, that is done away with.
Health care REITS such as LTC Properties, LTC, which invests in long-term care properties whose services are paid for by the US Government will see their stock value rapidly depleted ... LTC
Bear Market ETFs Rose In Value
My perspective is these have two have topped out:
The 200% inverse of the emerging markets EEV rose 12% to 117.
The 200% inverse of China, FXP, rose 12% to 101.
My perspective is that these three are in cup and handle pattern breakout:
The 200% inverse of the Nasdaq 100, QTEC, QID, rose 3%, QID
The 200% inverse of the Dow 30, DXD, rose 4%.
The 200% inverse of the S&P, SDS, rose 6%
I personally am invested in SKF, currently at a loss.
The 200% inverse of the Financial Sector, SKF, rose 11% to 114 ... SKF
Since July 24, 2008, DEE, EEV and FXP have gone up and SKF has gone down. Is a change about to occur? I think so and I think the change will be good for gold; that is why I recommend an investment in gold ... SKF vs EEV and FXP have gone up since July 24 as seen in this chart beginning in early June 2007
Peak Dollar Likely Arrived Today
UUP rose 0.04% to close at $24.50, and manifested a lollipop hanging man candlestick, suggesting that a top is in for this ETF and for gold ... UUP
The US Dollar, $USD, closed 0.05% lower at 79.43, manifesting a long legged bearish doji ... $USD
The US Dollar had been supported by a strong USD/JPY; but today it turned lower in addition to the EUR/JPY, falling lower, as can be seen in the 5 day ongoing Yahoo Finance chart of the USD/JPY relative to the EUR/JPY ... USD/JPY compared to EUR/JPY
Peak US Treasuries Likely Arrived Today As Well
Tomorrow, there will likely be a bounce up in stocks, and a corresponding fall lower in US Treasuries making for the likely beginning of a run on the US Treasuries, as concern grows over the cost of the bailout of Freddie Mac, FRE, and Fannie Mae, FNM, and ongoing concern over the level two and level three assets at banks, investment bankers, insurance companies, and in real estate organizations world wide.
A lifetime high was likely put in today, in US Government Bonds, TLT, and in the zero coupon mutual bond fund BTTRX ... TLT Daily and TLT Weekly and BTTRX
The futures market place US Treasuries, $USB, barely moved higher ... $USB
The ratio of the cash Treasuries to its futures companion, TLT:$USB, shows TLT, to be over extended and suggests the wisdom of an investment in TBT, or better yet DXKSX ... TLT:$USB and DXKSX
The interest rate on the 10 Year US Treasury Bond, $TNX, is likely putting in a double bottom ... $TNX
And the interest rate on the 30 Year US Treasury Bond, $TYX, likely put in a spiked bottom today ... $TYX
A top is likely in DXKLX, suggesting the wisdom of purchasing DXKSX .... DXKLX and DXKSX
The 5 day ongoing Yahoo Finance chart of the interest rate on the 10 Year US Treasury, ^TYX, suggests the bond market place may call interest rates higher as concerns grow over a number of investment factors ... ^TYX
Higher interest rates will be bullish for gold ... eventually ... if it is not injured by the EUR/JPY turning lower this week or next.
The Battle Between The US Dollar And Gold Can Be Followed In These Web Places
The ongoing 5 day Yahoo Finance of UUP compared to GLD.
The INO.com Dollar, Dow and Gold Page.
The Yahoo Finance five day ongoing chart of USD to EUR (USDEUR=X) relative to GLD.
The ongoing MSN Finance chart of GLD relative to overall US Stock market, VTI.
The 5 day ongoing Yahoo Finance chart of the USD/JPY relative to the EUR/JPY.
For reference and insight in the ongoing Gold and US Dollar, 321Gold.com, provides good daily reference with both charts and timely articles.
Although, there is a bullish cross in the US Dollar chart; and a bearish cross in the gold chart, I believe the dollar will capitulate; and gold arise the victor to rule currency trade world wide.
Yes it's reasonable to believe that the Dollar is topping out: the day off Peak Dollar is fast approaching. As stocks fall from here, risk aversion will manifest to being long the US Dollar. I fully expect the USD/JPY to sell off from 108.035 as is seen in this on going FXStreet chart of the USD/JPY, aiding in the fall of the Dollar.
And I am hoping that the EUR/JPY will rise from 152.62 as is seen in this ongoing FXStreet chart of the EUR/JPY.
If the EUR/JPY continues to fall lower this week from 152.62, which would come from trader reaction to Trichet' remarks due out tomorrow, then it will likely mean decimation for the gold.
It's unfortunate that we live in a world that is now driven by the currency traders, and their interplay with central bank rates. This interplay once benefited gold, but in a world of deflationary concerns, currency leverag is taking gold sharply lower.
The trouble in the world financial system stems largely from the 0.5% interest rate loans that the "well connected" currency and stock traders get from the Bank of Japan.
Stockcharts.com shows the EUR/JPY to be 1.52 today August 9, 2008; it is likely to bounce higher from here: in as much, as I own gold coins, and am suggesting others invest in gold, we need to see a rise from 1.52.
My Investment Maxim Is Two Fold
Sell at market tops; buy at market bottoms.
In a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength.
Please understand that I am not a licensed investment professional, I am a low income blogger who writes to document the investment demand for gold, the soon coming enforcement of the Security and Prosperity Partnership, the SPP, and the Liquidation Thesis. I have a very limited portfolio consisting of some SKF, and few gold coins in the sock drawer. One should always consult an investment professional before making any investment decision.
The Investment Application
We are definitely in a bear stock market, therefore I recommend the use a trust account to
1) buy 200% inverse of the financial sector SKF
2) sell short the guarantors: MBI, ABK;
3) sell short the suretors: RDN, MTG, SUR, AGO, SCA,
4) sell short homebuilders: XHB,
And I recommend the purchase of gold at BullionVault.com and GoldMoney.com as protection against systemic risk events -- the risk of a financial marketplace breakdown.
And for corporations the purchase of DXKSX in as much as we are in a market bottom at 13.25.
A major reason for for buying gold is that the former well springs of liquidity, the USD/JPY and the EUR/JPY, have now gone toxic on risk aversion to inflation, debt and decreased profit and growth opportunity.
These currency pairs will now be the 'saws of destruction' working to cut asunder fiat wealth; and in the process of sawing, gold will fall out as the world's currency and measure and means of garnering and preserving wealth.
In as much as gold relative to US Stocks, GLD:VTI continues to stay above 1.15, there is an measurable ongoing investment demand for gold.
The investment demand for gold is seen in the 3 month ongoing Yahoo Finance chart of GLD compared to GDX, XME, SLX, EEM, SLV. The story here two fold: First, the unwinding yen carry trade, FXE:FXY, has caused disinvestment from the natural resource stocks. And second, disinvestment from commodity currencies, the Euro, FXE, the Australian Dollar, FXA, and the Canadian Dollar, FXC, has caused disinvestment from the emerging markets as risk aversion has grown to being invested long, due to rising producer price inflation, diminished growth prospects, and the level two and level three assets at banks and investment bankers ... GLD, GDX, XME, SLX, EEM, SLV
And the investment demand for gold is communicated in the three month on going Yahoo finance comparison of the gold ETF, GLD, to the commodities ETF, RJI, and the oil ETF, USO .... three month GLD, RJI and USO
West Texas Intermediate Crude, $WTIC, closed at 106.00; which is approximately near the level in Rick Pendergraft article How the Government’s Short-Selling Ban Killed Oil Prices.
The Potential Of Systemic Risk Is The Most Compelling Reason For Investment In Gold
Systemic Risk potentialities abound ... yes little fires continually burn and can become monster blazes that burn entire nations, and even the world financial system to the ground ... that is why one should be invested in gold.
Here is just one of many systemic risk potentials that exists at the current time:
Oliver Biggadike and Shannon D. Harrington of Bloomberg in article Fannie, Freddie Credit-Default Swaps May Be Settled report that investors may be forced to settle contracts protecting more than $1.4 trillion of Fannie Mae and Freddie Mac bonds against default after the U.S. seized control of the companies in a bid to bolster the housing market.
Thirteen ``major'' dealers of credit-default swaps agreed ``unanimously'' that the rescue constitutes a credit event triggering payment or delivery of the companies' bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Market makers for the privately traded contracts will discuss how to settle them in a conference call at 11 a.m. in New York, the document said.
``This is a big deal,'' said Sarah Percy-Dove, head of credit research at Colonial First State Global Asset Management in Sydney. ``The market is not experienced at settling a credit event for a name of this size, so it is a bit of an unknown.
Systemic Risk events do happen. Rob Kirby writing in Financial Sense.com article The Stars are Aligning - But For What? writes that Fannie and Freddie were finally nationalized on Sunday, September 7, 2008 – a date that may very well live in infamy. Shareholders of the mortgage behemoth mortgage giants have been effectively wiped out ... yes wiped out by the US Government ... that's why I recommend gold.
Summary Comments
Capitalism and sound investing opportunities died this last weekend as Freddie Mac and Fannie Mae were nationalized, state corporate rule now governs commerce, finance, trade and investment.
As Jesse relates succinctly == Word For The Day: State Capitalism
This alone should be the reason for investing in gold.
Contrary Cautions Come From Holistic Forex
Trade Team Update by Holistic Forex relates:
To be honest I'm not even really sure what to say about all these events happening and resulting chaos in the markets. You can read some really great articles at the Financial Times if you're not able to watch the markets all day long.
For the rest of us that do this full-time I don't see a whole lot of mystery here and things are very self-explanatory. We knew this madness was coming and we know it's not going away anytime soon.
Tomorrow
I hope I'm not catching the market madness that's going around the trade rooms of the world but I'm sensing there's a high probability the euro takes another extended leg down between tomorrow and Friday.
Tomorrow's big event is Trichet of course. He speaks right as London opens and he will be testify before a government panel on economic and monetary issues. This certainly puts the euro at tremendous risk because as we talked about before last week's rate meeting, I do not see there is much Trichet can say to help the euro. And that the higher probability is that his comments will hurt the euro. Same potential holds true tomorrow.
The other factor tomorrow will be the Crude Inventories. I'm still calling $100 or lower crude this week. We dipped below $102 and I believe if the data prints negative for crude that we can hit the target.
Gold certainly has more room to drop. Just a few days ago gold was able to hold onto gains above $800 but this is no longer the case. Should crude break the $100 level this could easily spark a strong sell-off in gold and then in the euro. Be advised.
EUR/USD
Today's housing data printed strong to the downside, exceeding my forecast. There was almost no move against the dollar based on this abysmal housing news. It's signs like that keeping me shorting the euro because it takes away any potential to form a bottom.
The weakness in commodities will also prevent the euro from finding a bottom. Simply put, the euro will not stop falling until crude and gold stop selling off. If crude has to test the low $90's or high $80's, the euro is just going to keep falling with it until crude buyers emerge and the bulls are firmly in control of the game.
As far as trading goes, I've been using price action to make a certain move and it's been paying out beautifully. Basically, whenever we retrace back up close to a round number, I short. For example, on Sunday I shorted at 1.4406 and 1.4412. Today I shorted at 1.4195 and 1.4216. I've been taking those kinds of trades on those types of moves for the past week and a half and as I said, the results are been awesome. You may want to look for those opportunities as long as these types of conditions continue in the short-term.
Tomorrow's trading is looking to be volatile in all markets across the board. We could easily see another extended move with the euro tomorrow as all the big players to continue to re-position themselves, liquidate positions, suffer margin calls, redirect money flows, and pour liquidity into certain sectors.
My trades will be nothing but euro shorts for the next 20-hours unless the market shows me otherwise. If I see opportunities on other pairs like the yen I may even short those especially if the equities market moves in a way to cause pairs like the USD/JPY and EUR/JPY to fall.
More Caution Comes From Afraid To Trade
Corey Rosenbloom relates in article Foreign Currencies Plunge that intermarket analysis frequently begins with the US Dollar Index as a base to build the structure for cross-market trends, and the Dollar Index trend must be declared officially as “up” since forming higher lows, higher highs, and breaking above these levels and the weekly moving averages. A positive moving average cross (which now looks inevitable) would be a further confirmation of a trend reversal underway.
Continue to watch currencies even if you’re not specifically a FOREX trader - you may pick up on insights you may have missed before!
Speaking of FOREX, Adam Hewison of the Market Club released a brief video on signals in the FOREX market entitled “FOREX in 90 seconds” which shows a brief overview of the Market Club strategies (using multiple time frames) and trading signals - it’s definately worth considering.
Suggested Reading On The Potential Of The Response To A Systemic Risk Event
Soon Coming Enforcement Of The SPP Places Ones Investments At Risk
WIDGETIZE