Market Update 19 Apr 2013: Massive Currency Rally
Another "mostly higher" week, led by a massive rally in all currencies. The only asset classes that fell for the week were silver bullion and gold stocks.
Bitcoin had another volatile week, but in the end recovered strongly from last week's "crash", leading all other asset classes by rising 52.5% to finish at 2,643 mg. It's not over yet, folks: expect more wild price action as newcomers work through the process of price discovery in a thinly traded market. For comparison, the London market trades about 640 tonnes of gold per day. Last week, Mt. Gox trading between bitcoins and USD had a daily average volume of 0.5 tonnes. In fact, the entire world supply of bitcoins currently has a value of about 30 tonnes, less than 5% of the gold traded each day in London.
The HUI gold miners hit a new 12-year low of 5.75 g on Wednesday, but rallied to close the week at 5.94 g, down 2.7%. I would not be surprised to see the 6.5 g level tested as resistance before another move down toward the old low at 4.2 g. As much as I believe that purchases of select mining stocks bought at these levels will do well over the next year or so, I would keep my power dry (in gold) until it is clear that gold stocks are once again in an uptrend. This will probably happen from significantly lower levels, giving more profit potential for lower risk than purchases made today.
The government-issued currencies were all much higher, led by the JPY, which rose 10.9%. The USD gained 9.2% to close at 22.1 mg, after trading as high as 22.5 mg on Tuesday. It is currently 35% above its half-life curve, in record high territory. To me, the USD is looking a lot like Bitcoin did last week. Nothing says it can't continue even higher for a while, but I'd be much more inclined to sell at these levels, and move to cash (gold).
Is this a central/bullion bank market manipulation? Is it due to concerns about Cyprus being forced to sell off its gold reserves? Was it sparked by April 15th tax selling in the US? Is a growth slowdown in China causing a global rush into the "safety" of government issued bonds and currency? Theories and speculations abound, but whatever the reason, I see this as a golden opportunity to trade out of overvalued paper assets and into real money: gold.
Bonds followed the USD higher, with the short term SHY gaining 9.3%, while the immensely popular long term TLT rose 10.1% to close at 2.72 g. TLT blew through resistance at 2.55 g, leaving the path higher clear to about 2.9 g.
Commodities were higher, with the exception of Silver, which fell 5.7% to 0.524 g, giving up all of its gains from last week and then some. Coffee was the week's biggest winner (aside from the ever volatile Bitcoin), gaining 14.4% to close at 31.3 mg/lb. Platinum gained 2.8% to close the week 1.4% above parity with gold.