Market Update 21 Jun 2013: Gold Stocks and Silver in Free-fall
Markets were mainly higher this week, with gold stocks and silver the only exceptions.
Bitcoin more than made up for last week's losses, gaining 18.8% to close at 2.67 g. Trading volume was light this week, averaging only 73 kg per day.
Although all the government currencies were strong this week, the Japanese Yen and the USD traded places, with the JPY up "only" 4.5% while the USD led the pack rising 7.4% and ending the week a stunning 51% above it's half-life curve. If you haven't yet taken advantage of the dollar's extreme overvaluation, please consider how best to benefit from it. For now, I recommend physical precious metals, especially gold and platinum. This will help you keep your powder dry for the time when silver, gold stocks, and other undervalued investments have formed their bottoms.
Bonds were higher, but this week the short term SHY gained 7.2%, mirroring the strong dollar, while the long term TLT lagged, gaining 2.3% to close at 2.6 g. Technically, TLT continues to trade back and forth above and below its support/resistance at 2.55 g, and could break either way. But the Fed's comments on the future "tapering" of QE are certainly weighing heavily on the price of long term bonds, as they mean that interest rates will be rising, which in turn means that the market value of TLT's bond portfolio will be falling. If the value of the dollars in which those bonds are redeemable falls as well, we could see a crash of biblical proportions. Although bonds may continue higher from here, the risks of holding them far outweighs any likely upside.
Stocks, other than the HUI Gold Bugs Index, rose strongly, led by the Nikkei which gained 9% to close at 3.26 g. US equities rose less than USD cash, but still managed a respectable 5.5% gain for the Dow Jones Industrials, and 5.1% advance for the S&P 500. I am very cautious about US stocks, as they may be following the pattern of the last half of the 1970s, where they experienced a strong bear market rally before falling to new lows.
Gold stocks fell hard, losing 5.1% to close the week at 5.54 g after trading at 5.49 g on Thursday. This leaves only a little technical support around 5 g between here and the old low at about 4.2 g.
Commodities were mostly up this week, led by coffee and copper which rose 4.3% and 4.1% respectively. Crude oil gained again this week, adding 2.8% to close at 2.25 g/barrel, approaching resistance at 2.4 g. The only loser was Silver, which continued last week's plunge, falling 1.6% to a new low for this move of 0.477 g. Technically, silver may find some support between 0.43 and 0.45 g, or at its 2008 low of 0.368 g.