Market Update 24 May 2013: Gold Stocks and Bitcoins Buck Pullback Trend

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After last week's powerful rally in almost everything but gold stocks, most asset classes pulled back a little this week. The exceptions were Bitcoin, which rose again for the the third week in a row, and gold stocks, which regained part of last week's massive loss.

Bitcoin rose 5.3% to close just above 2.9 g. Trading volume continued to decline for the fifth week in a row. Although prices have been fairly stable for the last few weeks, you should continue to expect volatility once volumes begin to increase.

Among the government currencies, the CAD was weakest, losing 3.3%. The USD fell 1.5% to close at 22.4 mg; this is 38.9% above its half-life curve, and continues to present an excellent selling opportunity for those still holding USD assets. The Japanese Yen also fell 1.5%, while the Euro declined 1.6% to close at 28.8 mg.

Bonds were lower, with short term SHY dropping 1.6%, while the long term TLT fell 2.7% to close at 2.61 g. Although below than last week's close, TLT remains above it's new support at 2.55 g. It will be interesting to see if this will hold next week.

Stocks were mostly lower, led by the Nikkei, which lost 4.9%. After recording its highest close since 1-Oct-2009 on Tuesday at 3.43 g, the index pulled back to close at 3.20g. The HUI Gold Bugs Index was the only rising equity class this week, gaining 2.2% (about a quarter of the 8.4% lost last week) to close at 5.71 g. I continue to see the 6 g level as resistance, with little support in sight until the old low at 4.2 g.

HUI in gold

Commodities were all down, led by Coffee, which gave back most of last week's gains, dropping 7.2%. Silver and Copper were hurt the least, falling 2.2% each.  Platinum declined 2.6% to close the week at 32.6 g/oz, now 4.7% above parity with gold. 

Table of prices in gold for week ending 24-May-2013

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Market Update 17 May 2013: Gold Stocks Tumble, Bonds Bounce

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This week most markets made gains, with the exception of gold stocks. Coffee and Bitcoin were especially strong.

Bitcoin rose 7.2% to close at 2.76 g. Trading volume has been declining for the last several weeks. It is encouraging that the seizure of Mt. Gox US bank accounts by the DHS did not spark a selloff. Still, expect continued volatility!

Among the government currencies, the JPY was weakest, gaining 1.3%, while the USD was the strongest, rising 4.2% to close at 22.7 mg; this is 40.6% above its half-life curve, and continues to present an excellent selling opportunity for those still holding USD assets.

Bonds were higher, with short term SHY gaining 4.2% (tracking the underlying USD), while the long term TLT rose 2.7% to close at 2.66 g. This is the bounce off of support at 2.55 that we were looking for last week, so we are now watching for follow-through to surpass the recent high at 2.74 g and signal a breakout that could run to 2.9 g or more.

TLT in gold

Stocks were mostly higher, led by the S&P 500, which gained 6.4%. The HUI Gold Bugs Index was the only declining asset class this week, but it was a doozy, falling 8.4% to close at 5.6 g and setting a new low for this move down. This establishes the 6 g level as resistance, with little support in sight until the old low at 4.2 g. It will be interesting to see if future weakness in the USD and a resurgence in demand for gold leads to a dramatic recovery of the HUI, or simply pushes it lower with other stocks.

Commodities were all higher, led by Coffee, the biggest winner of the week, up 9%. Silver was the least changed, gaining 0.4% to close at 0.512 mg/oz.  Platinum rose 2.8% to close the week at 33.4 g/oz, now 7.4% above parity with gold, a breakout to levels not seen since August of 2011. Expect to see resistance at 37g/oz. 

Table of prices in gold for week ending 17-May-2013

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New "All Time Highs"

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The Dow Jones Industrial Average, the S&P 500, the Russell 2000 and other major indices have recently featured in headlines claiming that they are now at record highs. While this is certainly true in dollar terms, how much is due to a falling USD, and how much is due to rising company values?

To determine this, you have to step outside the dollar framework and look at prices in gold.

All prices are an expression of preference. If you value 10 gallons of gas for your car more highly than the $35 in your pocket, you will buy the gas for $3.50/gal. On the other hand, if you have other things to do with that $35, or if you are concerned that you may need that cash as "emergency money" in the future, you will pass on filling up the tank and save the money. Perhaps a lower gas price will come along and change your mind, or perhaps you will become more desperate for gas in the future, but for now, you see the $3.50 asking price as too high.

The same applies to gold pricing. Which would you rather have in your portfolio, a few shares of each of the 30 Dow Jones Industrial stocks, or, let's say, 20 ounces of gold? Would you trade your stock portfolio for 5 ounces? Could you find a buyer who would give you 40 ounces for it?

The price at which willing sellers and willing buyers both agree to the trade is the "clearing price" of a good or service. This price evolves all the time, as the needs and desires of buyers and sellers change.

This chart of the Dow Jones Industrials, courtesy of StockCharts.com, shows the concensus of traders in the market each day over the last 15 years:

In August of 1999, they were offering 44.6 ounces of gold for one Dow. Today, about 10.4 ounces. Hardly a new high!

Still, in the last half of 2011, they were only offering about 5.6 ounces… so in the last 18 months, the Dow Industrials have almost doubled their gold value – a very smart investment. And most of that gain has occured in the last 6 months:

It is also worth remembering that the 5.6 ounce low of 2011 was more than 400% higher than the all-time low in Jan of 1980, when traders would only give about 1 ounce of gold for the Dow. From the 1980 low it took six and a half years for the Dow to reach 5.5 ounces in June of 1986, and another six and a half years to go from 5.5 to 10.4 ounces in February of 1993. In the following six and a half years, the Dow more than quadrupled to 44 ounces of gold.

No one knows the future. It is possible that the lows of 2011 will turn out to be the lows for this cycle, and that the overall movement from this point will be higher; perhaps in the next 13 to 20 years, the Dow will once again see 44.6 ounces, and set true new highs above that price. But it is also possible that the 5.5 level, or even the 1 ounce level, will be revisited before the "bottom is in".

If you were clever enough to get into stocks in late 2011 or in 2012, you are sitting on some nice gains. If you buy stocks today, you have momentum on your side, and could well see further gains. But keep in mind that we live in perilous times, and if growth or earnings disappoint, or if the central banks begin to hike rates, those gains could disappear in a flash. Keep position sizes moderate, keep your long term savings in gold, and pay attention to your trailing stops (priced in gold). That way you can let your profits run, and exit with most of your gains intact.

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Market Update 10 May 2013: TLT and HUI Treading Water

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This week most markets continued to make gains, with all assets except silver and coffee advancing. Japanese  stocks were especially strong.

Bitcoin rose 33.5% to close at 2.57 g. This more than recovers its drop last week. Expect continued volatility!

Among the government currencies, the JPY was the weakest, gaining 1.3%, while the CAD was strongest, gaining 3.5% to 21.7 mg. The USD was almost as strong, adding 3% to close at 21.8 mg; this is 34.5% above its half-life curve, and continues to present an excellent selling opportunity for those holding USD assets.

Bonds were higher, with short term SHY gaining 3% (tracking the underlying USD), while the long term TLT rose only 1.1% to close at 2.59 g. TLT spent the week hovering near its support level at 2.55 g. We will have to wait a bit longer to see whether TLT bounces off this support and heads higher, towards the 2.8 to 3.0 g region, or falls through support to 2.35 g or lower.

All prices in this discussion (and on the Priced in Gold site in general) are based on the London PM gold fix. On Friday, the fix took place near the lowest price of the day; and gold rallied (AKA the dollar fell) hard thereafter, with the USD closing in New York down 1.5% at 21.48 mg. If this price were used to translate the closes for other assets, they would all be lower by about 1.5%, putting TLT on support at 2.55g (down 0.4%). The only other asset that would move into the loss category was the JPY, which would have shown a 0.2% loss for the week.

Stocks were all higher, led by the Nikkei Index, which gained a stunning 8.1%. The Dow Jones Industrials and HUI Gold Bugs Index were the least strong, gaining 4% each. Although this show of strength in gold stocks is welcome, the chart below puts it in context: the gold stock index is still hovering around 6 g. This period of consolidation could break either way, and even if it heads higher, it will have to get above long term resistance at 6.8 to 7 g to be convincing as a breakout.

TLT in gold

Commodities were mixed, led by Copper, which gained 5.4% to close at 73.8 mg/lb.  Coffee was the weakest commodity, giving back all of last week's gains, falling 4.8%. Silver also declined, giving up 0.7% to close at 0.510 mg/oz.  Platinum rose 2.2% to close the week at 32.49 g/oz, 4.5% above parity with gold.

Table of prices in gold for week ending 10-May-2013

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Market Update 3 May 2013: Long Bonds at Critical Support

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This week the markets shifted back into forward gear, with all assets except Bitcoin and the 20 year Treasury Bond advancing. Coffee and copper were especially strong.

Bitcoin started the week in an uptrend; trading at over 3 g on Monday, it declined through the week to close at 1.93 g, down 31%. Since early April, the BTC has made a series of lower highs and higher lows; over the next few weeks the market should make up its mind about whether Bitcoin is overvalued or undervalued at these levels. Keep in mind that it could drop by 75% and still be in an exponential uptrend. Expect continued volatility!

Among the government currencies, the JPY was strongest, gaining 2% (less than half of last week's loss), while the USD was weakest, gaining only 0.2% to 21.2 mg; this is 30.1% above its half-life curve, and continues to present an excellent selling opportunity for those holding USD assets.

Bonds were mixed, with short term SHY little changed (up 0.1%, even less than the rise in the underlying USD), while the long term TLT lost 1.6% to close at 2.56 g. This leaves TLT right on its support level at 2.55 g. If TLT bounces off this support and heads higher, we could quickly see prices in the 2.8 to 3.0 g region, but if the support fails to hold, prices will probably head to 2.35 g or lower.

TLT in gold

Stocks were all higher, led by the S&P 500, which rose 2.2% to close at 34.18 g. Despite the strong rally in the JPY, the Nikkei Index gained only 0.6%. The HUI Gold Bugs Index advanced on Monday and Tuesday to over 6 g, but declined through the rest of the week to close up 0.4% at 5.87 g.

Commodities were higher, led by Coffee, which regained about half of last week's loss to close at 29.7 mg, up 4.9%. Copper also showed strength, gaining 4.2% for the week. Silver was the weakest of the commodities, adding 1.1% to close at 0.513 mg/oz.  Platinum rose 1.4% to close the week at 31.78 g/oz, 2.2% above parity with gold.

Table of prices in gold for week ending 3-May-2013

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Market Update 26 Apr 2013: Coffee tumbles

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This week saw a pullback after the prior week's monster rally.  Government-issued currencies, stocks and bonds all gave up about half of last week's gains, while Bitcoin continued its recovery. Commodities were mixed, with silver continuing to fall, crude oil continuing to rise.  The week's biggest loser was coffee, which gave back much of its gain from last week. 

Bitcoin trading was calmer this week, with lower volumes (a daily average of 380 kg vs 535 kg last week). Prices rose in the first part of the week, peaking at 3.3 g on Wednesday, then declined to close the week at 2.8 g, 5.8% higher than last week's close. Among the government currencies, the JPY was weakest, falling 5.6%, while the Canadian dollar was the "strongest", falling only 4.2%. The USD was down 4.5% to 21.1 mg; this is still 29.5% above its half-life curve, and represents an excellent selling opportunity for those holding USD assets.

Bonds were lower, with short term SHY down 4.5% while the long term TLT lost 4.0% to close at 2.6 g. This leaves TLT just above its support level at 2.55 g.

Stocks were all lower, lead by the Dow Jones Industrials which fell 3.4% to close at 311 g. The Nikkei Index and the HUI Gold Bugs Index each lost 1.6%. Although the HUI closed lower this week than last week, at 5.84g it is still holding above the low of 5.75 g set on April 17th. It is possible we'll see a rally from here to retest resistance at 6.5 to 6.7 g. 

Commodities were lower, with the exception of crude oil, which gained 0.9% to 1.97 g/bbl. Coffee was the week's biggest loser, falling 9.7% to close at 28.3 mg/lb. Silver also continued it's fall, losing 3% to close at 0.508 g after spending Wednesday and Thursday at 0.499 g.  Platinum dropped 0.9% to close the week 0.8% above parity with gold.

Table of prices in gold for week ending 26-Apr-2013

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Market Update 19 Apr 2013: Massive Currency Rally

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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).

USD vs Predicted Price

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.

This week the Nikkei led the equities markets, rising 9.5% to 3 g. The Dow and S&P 500 were close behind, gaining 6.9% apiece. As mentioned above, only the HUI mining stocks were lower for the week.

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.

 

Table of prices in gold for week ending 19-Apr-2013

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Market Update 12 Apr 2013: Bitcoin, Gold Stocks "Crash"

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All asset classes but Bitcoin, coffee, JPY, and mining stocks were higher this week. 

Bitcoin ended a wild week down 38.7% at 1693 mg, after trading has high as 5,253 mg and as low as 1,099 mg. Friday had the largest volume ever traded for Bitcoin, over 964 kg. As I forecast last week, this kind of price action is to be expected in such a thin market as new buyers enter in quantity. Over the weekend, BTC has recovered to 2,051 mg. Keep in mind that BTC could fall to 500 mg or so and still be in an exponential uptrend! Expect further volatility.

The HUI gold miners closed on a new 12-year low of 6.1 g, down 6.2%. This failure of the long term support at 6.5-6.8 g is worrying, as there is really no support below but the old low of 4.2 g set in 2000. I would not be surprised to see the old low retested. If you are using trailing stops, follow them closely. Make volatility your friend by selling put options on shares you'd like to own. 

HUI 1997-2013

The government-issued currencies were mostly higher, led by the EUR which rose 4%. The exception was the JPY, which lost 2.9% to close at 203 µg as details of the government's plan to double the Japanese money supply were absorbed by the market. The USD gained 2.1% to close at 20.3 mg, and rose further in late New York trading to 21.1 mg. This puts it at an all-time high of 28% above its half-life curve. In 2005 and 2008 these levels proved unsustainable, and marked the perfect opportunity to sell dollars (and stocks and bonds) and buy gold, mining stocks and other hard assets with an eye to taking profits in about a year. All the pieces are now in place to make this strategy a winner once again!

Bonds where higher, with the short term SHY gaining 2.1% (in line with the USD, as usual), while the long term TLT rose 1.4% to close at 2.47 g. TLT spent most of the week below its resistance line, but closed above it on Friday, an indecisive showing. I continue to watch for signs of a new bull market in treasuries, but note that we are approaching long term resistance at 2.55 g, which may limit upside potential.

This week the S&P 500 led the equities markets higher, rising 4.5% to 32.18 g. The Dow was close behind, gaining 4.2%, while the Nikkei trailed, only adding 2.1%. 

Commodities were mostly higher, with coffee, off 1.5%, the sole exception. Silver gained 3.7% to close at 0.555 g, offsetting most of its loss from last week, while copper rose 1.8% to 67.5 mg/lb. Platinum gained 1% to close the week 1.4% below parity with gold.

 

Table of prices in gold for week ending 12-Apr-2013

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Market Update 5 Apr 2013: Bitcoin on a roll

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All asset classes but oil, silver, and mining stocks were higher this week. 

Bitcoin ended the week up 57.6% at 2,724 mg, after setting another record high almost every day for the last 2 weeks. Interest in the online currency has continued to skyrocket as news spread that the "bail-in" plan that seized up to 80% of large bank deposits in Cyprus has been approved for future use in the US and Canada as well as in the rest of Europe. After this tremendous run-up, a pullback is to be expected. Note that BTC could fall over 80% to 500 mg or so and still be in an exponential uptrend! Expect further volatility.

The government-issued currencies were also higher, led by the EUR which rose 2.3%. The weakest was the JPY, which gained 1.2%. Bold moves to inflate the Japanese money supply were announced at the end of the week; it will be interesting to see how the markets deal with this news. In trading over the weekend, the Yen has already fallen from 209.3 µg to 202.5 µg.

Bonds where also higher, with the short term SHY gaining 1.9% (in line with the USD, as usual), while the long term TLT gained 6.3% to close at 2.44 g. Technically, this puts TLT back above its resistance line; if this holds as support, we may be in the early phases of a new rally in bonds. Keep an eye on this for the coming week.

Stocks were all higher except for the HUI gold miners, which hit a new 12-year low of 6.38 g on Wednesday before recovering to close the week at 6.51 g, down 6.4%. While I would be a buyer of quality gold stocks at these levels, keep in mind that the HUI is still 55% higher than its all-time low of 4.2 g set back in November of 2000. Make volatility your friend by selling put options and buying on the dips.

In the other stock markets, the Nikkei 225 was the biggest winner, adding 4.8% to close the week at 2.69 g. The Dow gained 1.8% while the S&P 500 advanced 0.9%.

Commodities were mixed with coffee the biggest gainer, rising 4.1%. Cotton and copper were little changed for the week. Silver fell 4.1% and crude oil declined 2.9%, while platinum dropped 1% to close the week 2.4% below parity with gold.

The USD gained 1.9% to close at 19.8 mg. For the last three days of the week it has been more than 20% above its half-life curve. In 2005 and 2008 this level proved unsustainable, and marked the perfect opportunity to sell dollars (and stocks and bonds) and buy gold, mining stocks and other hard assets with an eye to taking profits in about a year. All the pieces are now in place to make this strategy a winner once again!

Table of prices in gold for week ending 5-Apr-2013

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Market Update 22 Mar 2013: Europe scrambles for bitcoins

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All but three asset classes were lower this week, the gainers being Bitcoin, gold stocks, and long dated treasuries. 

Bitcoin ended the week up 51.8% at 1,392 mg, after setting another record high every day this week. The latest round of panic buying seems to have been triggered by the partial bank account confiscation plan announced in Cyprus. The realization that their money is no longer safe in banks has spooked investors across Europe, but especially in Spain, where downloads of Bitcoin software have skyrocketed. Because Bitcoin has such a small market cap, currently about 15,800 kg, and trades less than 200 kg each day, it doesn't take much money moving in (or out) to swing the price, so we should expect continued volatility in the near future.

The government-issued currencies were all lower, led by the Euro, which fell 1.1% to close at 25 mg. The Japanese Yen was down just 0.1%, while the USD dropped 0.8% to 19.3 mg, and is now 16.6% above its half-life curve.

Short term bonds (SHY) fell 0.8%, in line with USD cash.  Long bonds (TLT) rose 0.6% to close at 2.27 g.

Stocks were mostly lower, led by the Nikkei Index, which fell 1.9% while the S&P 500 dropped 1% to close the week at 30.12 g. The Gold Bugs Index was the only stock index to rise this week, adding 1.4% to close at 6.96 g. Could the bottom be in for gold stocks? We will see what unfolds next week, but I would be a buyer at these levels, especially given the over-bought condition of the USD.

Commodities were all lower. Cotton fell 6.4% to close at 16.9 mg/lb. Copper declined 2%, and  Coffee dropped 1.6% to finish at 26.2 mg/lb. Crude oil also lost ground, falling 0.5%. Silver lost 0.2% while Platinum fell 1.6% to close at 30.57 g, now 1.7% below gold parity.

This week FinCEN, the Financial Crimes Enforcement Network, issued "guidance" about how the US "Bank Secrecy Act" applies to "persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies". For a good discussion, take a look at the comments of the Bitcoin Foundation's legal counsel. In short, this is a trial balloon that needs to carefully monitored to see what elements will actually be implemented in law in the future. As a recent Forbes article notes:

“It’s almost a badge of respect when the Treasury starts regulating you,” said James Rickards, author of Currency Wars. “You must be doing something right.”

“Gold is a great way to preserve wealth, but it is hard to move around,” added Rickards. “You do need some kind of alternative and Bitcoin fits the bill. I’m not surprised to see that happening.”

And in related news, Jeff Berwick of The Dollar Vigilante announced the formation of Bitcoin ATM, a plan to provide ATMs for anonymous purchase and sale of bitcoins. Target location for the first machine? Cyprus! Maybe they can get together with Gold to Go to dispense gold ingots as well!

Table of prices in gold for week ending 22-Mar-2013

Filed under Banking, Bitcoin, Bonds, Coffee, Commodities, Cotton, Dow Jones Industrials, EUR, Euro, Platinum, S&P 500, Silver, Stocks, US Dollar by  #

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