Market Update 17 Aug 2012 – Pt and TLT

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As usual, the biggest gains and losses were in the commodities this week, with crude oil rising 3.6% while coffee fell 3.4%.  Silver and copper also gained, while cotton was off slightly.  The currencies were little changed, with the Canadian Dollar up 0.7%, the USD up 0.2%, the Euro unchanged, and the JPY down 0.6%.

Equities were higher this week, lead by the Japanese Nikkei Index which rose 2.4% despite the headwind of a falling currency unit.  Gold stocks and US equities also gained for the week.

Platinum made another new low on Monday, but rose through the week to finish at 28 mg/oz, up 4.2%.  There is no way to know if the bottom is now in, but it is rare to see platinum trading at a discount to gold; this is a great buying opportunity.

Although short term treasury bonds rose 0.2% (exactly in line with the US Dollar), long term bonds have been falling fast, racking up another 3% decline this week alone.  They are now approaching the lower edge of the channel they have been trading in for the last year.  This channel edge is also very close to the 200 day moving average, which should lend further support.  If this support holds, look for a retest of resistance at 2.6mg; if support fails, look out below!

Long Term Treasury Bonds from 2008 to Present

 

Table of prices in gold for week ending 8/17/2012

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Market Update 3 Aug 2012 – New Low for Platinum

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Last week saw yet another reversal from the week before; once again, the only thing in common was the continuing decline in silver and copper, now in its 3rd week.

Currencies gained back some of what they lost the week before, lead by the CAD, which rose 1.8%. Bonds were higher, the SHY up 1% (in line with the USD) and the long term TLT up 0.4%, only recovering a tiny portion of the prior week's 3.8% loss.

Equities were all higher except for the gold stocks represented by the HUI, which fell by 0.1%.  The Dow and S&P 500 rose1.2% and 1.4% respectively, more than offsetting the prior week's losses.

Commodities were mostly higher, lead by crude oil, up 2.4%, followed by coffee and cotton, up 1.1% and 0.9%. Silver and copper were lower by 0.7% and 0.9%.

Platinum, which I don't usually include in these weekly summaries, made a new 12 year low on Friday. The "other white metal" is now 13.23% cheaper than gold at 27 grams per ounce.  I continue to expect that platinum will eventually trade for more than gold, as it has for most of it's history, but fears of recession in the US and Europe, along with slowing growth in China, appear to be pushing industrial metals like silver, copper and platinum lower in the short term. I see this as a buying opportunity.

Platinum from 2000 to Present

 

Table of prices in gold for week ending 8/3/2012

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Market Update 27 Jul 2012

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Last week was almost a complete reversal from the week before; the only thing in common was the continuing decline in silver and copper.  

Currencies were all down strongly, with the EUR leading the decline, falling 3.2%. Bonds also fell; the long term TLT falling the most, down 3.8% while the shorter term SHY moved down 2.6%, roughly in line with the decline of the USD.

Commodities were all lower, lead by coffee, down 9.5%.  Silver showed the least weakness, falling only 0.2%.

The main stock indices also declined, lead by the Nikkei, down 2.8%; gold stocks bucked the trend, with the HUI rising 0.6%. The Dow, although down 0.7% this week, is still near it's high for the last 12 months (set last week). The 250 gram level was support during 2010 and the first half of 2011; in 2012 it has become resistance. It will be interesting to see if stocks can break out above this level; if not, a retest of last fall's lows may be in order.

Dow Jones Industrials from 2006 to Present

The USD continues to to stick very close to its "Half Life Curve", losing about half of its value every four years. For the last month, it has been hovering about 5% above the curve. After several years of under-performance, it would be entirely reasonable to see continued out-performance and some further gains. Continuing crisis in Europe, slowing growth in China, and recession concerns in the US provide ample fuel for this. On the other hand, these same trends make money printing, quantitative easing, plunge protection, and other central bank hanky-panky all the more likely; this means that any USD upside will likely be short lived.

USD Half Life Curve

If you are lucky enough to live in Switzerland, have a happy Confederation Day!

Table of prices in gold for week ending 7/27/2012

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Market Update 20 Jul 2012

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Last week showed many gains and few losses.  Once again commodities lead the way, with crude oil up 6.7% and coffee up 2.6%.  Silver and copper were each down 0.3% – the largest losses for the week.  Gold and silver mining stocks also suffered, falling 0.2% for the week.

Currencies were all up, with the Canadian Dollar performing best, up 2.1%, followed by the JPY up 1.8% and the EUR, up 1.7%.  Although the CAD and EUR did well this week, they are both down from a year ago; the USD and JPY are up slightly over that time period.

Bonds and major stock indexes also rose, with the long treasuries up 1.9% and the S&P 500 up 1.7%.  TLT, the long treasury ETF, remains in the resistance zone between 2.5 and 2.6 grams.  I am currently out of this position, waiting to see if it will break above or below.  Still, TLT is the only security tracked here that is up strongly over the last year (up 41.2%).  It remains to be seen if there is more upside to these long bonds.  Eventually, short TLT and long HUI will be a great trade, but how soon?

Table of prices in gold for week ending 7/20/2012

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Market Update 13 Jul 2012 – TLT

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Most of the strength last week was in commodities, with coffee up 4.3% and crude oil up 2.6%.  The only other strong gains were in TLT, the long term US treasury ETF, up 1.2%.  Stocks and currencies were all down or unchanged for the week. The biggest losers were gold stocks, represented by the HUI, down 5% and the Euro, down 2.6%.

Table of prices in gold for week ending 7/6/2012

I've decided to sell my TLT position, as I'm concerned about the Fed announcements coming on Wednesday.  From a technical perspective, TLT remains in it's upward channel, but is in an area of resistance, shown by the red line on the chart below.

TLT in gold

Fundamentally, I don't see long term interest rates going much lower, but the markets are looking for some kind of additional QE.  With the problems in Europe, continued unemployment worries, and an election coming up, this makes sense… But if the Fed disappoints, it could send a shock through the markets as they go "risk off". If they offer a strong QE program, markets will rise; but in either case, gold will be responding as well, making the outcome uncertain.  I have a 15% profit in my TLT position (at 2.53 grams, up from 2.17) and I'm going to take it and stand aside to see what effects the Fed news releases have.

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Market Update, 29 Jun 2012

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Market Update, 29 Jun 2012

This week saw a reversal of last week's trend, with almost all investment categories showing losses.  Currencies and bonds were all lower, on news of new European bank bailouts and fears that next week will bring further easing from the ECB and Bank of England.  Most stock markets were also lower, with the Japanese Nikkei, up 0.6%, being the exception.

After the news on Friday, the Dow Jones finished off 0.35%, while the S&P 500 closed up 0.13%.  Gold stocks were 0.61% higher for the day, but finished the week down 1.9%.

Like last week, the big moves were in commodities.  The week's biggest winner was coffee, up 7.5%, followed by crude oil, up 4.3%.  All of crude's gain came from Friday's massive 6.6% rise.  Cotton was the biggest loser, down 4.7%.  Silver also posted a loss of 1.1%, while copper rose 2.9% for the week.

On the longer term horizon, only TLT, representing the long term treasury bonds, is up from one year ago, and it is up almost 30%.  Every other category is down over the last 12 months, although the Dow and S&P are close to breaking even.  I am still long TLT in my own portfolio.  The position is up about 12%, but off from it's high water mark of 17%.  The area just above 2.5 grams continues to act as resistance.  If there is more unexpected bad news from Europe, or if the world's central banks make a coordinated effort to further lower long term interest rates, TLT could be a beneficiary.  I'm watching it closely.

To recap, don't be fooled by the press announcements of stock markets jumping higher on "good news" from Europe.  True, investors decided to dump their fiat currency for value producing stocks, pushing stock prices higher; but they were even more eager to get their hands on gold!  Thus the price of stocks in gold declined on the news, even as the price in USD rose.  Remember that physical gold in your possession is a far safer investment than any paper asset, whether currency, bond, or stock.  Risky paper assets have their place in growing your wealth, but when you want to go "risk off", you want to hold gold.

Table of prices in gold for week ending 6/29/2012

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Market Update, 22 Jun 2012

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All investment categories except commodities showed nice gains last week.  Interestingly, the week's biggest winners and losers were both commodities, with coffee rising a stunning 7.5% and cotton dropping 3.6%.  Silver and crude oil both lost ground, down 2.8% and 1.3% respectively, while copper was slightly higher, up 0.7%.

Currencies were all higher for the week, and the JPY and USD are now close to breaking even over the last 12 months.  The EUR in contrast, although up this week, is still down almost 13% from a year ago.  Bonds were also higher, with the short term SHY gaining 3.9% while the long term bonds (TLT) rose 2.8%.

Broad market equities were higher, with the Nikkei up 6.1% and the S&P 500 up 3.3%, but in line with the week's poor commodities returns, resource stocks represented by the HUI were off 1.1%,  Since it's recent bottom at 5.8 grams on May 18th, the HUI had bounced back 13% last week, but gave up some of those gains on Thursday and Friday, closing the week 9.4% above the May low.  Over the last 12 months, however, the HUI is down 19%, lagging far behind the Dow and the S&P (which are both up about 3% for the last year), and performing even worse than the Nikkei, which is down 9%.

Table of prices in gold for week ending 6/22/2012

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Market Update

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Last week was excellent for almost all investment categories.  Only the long bonds (TLT) showed a loss, taking a breather after an extended  series of gains that have left them up 7.4% for the last month and almost 31% over the last 12 months.

The biggest winner was cotton, up 8.3%, followed by US stocks, with the S&P 500 up 5.7% and the Dow Jones Average up 5.5%.  Silver also put in a strong showing, up 4.8%.  Among the currencies, the EUR was the strongest, gaining 3.5% despite growing concerns about Spain's banking system. The $125 billion bailout announced this weekend won't solve anything, however – and probably marks the beginning of a new round of coordinated "QE" that will drop the values of all the fiat currencies in the near future.

Week-120608.png

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USD Update 7-Jun-2012

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The USD, at 19.4 mg, is down 2% for the year to date, but is 4.5% above it's 200 day moving average and 18% above its all time low of 16.4 mg, set in September of 2011.  It has been in an uptrend since then, crossing above the moving average line on 3/14, and testing it as support on 3/27.

Looking at the bigger picture, the USD continues to follow it's half-life curve closely.  As I have described before, the Fed seems to have settled on a policy of gradual debasement – as much as they can get away with, but not so much as to create a panic.  The chosen rate of decay cuts the value of the dollar roughly in half every four years, and has been doing so since 2001. This seems to be working very well so far.  Until the authorities lose control of their monetary monster or decide that rate of debasement needs adjustment, I suspect this policy will continue.

The chart above shows that there is plenty of room in this policy for extended runs of above and below par performance; in 2005 the USD was 20% above it's predicted value, in 2008 it was as much as 21% below. 2011 saw the dollar undervalued by 24%.  Currently, it is 2.1% above track, right on the line for all practical purposes.

And for the future? The half-life curve suggests a USD price of 17.2 mg for the end of 2012, equivalent to a gold price of $1,805 per ounce, and 14.5 mg (implying a gold price of $2,140/oz) at the end of 2013, but there are many fundamentals that determine the value placed on the dollar at any particular point in time.

I suspect that the big driver for the next year will be the Euro-wreck now gaining momentum.  If Spain, Portugal, Ireland and perhaps even Italy follow the Greek's footsteps, the monetary floodgates at the ECB (and thus indirectly, at the Fed) will open wider than ever before, and fiat currency weakness will be the order of the day.  But the USD, the world's reserve currency, seen by many as the "least ugly contestant in the beauty pageant" may benefit as much as, or even more than, gold, leading to a rise in it's value relative to gold.  Rest assured that any such rise will eventually be made up for to the downside; the untold trillions of USD debts outstanding will not be paid off at today's value in gold terms.  Lots more debasement is required to cleanse the system of those debts, unless outright default occurs – and in that case, cash dollars will become scare and precious, but so will gold, as the entire financial system will be in crisis.

And when the fire-storm is over, and the dust settles, the paper promises will have vanished, but the gold will remain. Be sure you have as much of it as possible.

 

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