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

Filed under Bonds, Coffee, Commodities, Dow Jones Industrials, Interest Rates, S&P 500, Silver, Stocks by  #

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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

Filed under Bonds, Coffee, Commodities, Dow Jones Industrials, S&P 500, Silver, Stocks, US Dollar by  #

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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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Electric Power Prices Falling

Over at the Gasoline page, FASCINATING posted a comment asking about electric power prices, and having wondered about this myself, I decided to create a chart of US electricity prices in gold.

Electricity prices in gold since 1998

The EIA data only goes back to 1998, but from there to 2001 prices were rising gently. Since 2001, they have fallen every year, from 836 to 181 mg/kWh – a drop of more than 78%.

Compare that with gasoline, which doubled in price from 1995 to 2005, but was about the same in mid 2008 as it was in 1998. Since the crash dropped gas prices by about 40% at the end of 2008, they have oscillated around 70 mg/gallon where they remain today.

Will electric prices keep falling? Will gas prices rise? These are hard questions to answer, because they depend mainly on politics. Carbon taxes, government subsidies, regulations restricting the building of safe, cost effective nuclear power plants, and more, will continue to distort both prices.

As recession reduces demand for energy (or at least slows its growth rate), and as technology continues to improve discovery and recovery rates and raises the efficiency of generating, transmitting and storing electric power, true prices for all forms of energy should decline.

The creation of massive amounts of new currency by central banks will continue to push nominal prices higher, but that need not be a factor for those who do their saving and investing in gold.

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Market Update

This was a good week for investments generally, but a horrible week for the Canadian Dollar, which dropped a stunning 8.5% bringing it back in line with the other currencies for the month, and leaving the Chilean Peso the only currency I'm tracking that is up for the year to date. The other losers were crude oil, down 3.5%, and long term US bonds (TLT) which closed down 0.8% for the week.

Although gold stocks (HUI) were unchanged, all the others saw gains, with cotton leading the way, up 4.4%.

Currencies other than the CAD were up only slightly, with the EUR the strongest, rising 0.9%. The USD, up 0.1% for the week, is now 1.5% above its 200 day moving average, and 14% above its all-time low. Still, it's down 5.3% so far in 2012, and down 14.3% from one year ago. It is also 4.5% below the price predicted by the half-life decay curve, which currently suggests a value of 19.6mg (equivalent to a gold price of $1587).

Platinum was up slightly for the week, but for the last two weeks has been hovering just below parity with gold. It is currently 1.4% below parity and 13.6% above its low on the 9th of January. I believe platinum will eventually return to a significant premium to gold, so at these levels it is still a good buy.

Silver gained 2.9% this week, but continues to hover around 0.6 g/oz where it has been for the last two weeks.

In addition to crude oil, I also track natural gas and gasoline, which have each been following quite different trajectories in 2012. Crude oil is now trading about where it was at the end of 2011, but got there by falling during January, recovering during February, and hovering around 2 g/bbl during March. Gasoline has been rising a bit each week, leaving it 14.6% higher for the year so far. Natural gas, on the other hand, has continued to work its way lower, ending March with a new all-time low of 39.8 mg per million BTUs.

Although TLT is down slightly this week, it was up last week, and long term US bonds remain the only major investment category that is up over the last 12 months. I entered this trade at 2.189 grams, and am currently down 4.1%. I am watching the 200 day moving average carefully to see if it continues to provide support. If not, I'm taking my loss and getting out.

Weekly summary for 30-Mar-2012

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Market Update

Big gainers for last week were large cap US stocks, copper, and the USD.

Last week's big losers were gold stocks (HUI), silver, long bonds (TLT) and the JPY.

The USD is now 1% above its 200 day moving average, and 14.3% above its all-time low. Still, it's down 5% so far in 2012, and down 15% from one year ago. It is also 4.9% below the price predicted by the half-life decay curve, which currently suggests a value of 19.7mg (equivalent to a gold price of $1577).

Among the currencies I follow, the strongest are the Canadian Dollar and the Chilean Peso, both of which are up for the year to date (CAD up 4.4% and the CLP up 2.3%). All the rest (USD, EUR, JPY, CHF, AUD, ARS, and BTC) are lower than they were at the end of 2011.

Platinum rose again, closing the week 1.2% above parity with gold and 16.4% above its low on the 9th of January. I believe platinum will eventually return to a significant premium to gold, so at these levels it is still a good buy.

Although TLT is down this week, long term US bonds remain the only major investment category that is up over the last 12 months, and it is still trading above its 200 day moving average. I entered this trade at 2.189 grams, and am currently down 4.5%. I am watching the 200 day moving average carefully to see if it provides support. If not, I'm taking my loss and getting out.

Weekly summary for 16-Mar-2012

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Market Update

Last week was great for investments, with every category showing nice gains. The biggest winner was copper, up 5.7% for the week, followed by the Canadian Dollar, up 5.3%. The weakest was the Amex Gold Bugs (HUI), which only rose 0.6%, and crude oil, which was up 1.2%.

Platinum was up as well, just tickling the underside of parity with gold on Friday at 31.05 grams/oz. I still think platinum will trade at a significant premium to gold eventually, so I consider it a good buy at these levels.

The US Dollar finished the week up 4.1%, about in the middle of the pack. Despite the strong showing this week, the USD is down 7.8% for the year to date, and remains 2.3% below it's 200 day moving average, and 8.2% below it's half-life curve:

Half-life curve of the US Dollar

Looking back further, the only category worth more gold than it was a year ago is long dated US Treasury Bonds, as measured by TLT, up 12.7% for the last 12 months. Every other index tracked here is down from its level a year ago. The biggest losers for the last year are cotton, down 64% and coffee, down 37%.

Weekly summary for 2-Mar-2012

Would I still buy long term US Treasuries today? That's a tough call, but from a technical perspective, a good case can be made. Look at the chart below, and note how the 200 day moving average seems to be providing a level of support to a rising channel:

TLT in gold since 2008

I think we have a good entry point for a short term trade here, as TLT has just bounced off the lower edge of the channel again. There are also plenty of fundamental reasons waiting in the wings to push Bonds higher, including potential surprises from Europe, the Middle East and China, any of which could trigger a so-called "flight to safety".

If you decide to try this trade, track it carefully with StockCharts.com and be ready to bail out if the 200 DMA is violated. Also be ready to take profits if the price nears the upper edge of the rising channel, at about 2.5 grams or 0.08 ounces. This is NOT a long term investment, but a risky speculation with good profit potential. Careful money management will be critical.

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