-- Posted Thursday, 27 February 2003 | Digg This Article
April Gold: Close = $354.1, +$1.7
Gold sank through support and surprised many longs. Initially the market was higher on the heels of weaker dollar and equity markets. However, it seems the terrorism alert downgrade helped to lift the US financial markets, thereby somewhat diminishing the lure of gold as a safe haven. What this really proves is how emotional these markets are right now, including equities, financials, currencies, metals and energies.
April Crude futures almost hit $40 today, their highest level in 12 years. After the terror alert downgrade however, and just as with precious metals, the crude market fell from its perch. There was also talk that Iraq is being more cooperative regarding inspections, but it’s almost certain that it’s another delay tactic.
The US is mulling over the possibility of dipping into the Strategic Petroleum Reserves. Considering Venezuela remains off line, considering heating oil prices are about double from last season, and with the threat of uncertainty hovering over the Iraq situation, they may need to make a decision soon. With the economy and stocks struggling, with higher energy prices bound to strangle growth, where are investors to put their funds? The Dow is flirting with the nearby low of 7600, and may have some ammo to get there with consumer confidence at a 10-year low. But, as Larry Kudlow points out, there is no statistical correlation between consumer sentiment and economic and stock market performance. Nonetheless, sometimes what matters in the short term is perception, and to most people, stocks are about as attractive as the plague! Money appears to be running from equity funds. Surely gold has benefited from poor equity performance.
By the way, a client (thanks Jack!) sent me an interesting article “Panic is Near if the Gold is Gone” by Kelly Patricia O’Meara from Insightmag.com. It provides a summary of GATA’s arguments. Perhaps they are right, perhaps wrong, or perhaps the truth lies somewhere in between…but gold has rallied $120 in a year. Here are a few excerpts below, let me know if you’d like me to email the entire article:
“But hard-money analysts are arguing that should the United States go to war it will be of very little consequence to the price of gold -- a momentary blip -- because gold is a commodity and its price a matter of supply and demand.”
“In fact the "gold bugs," as they're known, are so sure of their research that not only do they believe the price of gold will continue to climb, but many are expecting to see prices of $800 to $1,000 an ounce.”
“According to Bill Murphy, chairman of the Gold Anti-Trust Action Committee (GATA), a nonprofit organization that researches and studies the gold market and reports its findings at www.LeMetropoleCafe.com: "This gold is gone -- and it lends support to our years of research that the central banks do not have the 32,000 tonnes of gold in reserve that they claim. The big question is: How many other central banks are in the same predicament as the Portuguese?"
“Murphy explains: "The essence of the rigging of the gold market is that the bullion banks borrowed central-bank gold from various vaults and flooded the market with supply, keeping the price down. The GATA camp has uncovered information that shows that around 15,000 to 16,000 tonnes of gold have left the central banks, leaving the central-bank reserves with about half of what is officially reported."
According to Murphy, "The cartel has been able to get away with lying about the amount of gold in reserve because the International Monetary Fund [IMF] is the Arthur Andersen of the gold world." He has provided to Insight documents from central banks confirming that the IMF instructed them to count both lent and swapped gold as a reserve. "In other words, the IMF told the central banks to deceive the investment and gold world[s]. Once this gold is lent [or] swapped, it's gone until such time as it can be repurchased. And with the skyrocketing price of gold we're now seeing, it would be incredibly expensive, let alone nearly physically impossible, to get it back."
What is important to understand, says Murphy, "is that there is a mine and scrap supply deficit of 1,500 tonnes, which is an enormous deficit when yearly mine supply is only 2,500 tonnes and going down. On top of that, there are these under-reported gold loans and other derivatives that are on the short side. There is no way to pay this gold back to the central banks without the price of gold going up hundreds of dollars per ounce.”
A second U.N. resolution to disarm Iraq, this one mostly symbolic, is up for a vote soon, and with our without France, Germany and Russia, there will likely be enough votes for it to pass. Gold did suffer a setback today, but it’s difficult to imagine that in this environment a bear market will begin. It’s much more likely that nervous sentiment is inclined to provide buoyancy to gold. The trend in gold remains up, and there’s no reason why we can’t be near $400 shortly.
The gold chart now appears indifferent and sloppy at best, but the trend for the year is still higher. The pullback from the $380 area seems to have been healthy for gold bulls. A close over $360 on consecutive sessions is likely to target $400. Support is the recent low near $343. Meanwhile, hang onto those gold puts as a hedge to the long futures. Be sure to watch TradeScope daily, and remember, futures and options offer flexibility as one can just as easily be short or long any market. Each contract/option = 100 ounces, a $1 move in a futures contract = $100. Contact me anytime to discuss strategies to fit your needs.
To open an account and receive trading recommendations on gold futures or options contracts (also stock indices, energies, currencies, etc.), or to use PaperTrader Online contact me at erik@altavest.com. Visit www.altavest.com to request a Free Starter Kit. Keep in mind that there is risk of loss in all trading.
May Silver: Close = $457.5, -9.4-cents
Moving in tandem with gold, silver sank below 460. There were no fresh fundamentals surfacing, silver is finding direction from gold. The gold dip we expected last week was deeper than we thought, and gold was stabilizing a bit, until today. Nevertheless, gold might end up picking up some support in this area again, and if so, silver will appear as a good buy in the 450 area. Indicators such as slow stochastics and averages are no longer higher, but mostly neutral after today’s sell off. On a close above 475 look for new highs. Each contract/option = 5,000 ounces, a 1-cent move in a futures contract = $50. Contact me anytime to discuss strategies to fit your needs.
To open an account and receive trading recommendations on silver futures or options contracts (also stock indices, energies, currencies, etc.), or to use PaperTrader Online contact me at erik@altavest.com. Visit www.altavest.com to request a Free Starter Kit. Keep in mind that there is risk of loss in all trading.
-- Posted Thursday, 27 February 2003 | Digg This Article
