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-- Posted Tuesday, 20 May 2003 | Digg This Article
June Gold: Close = $366.5, +$2.1
Since early April, has gone almost straight up, rallying over $50. It seems another premium is being built into the yellow metal, and perhaps rightfully so with a spate of terrorist activity once again in the limelight. However, the real driving force behind gold has been the depreciation of the US dollar. The dollar has been in a near freefall for about a month, poking into new low turf just about every other day. Just this week US Treasury Secretary Snow implied the US has no plans to intervene and support the dollar and this sent gold rocketing.
Recent economic data has been disappointing; at least that’s the interpretation of most of the financial markets. The stock market is in no-mans land and financials continue to move up on anticipation that rates surely won’t move up anytime soon. The good news is that energy prices have plummeted in the last month or so and has certainly been a relief to consumers. I’d hate to see where equities and the economy would be if crude were over $40! The Fed continues to inject liquidity into the system by purchasing treasuries as they attempt to fend off deflation. After all, deflation is a strange and dangerous bedfellow, and one only needs to look to Japan as to why the Fed will try to avoid a similar situation. President Bush has tossed his tax relief plan into the chambers of congress where it is being argued over and where political favors on one end are being dealt for concessions on the other, etc. Warren Buffet said recently that he thought the tax cuts were not being done properly and would not provide the necessary boost to the economy. On the other hand, many economic experts feel otherwise, and in a recent article on money.cnn.com Lou Dobbs interviews Martin Feldstein, the former chairman of the Council of Economic Advisers under President Ronald Reagan. Mr. Feldstein is a professor at Harvard and president of the National Bureau of Economic Research, the group responsible for tracking recessions. The article is titled “Looking Past the War”, here are a few excerpts:
”My position is that we can afford both. Given the weakness of the economy, providing tax stimulus will be a good thing for the country. So that's the short term.
And the President's plan delivers a certain amount of money in 2003 and significantly more in 2004. I think, from a stimulus point of view, it's something that we want rather than being a problem. And for the longer term, the President's plan gives us good tax reform…
I am a deficit hawk from way back. But the size of the deficits that we're looking at over the next 10 years are much smaller relative to gross domestic product than they were in the past.”
Where does gold fit into this picture? The Fed is frightened of deflation, they are injecting liquidity into the economy, and if rates stay low or get lower, if the dollar drops more, and if equities meander, it’s highly probable that gold will stay in an uptrend. However, heaven forbid that tax relief actually works, because if it does the dollar could recover and gold would likely lose some luster! Of course I’d much rather be living in a healthy economic environment rather than one where survivors of a depression end up living in caves bartering with gold coins for food. My feeling is that any tax relief will certainly be welcome by all…even most of those who are now complaining about it…but that any bill will be so watered down that immediate economic benefits will be marginal, at best. And, while on the subject of taxes, ever notice how those that complain so much about taxes not being high enough are billionaires? Furthermore, if these folks are so adamantly opposed to tax cuts, wouldn’t the simple solution for them be to send their share of any tax cut back to the IRS? Good grief you zillionaire folks, give us regular working stiffs a fighting chance, would ya! Now that my small “tax rant” has run its course, it’s back to gold, let’s look at the chart. Notice that we’ve now retraced 79% of the recent decline, and bulls have done so with authority. There is a gap near 355, so any pullback should be expected to fill in that area. The trend is up, look for dips as buying opportunities. Stochastics are terribly overbought. If you are long from the $324 area as per TradeScope be sure you aren’t leaving yourself too vulnerable to a sporadic correction. With futures and options one can just as easily go short or long, feel free to contact me to discuss trading strategies. Each contract/option = 100 ounces, a $1 move in a futures contract = $100.
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.
July Silver: Close = 477.2, -4.8-cents
Is the dip in silver an omen of further weakness ahead, is it also signaling that gold bulls will fizzle out and soon take a breather? Silver appears tied to the hips of gold, and with a weakening US dollar gold has been consistently ratcheting higher, dragging silver along for the ride. The World Silver Survey 2003 says that silver is likely going to remain in a wide range through the remainder of the year. Look for 468 as the next support level and the nearby high of 491 as resistance. A price of 487.5 was the recent high, is that going to be the zenith for a while? 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 Tuesday, 20 May 2003 | Digg This Article
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