-- Posted Tuesday, 21 April 2009 | Digg This Article
| Source: GoldSeek.com
June Gold: Open= 886.5 High=896.4 Low=881.5 Last= 884.4 -3.1
Stock market bulls can trumpet such frivolous statistics such that the SP is up 26% from the lows made in March. The fact remains that the SP is still down over 46% from its peak in October ’07. Some will say that the sub-prime mortgage mess is in the final stretch or that the market has priced in the GM bankruptcy. Well, there is more news that ought to give bulls some pause.
Fannie Mae and Freddie Mac reported that delinquencies for prime, read again: prime, mortgages that are 60+ days behind increased by 50% from December to January. The numbers are almost double than the figure from October.
What it will take for gold to ‘explode’ higher in an inflationary spiral, gold bulls must be asking themselves? The key answer is simply inflation. Despite yesterday’s knee jerk reaction at the governments sly, backdoor idea of nationalizing the banks, the news that slipped by most was the extraordinary deflationary readings out of Spain. Spain suffered what might be the worst housing bubble in Europe, though England wouldn’t be too far behind. This news, coupled with the CPI and PPI readings from last week are enough reason to stay neutral of gold for the near term.
For the amount of money that has been destroyed in the stock markets and the value of real estate, it will take plenty of time for the Fed to print enough money to fill in this hole before rampant inflation becomes a major problem. Stocks of crude oil continue to bid aggressively for storage and supplies are well above the 16 year average. Grain supplies are still priced very attractively for farmers and should garner more acres than the USDA expects, which means that farmers ought not to be thinking about how high prices can go in the short term but how low they could go if decent sized crops are harvested this fall.
With the bankruptcy of GM and Chrysler looming, mortgage delinquencies and defaults strong in both sub-prime and prime categories, and consumer and producer prices falling, the near term economic outlook is not rosy. It feels as if the market has been rallying on economic conditions not being apocalyptic. But simply because the economy is not utterly crashing and burning does not mean that simply stepping on the accelerator will kick this engine back to life.
Inflation certainly could be a major problem in the future but we are still battling a great recession at the moment and despite the panic passing from earlier this year there is little to cheer loudly about. If the US dollar continues to be refuge for investors during this global economic slump then commodity prices will find lids kept on prices and ought to contain inflation from becoming a major concern. Gold has held up surprisingly well during the past twelve months, roughly even.
This ought not to be too surprising as inflation has tailed off during this time and the US dollar is much higher.
Patience is required. The business cycle should take time to heal, to fully price in what has happened. In this relentless 24-hour news cycle, there is too much mania. The business cycle has turned into a pitched roller coast, with only sharp ups and downs. Sideways could be healthier than people want to believe.
Consumers want prices to keep falling so they can keep saving money, but that’ll exacerbate the production cycle by cutting off production of goods in the future if prices fall too low. Producers want to keep prices high (think OPEC) but the reality is that consumers will balk and there will be over supply. It takes time to discover that medium and we’d be wise to not pin our hopes on excessive swings one way or another.
The short term trend is clearly down, but the overall trend is technically still higher until the market breaks the Jan. 15th low, which sits around the 61.8% Fibonacci retracement level. Given the uncertain economic direction and the uneven performance in gold, buyers ought to be patient and wait for some type of bottoming action to develop or buy when the pattern of lower highs is broken.
The next downside target for gold is near $860, which would be a 50% pullback. A retracement to the 61.8 Fibonacci level would be to the $820 level. A quasi double bottom could be in the works on the chart, with the two bottoms sitting around $865. Prices will need to close above $900 to regain some technical momentum.
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-- Posted Tuesday, 21 April 2009 | Digg This Article | Source: GoldSeek.com
