9-18-2008
This past Monday I wrote Special Update to my Weekly Metal Report. This is a further update.
Pumping Money
When in doubt, throw money at the problem.
For as long as I can remember, this is what has gotten economies around the world out of jams. It’s what the Central Bankers in Europe and Asia are doing today, with our help.
Good economics or not, the alternative is much too nasty. Banks are not lending to each other which is tying up world credit markets. You can’t blame the banks, since without liquidity they would have a tough time surviving in today’s environment.
Merrill Lynch and Lehman Brothers are the latest casualties of the credit crisis in the USA. JP Morgan and Washington Mutual are on the current list of those unlikely to survive as they do now.
New “short selling” rules went into place today, offering more transparency. Transparency is but one issue. The “uptick rule”, a rule that came was done away with last year and the rule that I believe would act as a “circuit breaker” in crashing stock index markets, was not addressed and is still not in place. It needs to be activated.
Whether or not yesterday was the beginning of a trend remains to be seen. What occurred yesterday was a shift in sentiment, a shift out of the Dollar and into hard assets. With the 90-T-Bill Rate less than .4 and hourly questions about what US financial institution will be the next to fail, it was only a matter of time until those short metals and commodities, markets that have been deflating due to economic slowing around the world, saw short covering.
Inflation
With all the printing of money and guarantees being made by Central Banks around the world, inflation will most assuredly come back. Not right away since consumption demand is hurt, but as economic strain lessens.
The incredible run up in metals over the past 24-hours was caused, in my opinion, because of a shift by asset managers into hard assets, a shift that caught many traders short and is not going to go away quickly. Whether this shift has “legs” to it is the question.
Frankly, I think too much gain in this short a time frame of 24-hours will be hard to hold onto in unless we see or the market believes more major financial institutions fail soon.
I am not bearish. Not bearish at all. I simply see that the initial upside targets have been hit and consolidation is probably needed.
I would not blindly buy other commodities. Gold is special as it has a history of “safe haven” about it. A haven that many will run to if they don’t want to own Dollars. Crude Oil by way of example is not a safe haven in my opinion.
Gold’s Seasonal Story
A pull back in prices into mid September has occurred. This pullback skewed this chart. Look at the Seasonal Chart below provided to us by The Moore Research Center...www.mrci.com.
It certainly looks like a Seasonal Low is now in place. It shifted into September, but looks in place.
December Gold
Lets look at a Daily Chart of December Gold Futures.
On Monday I wrote that what was needed to start an Uptrend in Gold was to get over 824.2. Since getting over 824.2, Gold has moved up and into resistance at the:
· Bollinger Band High
· 100-Day Moving Average of Closes
· Stochastics are in overbought territory
This is not where I would begin a buying campaign. Rather this combination of the Bollinger Band High and the 100-Day Moving Average of Closes is where some profit taking should be done, if you initiated a buying strategy over 824.2 or own a Gold Call Spread.
Conclusion and Recommendation
Those who follow my Twice Daily Trade Recommendations continue to own the December Bull Call $1000-$1025 Spread at 6.30. As written in my Twice Daily Commentary, I think getting out at breakeven and initiating on a price break a new strategy is the thing to do.
On a pull back to the 18-Day Moving Average of Closes I will be considering initiating a new Bull Call Spread position. Get yourself ready.
Silver
Let’s start off by looking at a Seasonal Chart of Silver as provide to us by The Moore Research Center...www.mrci.com.
