-- Posted Monday, 1 June 2009 | Digg This Article
| | Source: GoldSeek.com
Rick’s Picks
Monday, June 1, 2009
“Phenomenally accurate forecasts”
The dollar’s bounce last week from a Hidden Pivot support that we’d drum-rolled here lasted all of four days, suggesting that more weakness is on its way. If so, we should look for gold quotes to blow past $1,000 by no later than mid-week. Our immediate target for the August Comex contract is 1066.40, subject to a “hidden” resistance just above at 985.80. A two-day close above that last number, or a trade more than $4 above it intraday, would be quite bullish for the near term.
Will this be the rally that starts gold on its way into the stratosphere? We have our doubts, since gold’s short-term charts suggest quiet strength, but not yet explosive power. That could change overnight, however, if the dollar is about to go “kamikaze.” The fact that the Dollar Index has failed to gain traction at some key technical levels in recent weeks is ominous. The trade-weighted Dollar Index settled on Friday at 79.34 and looks primed to test a key support at 77.69 recorded last December. That would represent a 2% decline from current levels, but if the support fails, we might see some panic spread into other markets, particularly T-Bonds.
Scary Bond Picture
There are already some disquieting signs in the bond pits, notwithstanding a sharp rally in the price of Treasury debt at the end of last week. A price surge on Thursday and Friday partially recouped earlier, heavy losses sustained in the days immediately before and after Memorial Day. But the bigger picture is growing downright scary, since T-Bond yields have crept back up to where they were before the spectacular futures rally in mid-March, when it was announced that the Federal Reserve was about to embark on a program of “qualitative easing.”
That’s just a euphemism for direct monetization of Treasury debt, but the plan appears to be backfiring, and badly. For not only have yields on government paper risen, but so have mortgage rates – to around 5.50 percent recently. That’s up from 4.875 percent just a week earlier, and it suggests that the Fed may be losing control of market-based rates -- not that it would have been able to control them indefinitely. Keep in mind that mortgage rates are pushing higher despite the fact that the Fed has bought more than $500 billion of mortgage backed securities in recent months -- part of a plan to suck up $1.25 trillion worth of mostly unmarketable paper. This has caused barely a blip of hoped-for inflation in the housing market; nor do we expect it to do much more.
Hyperinflation, Eventually
The (hyper)inflationists are almost certain to be right at some point, since the U.S. is headed toward bankruptcy and the prospect of having no one but the Fed to “buy” its debt. But we are not counting on fiscal stimulus, TARPs and all of the rest to bail out and estimated 40-50 million homeowners who are underwater on their mortgages. That is why we remain in the deflationist camp. We’ll join the inflationists if and when the government starts bailing out individual homeowners rather than banks.
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Rick's Picks publishes a daily trading newsletter for gold, stock, commodity, and mini-index traders 240 times per year. Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Monday, 1 June 2009 | Digg This Article | Source: GoldSeek.com
