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Golden Retreat?

Global Macro Roundtable

<the following is an excerpt from our Blog >

My Mental Market-Box:

Target Price (TP) : Short Term (ST) : Mid Term (MT) : Long Term (LT) :
Support (s) : Resistance (r) : Head Shoulders (h/s) : Double Top (dt) : Reverse (rv) ; Overhead (ov) : Breakout (bo)

My Notes:

  • Markets: Interesting - most global indices are putting in LT double/triple Top (head shoulder formations) and many markets are back down to mid 2006 or early 2007 levels.
  • The IMF has stated that likely the credit crisis will effect $1 trillion in write offs due to the subprime crisis. Until now banks have more/less confessed $250 billion thereof. Are we only at the End of the Beginning? My gut says we are not yet close to a full bottom.
  • On Wedenesday, this week, the Fed meets - pressure on Bernanke NOT to cut rates due to moral hazard and "wasting rate ammunition" if crisis has further to go ; likely to see a 25bp cut but I will not be surprised at all if FOMC holds rates due to inflation
    Either way, the USD should rise considerably on psychology alone
  • INVEST : I remain long oil, gold, silver, alternative energy, agro, petrol energies
  • Baltic Dry Index : is moving rapidly higher - BDI can be seen as LEADING indicator of global economy as it implies goods are moving (have been ordered) - is this a "blip" or does it mean an end to the credit crisis, or does it mean that DECOUPLING with Asia really is happening? I don't know yet.
  • Currently, the gold indices GDM, HUI and XAU are in oversold territory and sitting precariously on their 200 day moving average support line (GDM is below 200d ma)

For goldbugs these last 18-24 months have been a constant changing of masks - ofter laughing yet also often bawling our hearts out as gold retreats. Yesterday the precious metals took a hit. Nearly -4.5% in gold, silver, HUI, XAU and likewise the GOX and GDM indices. Even the coal index was down 4%. Although it seems counter-intuitive that gold should be correcting this much in the last few weeks against a backdrop of :

  • increased political uncertainty in the Middle East
  • increased energy and food prices
  • US in a recession and likely to stay in a recession for 08 / 09
  • the US Dollar likely to get weaker on FED rates moving lower...

But that's exactly what it's doing .... Plunge Protection Team or not ! But stepping back, we see in fact that the overall trend remains clearly upward and within the solid green channel. I still am ardently positive on the Euro versus the US Dollar in remaining strong as the ECB has stated they intend (at this point in time) to curb inflationary tendencies in the Eurozone. This should put a bottom of sorts under the EUR. Likewise, I suspect the FED will try to offset any depressionary economic scenarios by easing credit. Yes, although inflation is the "colour of the day" in the media, the real culprit is a depressionary tendency in the West, and especially the US, hence monetary strategists at Central Banks tend to counteract this by increasing liquidity and easing credit.

The uptrend on the chart shows a possible retracement back down but along the way resistance levels at : 850, 820 and 790. In the overall scheme of gold, this certainly looks like a "normal correction" to accompany the cries of a commodity-hype. MACD is again at a oversold level which existed after the May 2006 correction. Are we ready to embarque on a new leg up?

Remember, any easing of Fed rates takes time to filter through the system and we may see a NICE Autumn rally in the metals... At this point in time I cannot foresee that the Fed will suddenly stop easing for the foreseeable future especially when US housing continues to fall, employment is weak, budget and fiscal debt remains large and the "never-ending" wars based out of Washington. US Dollar Strength ? Anything is possible, but my immediate thought is "Dear, surely you jest!"

Come join us - we have an excellent track record of calling the markets - private and institutional investors in 45+ countries.

Best regards from the GMR,


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