Market Wrap
Week Ending 12/12/08
The following is an excerpt from the full market wrap report available on the Honest Money Gold & Silver Report website. This week's report has twenty-seven charts for your review. Stop by and check it out.
Economy
The U.S. Bureau of Economic Analysis released the latest trade deficit figures: the deficit increased from $56.6 billion in September to $57.2 billion in October, as exports decreased more than imports. Long term this is dollar bearish and gold bullish.
Not to be outdone by the trade deficit - the government weighed in with its budget deficit: for the first two months of the new fiscal year it was minus -401.6 billion.
The estimate for the full year is $481.8 billion. Good job guys. You must be in a race with the Fed to the land of no return.
However, the winning statistic goes to government spending, which was up 47% year over year; another plus to put on their resumes. You couldn't make this stuff up if you wanted to.
The Federal government has also gone on a borrowing binge, to the tune of 39% annually. This is six times the prior quarter's amount.
The Fed's newest scheme is to create its own debt and its own money, both out of thin air - one a bit more rarified than the other. That's quite the act of prestidigitation, kind of like pulling a bank out of your pocket.
Dr. Marvin Goodfriend made some prescient remarks in reply to the Fed's plot to create and issue its own debt.
"It creates problems in coordinating the issuance of government debt... These would be very close cousins to existing Treasury bills. They would be competing in the same market to federal debt."
And that's putting it mildly. The Fed would be monetizing the debt it directly creates, completely circumventing Congressional oversight. At least Congress is mandated by the Constitution to borrow money - the Fed is not.
Currencies
The yen and the dollar were borrowed the heaviest to fund the global boom. These are the infamous carry trades.
As deleveraging unwinds, the yen and the dollar have to be bought back, hence the recent strength in both currencies.
The other side of the coin is the negative reaction of the euro, which during the boom was the strongest currency. Now, during the bust, it is the weakest.
Long term resistance for the cross is marked by the upper horizontal line, which may not come into play. If the lower horizontal line is broken below - that could be it for the rally.
Gold moves opposite to the dollar, and in line with the euro. As the dollar has rallied during global deleveraging, the euro has fallen.
Gold has fallen as well, but it has retained its value better than any other asset class or commodity.
Gold
Gold was up 9% for the week, closing at $820.50 (continuous contract). $850 is a crucial level, as it represents the intermediate term trend. $850 is also the price of the previous bull market highs going back decades, so this is an important level to watch.
Expect volatility in gold (as in other markets) until the $940 level is closed above and holds as support. At that point gold will move higher with less volatility, especially during downward corrections.
Below is the daily chart of the gold ETF (GLD). A right-angle ascending triangle has formed. In late Nov. GLD broke above its upper resistance line, but then failed on the breakout and closed back below support.
A bullish island reversal then formed. This is when price gaps down one day and then gaps up the following day - creating an island or isolated candle, with price reversing direction and heading up. GLD then proceeded to break above its upper resistance line.
I don't like the series of gaps. Gaps like to fill. They don't have to, but they usually do. The dollar will be the key as to which way gold goes from here. A retest of the latest breakout may occur, which would fill the gaps.
This would be a short term move IF it occurs. The weekly charts are starting to look promising for the intermediate term trend, which will turn strong once resistance at $850 becomes support.
GLD is above its 50 day moving average. RSI has flattened out and will need to move up if the short term move up is to continue. Histograms were receding back towards zero, but are heading back up after last week's action. This too needs to continue for a sustainable rally.
Overall gold has been acting well and is repairing the damage done by the recent correction. There is still much work left to be done, but gold has staying power that has lasted for millenniums. It will not be denied.
Volatility is still in control. This means buying corrections that hold above support. Do not chase after a rising market. Let it come back to you. In this environment it will. 2009 will be a good year for gold. The secular bull market is still in phase one and is getting ready to enter stage two.
HUI Index
The Hui had a big week gaining over 20%. Some individual gold stocks mentioned in prior reports were up as much as 35% (see the current stock watch list below). KGC that was highlighted in last week's report was up 20.5%.
The daily Hui chart shows the prior false breakout followed by this week's move up. RSI is moving higher as is MACD. Histograms are showing a negative divergence, however.
It is positive for the gold sector in general that the gold stocks are presently leading the physical metal. The dollar and the overall direction of the bear market weigh heavily on the performance of the pm sector.
The latest full-length version of this week's market wrap is available only on the Honest Money Gold & Silver Report website. This week's report contains twenty-seven charts, including ten individual stocks on the stock watch list. All major markets are covered with the emphasis on the precious metals.
Just released is an audio version of the book Honest Money. A free copy is included with new subscriptions along with a special report: Investment Vehicles for Bull & Bear Markets: a list of over 50 ETF's and other investment vehicles offering profit potential on both the long and short side of the market: stocks, bonds, currencies, gold, oil, water and more. Stop by and check it out.
Good luck. Good trading. Good health, and that's a wrap.
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