Sometimes the fun of technical analysis is the terminology. Today we are told that “a shooting star formation” is why gold is modestly on the skids. Like the “Hindenburg blimp” and the “Death Cross” this sounds more exciting than poring over charts.
Common-sense from an experienced investor (like me) means that even without getting bored by charts and channels, you know that trees don’t grow to the sky.
Without ever having to worry about the 200-day average crossing the 40-day channel, you were told by my free public posting Oct. 6:
“As ballyhoo’ed gold goes from peak to peak, your editor is getting airsick. One reason for stocking up on the precious metal is to protect against a dollar decline, but in recent markets a more appealing alternative has arisen, foreign stocks. These produce a yield, which you don’t get with gold ETFs or bars and coins, and are taxed less onerously as well.
“Another scary element in the current gold boom is that the ETFs which own physical gold are selling gold now. An ETF like SPDR Gold Trust, GLD, owns bullion, but as the price of gold goes up it actually sells gold bars because its assets have risen more quickly than its shares. This does not apply to funds tracking gold via derivatives or synthetic constructions.
“Moreover, the continued rise of the yellow metal depends on gold mining companies reversing their gold hedges, used to finance new production. Unless they do, they wind up having to sell their output at ludicrous prices compared to the present levels. But the higher gold flies, the more expensive it is for miner refinance.
“The logic of buying more and more gold escapes me, given that what we are seeing worldwide is a need for measures to prevent deflation rather than inflation. Many of the same investors rushing into commodities and gold are simultaneously also buying US Treasury bonds, which makes no sense except if you are avoiding equities out of fear.
“As the stock market picks up, more and more people on the sidelines will be drawn back in. To pay for their stocks, they will sell gold. And there is no alternative purchaser to replace the sellers at present levels: central banks are loaded with the stuff already. T-bonds do have an alternative buyer, central banks and speculators trying to keep US yields low so that dollar-linked exports (for the US or China) can pick up and help the economy grow. Other government’s bonds have similar buyers in reserve, because their currencies are also be pushed downward.
“But no central banks today are going to waste their ammunition stocking up on bullion.
“What this means for our paid subscribers is spelled out below.”
Note that the GLD ETF sold another 2.43 tonnes of yellow stuff last week. Investors are cutting back their holdings in GLD (sponsored by the World Gold Council, whose main purpose is to get the precious metal treated as a sensible investment.) GLD buys or sells gold based on the money flow into and out of its shares. Right now they are moving out and therefore GLD is a net seller, despite the World Gold Council.
Also suffering, as the dollar creeps back from ignominy, are other alternatives like oil, emerging markets debt, and even the loonie, the C$, now back below parity again. If you want to blame somebody, don’t sass hedge funds and the Giant Squid (Goldman Sachs). It is almost certainly the People’s Public Player at work, meaning Our Fed. Uncle Sam wants to push down the Greenback to enhance USA exports and reduce USA imports, but must act with delicacy to prevent foreign retaliation via interventions to push down Euros, Yen, Yuan, Reais, and various brands of pesos and dollars, Swiss Francs, etc. This Richard Suttmeier of ValuEngine calls “the Fed-induced parabolic.”
Recall “helicopter Ben”. Like China, the US manipulates its exchange rate. China by pegging to the US$ makes life miserable for rival Asian economies. Their manufacturing and exports are made more difficult. It also pains Euro countries which cannot sell to China in competition with the declining American export machine. That’s declining price, folks.
Long-term the USA policy is in the national interest. But China’s may not be. Beijing ultimately denies the Chinese goodies like education, health care, safe coal mines, housing, consumer goods,clean air, drinkable water, old-age pensions, unemployment insurance, interest on their savings and a million other things. So they pile into real estate some more (as they did in Sept. despite attempts to discourage this.)
Long term it is not in China’s interest to peg to the USA dollar but Communists are actually very conservative. Blaming China is politics as usual, part of our culture. But the Administration is making sure that while Congress vents nothing will be done to offend China over the exchange rate.
Today again I did not get my subscription copy of The Wall Street Journal because of “production problems” affecting east Midtown Manhattan, where I live and work. It might be better if Mr. Rupert Murdoch, 79, who has printer’s ink in his veins, were to focus more on getting his newspaper into the hands of subscribers in his key demographic zone, and less on political plots ranging from huge hidden donations to Republicans via the US Chamber of Commerce (and others) to the tenor of Fox News. One reason the WSJ is so fat and unproducible is that News Corp. has incorporated a NYC daily section into the paper, mainly to hurt The New York Times by luring away advertisers and readers. Grudge matches have to be managed better than this.
Only 20 of you have responded to my request so you have to read it again. Send me really far away, to Australia. Your editor wants to find a new Australian reporter and you can help. Her submission in the British Airways 2010 Face of Opportunity Contest for small businesses is live. Visit the contest voting page to view and share her submission now. Voting ends Oct. 21. Proposals with the most votes will become Event Prize Finalists and move on to the next round of judging. Up to 250 winning companies will fly free from New York to London and beyond. To help Vivian become a winner, at no cost to you, friends, enemies, family, subscribers, passersby, and colleagues can vote for her at http://britishairways.promo.eprize.com/contest/view_gallery_link?id=1186
More for the paid subscribers among you. What we sold on Oct. 6 was a high-risk gold share if you are curious. And even non-subscribers can view the trade on our website, www.global-investing.com under performance. More for paid subscribers on Austria, Britain, China, Finland, Greece, India, Israel, Japan, Qatar, Spain, and Switzerland below.
