Steven P. Orlowski's  Instablog

Nearly five months ago I wrote a post here at SeekingAlpha.com outlining reasons why investors must own gold.  At the time gold had been trying it's darnedest to move higher to then retest that psychological threshold of $1000.00.  Every rally would elicit cheers from the goldbugs and inflame the ire of the deniers.  The facts seemed to be in place, but the argument wouldn't be settled (OK, it will never be settled) until $1000.00 was not  just revisited, and not just surpassed, but exceeded and as I wrote elsewhere, exceeded on a sustainable and, (say it, say it), permanent basis. 

Recent articles by the gold perma-bears, one notably in a recent edition of the Wall Street Journal, labeled gold a bad investment.  This I fail to comprehend.

Now I'm no gold bug.  But I am a bull.  The story since May has not changed, and as a matter of fact, it has gotten stronger for gold, as well as other precious metals.  A visible change in the air has been much more coverage in the media regarding the replacement of the US dollar.  Here again, the rumor mills churn, with supposed secret meetings between various governments, public statements from world leaders condemning the dollar and warning the US, followed by denials, and on and on.  If one wants to be bullish on the dollar this argument is a pretty stable foundation to stand upon.  Don't be naive, I say.  Yes, if in fact the dollar is to be replaced, and if we are to believe that other countries are working out a plan to do so, then one must own gold.  Frankly, it is not crazy to think that at the very least they'd be discussing the possibility.  Except for the dollars deep entrenchment in global finance and trade and the difficulty of replacing it, it probably would have been replaced already.  I won't regurgitate all the points here, but consider China, and the difficult job it has of caring for it's investment in US denominated assets and it's clear desire to be rid of them.  Talk about a rock and a hard place.  Sure, the US can proclaim the security of the dollar as the world's reserve currency, if only because of the great challenge of replacing it.  Unless the US pulls a rabbit out of it's ragged hat, the dollar will be replaced.  It may be by a basket of currencies, and it will likely take many years, if not decades, but the trajectory is down, and accepting that argument, the trajectory for gold is up.

The other major point for gold is inflation.  Now, we all know that dollar devaluation is inflation, so assuming a return to economic growth, coupled with the governments need to devalue the currency, then inflation is in our future.  The discussion revolves around the pace of inflation; hyper or otherwise.  If one believes this economy is in recovery, and that the stimuli over the past year have done the trick, then again, buy gold.  It's that simple.  A global recovery will in fact send gold higher.  Right? 



Finally, that dastardly number, 1000.  The chart had been showing the clear development of a head and shoulders formation.  Everybody saw that.  The fundamentally oriented gold bears ignored it, the technically oriented traders wondered whether it was an indication of a bullish move through $1000.00.  It has proved to be so. 

Now, the $1000.00 question is, will it hold?  So far so good.  But gold is fickle.  And a move below that level will elicit a nauseating rash of bearishness, which will likely turn into a sell-off, pushing the price lower, substantially even, giving gold bulls another opportunity buy again and profit accordingly.  Fundamentally gold should go higher.  The story hasn't changed, it's only gotten stronger.  Technically gold needs to stay above $1000.00 for a while to convince more investors that the floor is in. 

Either way, both bull and bear beware.  The next move, higher or lower, will likely be a violent one.


Disclaimer:  I own DGP, CEF, GLD.

 

There’s nothing quite like telling a recycled joke that falls flat. Hopefully if you do you’ll be accompanied by a man with a snare drum. Take my wife, please. Since reporting earnings after the close on June 18, shares of Research in Motion, Ltd. (RIMM) have fallen, trading as low as $67.53 intraday on June 23 then rising notably on June 30 thanks to initiation of coverage by BMO Capital Markets. The financial services and research firm reportedly gave the tech stock an outperform rating and a price target of $100.00. But the stock slid over the succeeding five sessions and is up 2% today.

            The June 18 report for RIM’s first fiscal quarter cited a 33% jump in earnings. RIM said it earned $643 million, or $1.12 a share, compared to earnings of $482.5 million, or 84 cents a share, for the same period the previous year. Revenue jumped 53% to $3.42 billion for the quarter. It was RIM’s forward looking guidance that pushed shares down; the company is expecting lower revenue and earnings in the coming quarter. Three men walk into a bar…

             Shares of RIM are up nearly 80% year to date and if BMO’s projection is to prove accurate, investors who buy RIM at current prices would capitalize on an opportunity to achieve a 4O%+ gain. If you had been alert enough to have invested in RIM at the 52 week low of 35.05 achieved March 9, 2009 and if you were to continue to hold until the shares do reach $100.00 then you will have nearly tripled your investment. These are already quite substantial returns. In spite of BMO's bullish outlook one must proceed with caution. With consumer confidence again on the decline as evidenced by last weeks Consumer Confidence Index reading of 49.3 versus a downwardly revised 54.8 in May, with stiff competition in the Smartphone market, with the aforementioned lower earnings expectations and despite the coming launch of the new Blackberry Tour Smartphone, you have to wonder whether RIM’s stock price will achieve such lofty heights anytime soon. Select your one-liners carefully. If you don't, rather than celebrating triple-digit shares and double-digit returns you might end up waiting for the “RIMshot” (instantrimshot.com/).

Disclosure:  I own no shares of RIMM.

 

It seems as though the much ballyhooed "Golden Cross" has arrived.  The 50 day moving average has crossed the 200 day moving average one day after the S&P 500 lost 3%, the second Monday in a row which saw the markets sell off precipitously.  Last Tuesday the selloff from Monday continued but today the market seems to be meandering + or - a little bit.  

 The question remains, whereto fore the market?  On the intraday chart the 50 day and the 200 day moving average crossed at just about 12:25.  The market seems to have taken notice as the index has rallied about 3 points since then.  But despite the cross and the bullish implications one cannot ignore the bearish implications of the selloff last week and yesterday.  Is this the much anticipated "healthy" pullback, or does the World Banks revised economic outlook, an expected 2.9% contraction of the global economy this year versus its March prediction for a contraction of 1.7 percent, presage new and significant declines to come?  

 If the index manages to follow up last weeks losses with a lower close this week the bears will begin to make more noise and the calls for the resumption of the bear market and the end to the "bear market rally" intensify.  And the bulls might have cause for worry.  Despite the Golden Cross, the S&P is now, on the three month chart, trading below both the 50 day and 200 day moving averages, and 900.00 seems a potential level of resistance. Couple that with the concern that many profitable bulls have that the markets are destined for a sustained pullback and we could end up with a self-fulfilled prophecy. We've been waiting for the pullback. Now let's make it happen.

Disclosure: I own shares of SDY