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David White is a software/firmware/marketing professional and a long time investor. He has worked in the networking field, the semiconductor equipment field, the mainframe computer field, and the pharmaceutical/scientific instrumentation field. He has bachelor's degrees in bioresource sciences... More
  • Is Gold About To Bounce? 5 comments
    Mar 26, 2010 7:52 AM | about stocks: GLD

    The 30 year Treasury Bond yield is breaking out. This is a sign of inflation. Many consider gold to be the best hedge against inflation. With the apparent break out on the 30 year Treasury Bond yield chart (see below), gold may find the traction it has been lacking lately.

     



    Aside from just the above chart, a new $1T health care bill has been approved recently. A jobs bill has been approved. A jobless benefits bill has been approved by the Senate (and is a shoe-in to be approved by the House). These latter two bills amount to more than $150B in further stimulus. The US government is still spending parts of the nearly $1T stimulus bill from last year. It is incurring further debt load. The Fed is going to stop buying MBS’s at the end of March. The extra supply of debt instruments that results from this change in policy is likely to raise long term Treasury yields further. The US government budget is growing, but the tax revenues have shrunk from the 2007-2008 period (as the GDP has shrunk). The US government has been effectively printing money. As the Fed slowly withdraws the stimulus, the long term bond yields should rise further. The price of gold will likely accompany them.

    Right now the GLD (gold ETF) chart indicates an oversold condition. It is near its bottom Bollinger Band. The Williams %R indicator shows GLD is oversold. With Trichet’s apparent approval of the joint Eurozone and IMF bailout plan for Greece, the Euro may rise again against the USD (at least in the near term). This should help most commodity prices rise in USD terms. Many if not all of the ducks appear to be in a row. Buying GLD right now may be a good play. Of course, if the market starts falling dramatically, it may be a good idea to abandon this play. Still many feel that the market will continue to chug along until the end of the quarter at least. It may be over bought. It may be over priced. However, the pundits seem to believe the market will go up. If so, GLD will most likely join the market. The 6 month chart of GLD is below.

     



    I have drawn in the support line. If GLD breaches this support line, it may be best to abandon the trade for the near term. I have also drawn in three resistance lines. The upward movement could stop at any one. However, at least one of the upper two resistance lines seems likely to be reached. Some gold mining stocks may follow suit. These may not be quite as pure a gold play as GLD though.

    Good luck Trading.



    Disclosure: no position at this time
    Stocks: GLD
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This post has 5 comments:

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  •  
    Alan Greenspan calls the rise in Treasury yields the "canary in the mine" that may signal higher interest rates ahead.

    This sounds like inflation to me. It sounds like gold may head higher.
    26 Mar 2010, 10:41 AM Reply Like
  •  
    Big emerging market countries such as China and India have been generally investing in Gold. They have even recommended their citizens do so. If these countries decide to reverse their position, you will likely want to exit this trade.

    This trade was really only meant to be a relatively short term trade, although the argument could be made that it is also a good long term trade. Marc Faber has recommended buying some more gold every month.
    26 Mar 2010, 03:53 PM Reply Like
  •  
    SeekingAlpha's frequent commodities contributor, Matthew Bradbard, says he is betting Gold breaks out of its current range next week to the down side. It moved a lot higher today. One explanation for today's rise was the rise in the Euro based on the relative resolution of the Greece bailout package to the apparent satisfaction of the ECB's Trichet, Germany, France, and Greece. Some think this is just another step in the ongoing negative saga. I tend to think this may be a near term resolution. Eventually it will be time for Greece to tap this package. At that point we may get more fireworks. I don't feel those fireworks will occur next week. Plus the Israeli/Palestinian problems have flared up again. This may make the USD a safe haven, but it will also make gold an even safer haven.

    The USD may strengthen a little on the rising bond rates. However, the Euro is in a position to rebound. It did so today. The rebound may continue next week. These two factors should tend to offset each other. If those offset, the thought of inflation (the Treasuries actually losing value and the economy improving) may help gold to rise. It is supposed to be a hedge against inflation.

    Keep your stops in at the support line. Take profits right away if you prefer to rely on Matthew Bradbard's opinion (he may be right). Otherwise, wait it out. This trade is at least off to a good start.
    27 Mar 2010, 01:59 AM Reply Like
  •  
    Supposedly the South Korean ship sinking under mysterious circumstances push gold up as a safe haven play. The Israeli incursion with tanks into Gaza probably aided the push upward too.

    Marketwatch: "Over the medium-term, the pick-up in demand from India and the Far East seen this week bodes well for gold's near-term prospects. 'We hadn't seen this kind of demand since Chinese New Year.' The demand mostly came from jewelers and traders who believed they found a bargain, Nabavi added."
    27 Mar 2010, 05:18 AM Reply Like
  •  
    Gold was up again today on a weak USD and expectations that the demand from China will double in the next 10 years.
    29 Mar 2010, 08:16 PM Reply Like
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