hedgeman

The End of Gold, Part Two

Gold will surpass last years highs and our view is extension towards 1200. If this rise happens orderly and not in a blow off top manner it may have further to go.

Anyone trying to go long without a gigantic stop loss looses at least part of his position before it moves higher. Weak longs are washed away therefore limiting supply higher up. Since it is hard to make money as a leveraged bet on gold usually this means it is not over yet. I also like the monthly charts.

I do not pretend I know why markets move where they move and will therefore choose not to "analyse" further. KISS (keep it simple stupid) shows it made a brake and has room to the uspide on a daily close above 935.

Five New Forces to Drive Gold Higher

Sometimes it is better to simplify things (taking the "why?" out of the equation)... Gold deserves to be the champion of conspiracy theories out there given its long long history but thinking too much about it doesn't help to make some money with gold.

If you just look at the market with no bias (bias meaning believing something moves due to the factors we have identified) it is consolidating. It reminds me of the time EURUSD first hit 1.367 and then fell back almost 2000 pips and consolidated until majority of short term money lost patience with it. We all know what happened later on...

So a detached view shows a very high probability gold is at a similar point in time. It will most probably go higher to some 1200$ level in 2009 where everyone will buy the 2000$/oz idea. That will be a turning point. From there it can again consolidate or move up parabolically. 1200$ coincides with a long term DX target of 65.xx and should be hit for the cycles to reach their decision points. 1200$ gold and 65 DX is where USA empire will be in front of historic jury. The vote is yet unclear.

Disclosure: Long and not in a hurry, would decrease exposure on daily close bellow 825 by 66%.

Could the Pound Sterling Be the Canary In the Coal Mine?

GBPUSD is a strong buy on daily close above 1.4930. We intend to open an agressive position. We are bearish on DX and EURGBP is out of line according to our analisys. Since interest rates between Eurozone and UK converged basically, 2009 could be a year when EUR adoption becomes a topic for UK again. And in our view Eurozone could not "survive" such terms of trade ("fair value" fix - also in political context would be in the 0.83 - 0.87 area for EURGBP).

Disclosure: Long JPY ag EUR and USD, short EURCHF, short DX, long GC.

Artificial U.S. Dollar Rally Is Coming to an End

We are witnessing a hystorical experiment. If it works Ben & co. will go in the history books as great thinkers, if it backfires it will be blamed on the "crisis" of whatever sort. There is no risk for policy makers and that's what will bite at the end.

It is easy to see a hidden subsidy to banks when FED purchases the Tbonds and Tnotes and banks realise great profits and hence improve their capital base. FED will buy the top (quantitative easing) and there is a direct cost of abt. 150 billion which will be banks "improved capital". TARP is a smokescreen, the bigger transfers take place between the FED and its owners.

After FED buys long end from the banks then it will be time for some 10-30 steepeners as a strategic longer term view based on simple fundamental reasoning.

The Yen Is on Fire, Gold and Silver Continue Their Breakout

DX finally moved back down. Out 2009 target remains 65.xx for DX. We have closed our EURJPY shorts and hold only USDJPY and DX shorts. We also entered long gold after daily close above 835.

EURCHF broke 1.5550 and we went short the brake. Today we also open SP500 shorts (we hold 950-970 are as potential top and will accumulate shorts above 900). Our view is down till March09 and then 6month of stability - rising equity markets. However tempting it is to short UST it is still too risky at the moment.

Will We See a Big Upward Move in Gold?

Pushing gold prices up is the cheapest way to postpone the inevitable. Without a thorough system reform the growth will not be reignited. In the mean time to slow the pace of declines in employment FED should create another "bubble" which would increase the "perceived wealth" effect. If you force banks to start lending again and revaluate a widely held asset (gold!) you jumpstart the system (it solves nothing but postpones reform and gives some breathing space...) Consumption would rise globally and also other asset classes would stabilise - correct higher...

Bubble "order" - Equity - Realestate - Commodity - Precious Metals

Give consumers credit and convince them something they hold is rapidly increasing in price and they will start to spend. A jumpstart so to say.

Inflation - USD falling - Deflation debates will become irrelevant once the FED decides that cheapest reflation is through gold.

But one of conspiracy lines goes like this : there is no physical gold left at the FED, China holds it somewhere as collateral against US Treasuries... :)

There should be a clear distinction between what should be done and what will be done. ECB and EU almost never do what they are supposed to do due to their organisational inneficencies. USA should lead the way.

And this time they will do it. Nothing worse for politicians then a bunch of workers staying at home (after a few days of family life a night out with union guys, after a few beers you can spark a riot easily...) Look at the Greece example.

Something should be done fast to alter perceptions and the most effective way ( - cheapest) is to push gold sharply higher.

Disclaimer: will buy brake of 835 on a daily closing basis for XAUUSD.

Own Gold? Time to Fold

Inflation doesn't matter for the current price of gold. Total collapse is also not imminent. What matters is how to duplicate the wealth effect created by housing and credit bubbles.

And here the large quantity of gold and its wide dispersion among different types of stakeholders around the world is the easiest way to increase perceived wealth (and if you arm twist banks which government now owns to start lending again) and subsequently consumption. A sharp increase in the price of gold in the next few days would have the desired psychological effect as we approach xmas.

Disclosure: Stopped from gold longs last Friday.

The Manipulation of Gold Prices

Nice article. We got burned buying the 792 brake on the way up, our stop was triggered Friday. It means there is a nice chance for a rebound Monday :) Anyway taking deep analysis aside, tech picture shows failure on weekly charts and deflation camp may be winning short term. However sooner or later "fiat" confidence will dissapear (Ben and Co. are putting up a good fight so far) since fundamentals are just not there. Some sort of fractional gold backed banking system should emerge (although it may be transitory in nature) in due time.

As for Comex and the bacwardation. Could be some commodity funds are exiting without looking at the optimal price (liquidation in a hurry) and the rebound that will follow will produce yet another great opportunity for "the naked shorts" bunch to have another short term party. Our target for 2009 (when USA default story picks up speed) is more modest at around 1200-1300 level.

Three Possible Explanations for the Dollar's Strength

DX is a real surprise at this levels. We are adding to our shorts instead of stopping it since short EURJPY and USDJPY positions are performing nicely.

Stocks Plunge, Dollar Surges

US dollar touched highs for this retaracement today. Sell USD for 65 target in DX.

Disclosure: Short USDJPY and EURJPY. Short DX.

Bailout Bill Passes; What Happens Now?

100% agree. Probably equity markets will rise after some serious pounding early next week again fooling many that the politicians "rescued" the world. Reality is DEFLATION after a period of stagflation. Check comments from Mr. Trichet... ECB is so behind (off) the curve that it is basically unimaginable. Europe will get a much worse hit then US, Japan will probably come out as a winner (of course only on relative basis). Those guys learned to survive in such environment and their economic structures are far better equiped to weather this storm.

As to the US baby boomers coming to retirement, they will probably see their 401k's severely depleted...

Nationalisation of homes in foreclosure and another check to average Joe (with a defined spending rules: pay mortgage and debt and of course spend some otherwise Chinese and other Asian nations will refuse to buy the newly issued US gov. debt) would in our opinion be a much better solution.

For a guage of what the real economy globally is doing Baltic index (BDI) is still appropriate measure and it is showing severe slowdown (not just lower oil prices).

The bailout bill is enough for GS and MS to stay afloat and if we drop the charade this is what the intention of Mr. Paulson was in the first place. Be sure GS and MS (if they survive) will reload equity positions from retired people who will sell their 401k holdings near bottom and this will mark the bottom of the cycle. This is the plan however the eternal question whether it is really different this time still hangs over us.

It is different and as risk models showed in Aug07 once every 200 million years events can happen. So what we should really think about is how to avoid the global capitalism avoid transition into chinese style capitalism in order to survive. This is not a once in a 100 years event, it is an event unseen so far.

People feel this is a cold, others say pneumonia, few of them say 87 crash was heart stroke and this is cancer. When average Joe realises this is cancer and looses the trust in fiat money, the system will have to change. Let's just hope PEOPLE put the pressure on politicians and really PRESSURE them (PUBLIC PROTESTS) so they will for once listen and not just think about their personal position.

Chinese style of capitalism if not that bad for the Chinese actually at this point in their development cycle. However it would be disastrous in the western world and should be avoided at all cost.

Time To Hedge Dollar Exposure

USDJPY target 90 by year end. Added to shorts above 107.00, the train is about to leave the station.

Dollar Shows Resilience As Safe-Haven Currency

Just buy JPY ag EUR and USD. USDJPY manipulation is key to USD correction. It is still just a correction within a bear trend with a target of 65.xx for DX...

Disclosure: Short EURJPY and USDJPY.

Whither the Dollar? Currency Trends and ETFs

Is the dollar just bouncing off its summertime lows, or is this rebound the beginning of a new upward trend?

USD is in correction mode (DX 81.xx target). Still surprisingly fast advance, no corrections, official names can be "felt" in the market action. Don't let behind the doors deals between US and Asia (China) fool you into thinking USD is now fundamentally bid. It is still fundamentally weak however since the latest carnage USD shorts will be more carefull and the rate of descent will be slower. Our target remains DX 65.xx zone, however it is hard to estimate the interval (well it is always hard, harder this time since govie USD bulls do not follow the same investing rules as other players) Best guess at moment 2q 2009....
We still remain JPY bulls (ag. EUR and USD).

Disclosure: short EURJPY and USDJPY

The Dollar Can Continue To Rally, Despite the Weak Economy

USDJPY has to rally above 113.00 and close the month of September above 113.00 for the USD rally to have more legs (not a likely scenario at present in our view). The dynamics of the upmove of DX is astonishing indeed and probably has further to go. DX has room to 81ish through EUR and GBP fire sales. There should be an interim correction to 75.50 - 76.00 levels first if 81 should be seen.

Meanwhile JPY is quietly setting the stage for a rally and JPY will be the winning currency in the 12-18 month frame.

Disclosure: short EURJPY and USDJPY.