4 year highs (nearly) in the price of wheat pushed CRB futures to
new 52-week highs, as wheat bulls continued to try and complete
a rounding bottom on the long term charts Monday. The nearest wheat
contract gained almost 2 percent, while the other grains were up
from 2 to 3 percent for the day.
was enough to signal a primary bull market for wheat, as well as
an intermediate bull market for the CRB, but not enough for the
Goldman Sachs commodity index to follow suit. Several of the commodities
were up more than one percentage point on Monday, but the Goldman
Sachs index sports a heavy weighting in Oil, which was up only marginally
today (up in Europe, down on NYMEX).
Cocoa prices extended their string
of highs, and although coffee prices didn't, they were up 2.5% at
the time of writing. Helping the CRB up besides the grain complex
was a 4% gain in world sugar prices (a bounce from the recent drubbing),
and like gains in some of the Livestock prices.
Gold bounced around between support
at $310 and resistance at $315 after a Friday late day sell off
where the bears took out "some" support (June's low), but hardly
the meaningful type. There are several factors affecting gold trade
(for most of the last decade almost no factors affected gold prices
except on the downside). However, it is our opinion that the most
dominant, until recent weeks, has been the slide in stock prices
and the US dollar. Speculating on war is a tough thing to do, and
even if one could do it, the bulk of the evidence supports the best
correlation between the dollar, stock prices, and gold (inverse
correlations) over the medium to long term.
The short term is always filled with
noise that'll promise to take investors eyes off of the correct
ball in terms of gold market valuation - the question of dollar
valuation. We suspect in hindsight, gold's lag in confirming last
week's dollar break will be seen as its last buying opportunity
perhaps for a long time.
We are of the opinion that gold's
weakness in recent days is related to expectations the bulls will
be able to lift US share averages. The averages were largely flat
last week, but the broader markets were up a little bit compared
with the prior week. A bounce in stocks would I believe offer support
for the dollar.
Another factor driving gold lower
recently has been renewed weakness in the South African Rand and
the Australian dollar, which could explain why the weakest of the
gold stocks happen to be the hedgers with exposure to hedges in
those currencies, such as Newmont, Placer Dome, Anglogold, and Barrick.
It is those stocks that have taken
out their June lows. The unhedged gold stocks, as measured by the
Amex Gold Bugs index, "technically" fared better, which
I think is bullish for our near term outlook - that the recently
weak Aussie and Rand are keeping the price of gold from confirming
a primary bull market ($339) even as the US dollar just signaled
a primary bear. The HUI was up on Monday.
supporting our near term outlook is the fresh high in the CRB index,
the breadth of that participation, and the rising prices paid component
of the string of reports in the monthly US ISM (a national manufacturing)
index, indicating a recovery of some pricing power for the commodity
Nonetheless, there was another wave
of gold selling at the close Monday on COMEX, but it only managed
to shave one point off the market's best for the day. The Rand was
firmer Monday, but the Aussie was off half a percent against the
dollar matching the bulk of the action in Forex trading up to midday.
The US dollar index (trade weighted average) backed up(ward) by
½ percent by midsession.
All eyes were focused on Wall Street,
whose bulls were struggling to hold their heads above water for
most of Monday. The broad market was under pressure, but was buoyed
by the averages until we neared the end of the trading day when
bulls closed up shop early. My
gut, for one, has been a little confused. It's been telling me that
equities could bounce one minute but that they could collapse the
next. Certainly they're due for a bounce in the short term, but
they're also due for that collapse we have been waiting on, ever
since last year. You know, the one to Dow 6000!
The US dollar ended back down, and
the Dow finished down better than 125 points by the time the bell
rang. This also supports our view on gold as the price of gold popped
in overnight ACCESS trading that begins shortly before the Wall
Street close, obviously in reaction to the late session Dow and
Nasdaq sell off.
The sentiment data is sending us
mixed signals, but that data is driven as much by news as it is
by price. Moreover, we're approaching a heavy news season guided
by second quarter profit reports. What's more is that it is about
that time when belated profit warnings might roll out, particularly
from any of the companies that have bad news but have been putting
off telling us about it.
The third quarter promises to have
a more favorable comparison year over year, but in many cases analysts
may have postponed reducing their forecasts for the quarter, which
are probably dependent on second quarter results to some extent.
So if one were to ask us whether
we'd place greater weight on the sentiment data or the technical
data, we'd vote for the latter, which has been forecasting a poor
second quarter, and perhaps even worsening sentiment as a result.
(or not... read on at your own risk)
In a bull market we buy the dips.
In a bear market we sell the rallies. I think this is the mistake
many investors still haven't corrected to this day. Buying the
dips in a bear market could become a costly strategy, since during
a typical bear market the dips invariably give way to greater
I'm not sure how well the lay investor
may know it, but in the investment business I think we generally
agree on the existence of market trends even if we differ on their
interpretation, criteria, or method of evaluation. In the case
of the beginning trader, for instance, the criteria may consist
of nothing more than arbitrary lines on a price and volume chart.
In my experience this is usually
done wherever those lines (conveniently) support an already preconceived
Without giving away our trade secrets,
largely because they're not really secrets (it is only by looking
at chart after chart, year after year, the investor will eventually
know what not to conclude, or what the data does 'not' mean),
suffice it to say that investors' progress in deriving a use from
the data on a chart will depend on the extent that they become
aware of their own biases.
In fact, as we continue on, learning
our trade (as investors, speculators, or traders), we become more
and more aware of our internal biases, specifically how they affect
our own analysis of the market environment - micro or macro -
and consequently, how they affect our decisions.
This is the trader's biggest challenge,
I believe. As Ed Seykota said, in J. Schwager's Market Wizards,
"everybody gets what they (really) want." Parentheses are mine.
Rambles, & Mainstreet Bashing
Mainstreet has finally
written about GATA's claims of gold market suppression. The amusing
thing is that hardly a word was written when Reg Howe announced
litigation against the BIS, Treasury, and the Fed. And only a few
words were written when the case was thrown out of court (before
it got there). But now, virtually every business paper we've picked
up is running the story written by John Embry, the Royal Bank of
Canada's gold fund manager - the only gold fund manager to outperform
the HUI (Amex Gold Bugs index) over the past six months or so
- endorsing GATA's claims as well as stating that gold market suppression
is nothing new in the annals of history.
What has changed to make this argument
worthwhile for publishing? Only that gold prices and gold shares
have outperformed any other investment class for the better part
of a year. Otherwise Mr. Embry might have held back. Already, the
Royal Bank denounced it as the independent opinion of one of its
employees, and nothing more, which makes it a controversy now. For
Mr. Embry isn't the bank's janitor after all.
Without getting into all the reasons
for our own bullish position on gold, and risk redundancy, I'll
say this: by the time the (gold) bull market is over, we fully expect
the media to be making up its own conspiracies altogether. And we
fully expect to be shooting them down as we had their nonsense about
tech stock valuations. Mainstream has always lagged the truth, a
little, but in the Internet age it is puzzling and implies interesting
things. No, no, don't go there. We're not talking about conspiracies.
We don't need that label to know that mainstreet's monopoly over
information and the publishing of it is threatened by the golden
age of the Net.
At any rate, bull and bear markets
produce nonsense. The chief difference is that in one case the nonsense
is optimistic, while in the other, the nonsense is pessimistic.
The longer that a particular trend
continues, the more religious the nonsense is likely to become.
At the late stages of any trend,
the opposite arguments tend to be the most cogent. Only, the hard
part is identifying the late stages. But that's why it is important
for investors to understand the contrarian argument, particularly
at the times they least want to.
So if we're at the late stages of
a bear market in gold, any media reports thumping Mr. Embry's and
GATA's claims are probably still nonsense. The headline of a report
by the Globe & Mail, for instance, recently states:
Endorses Gold Conspiracy Theory"
Using the word "conspiracy" reveals
to us that the bullish argument is still embraced only hesitantly
despite its cogency. For, there is no conspiracy. It's always been
the job of a central bank to replace gold's monetary role in an
economy, as Mr. Embry is aware apparently. Would even Greenspan
deny that? I doubt it, for he's as much as admitted it in the past.
Gold price suppression should not be news. What is news is the discovery
by the media that it exists.
The covert mandate of any central
bank that intends on surviving the long term is to sustain the inflation
and persuade the market that its currency is better than the one
it (the market) might otherwise choose. It is those words which
the central bank will refuse to use (I think). But to not acknowledge
this means to refuse to accept the economic fact that the Fed's
notes (US dollar) compete with gold for the prestigious role that
money plays in any economy - to facilitate the free exchange of
goods and services.
To call it a conspiracy, however,
helps the central banker's cause. It helps because it makes the
thinking unpopular, despite its verity. Personally, when I hear
that word, I become quickly convinced the person using it doesn't
know the first thing about money, capitalism, or history at that.
To believe that central bankers are
really willing to sell the rest of their gold reserves is what requires
religion, for it is their only ammunition. Though they've been robbing
us with a blank gun for years, it is paramount that people believe
the gun is loaded.
Until the day the press stops calling
it a conspiracy, a common understanding of the forces unfolding
right under their noses will continue to elude its readership, and
in that way will keep the bull market alive because the faster investors
awaken to the monetary implications of the past decade's inflation,
the sooner the gold bull market is likely to conclude - for in our
view that's what it is largely about. Perhaps unwittingly mainstreet
will carry on as the Fed's preacher, religiously preaching yesterday's
trend as tomorrows' because productivity now determines all values
bullishly regardless of the extent of government intervention and
resultant market dislocations.
You see, it isn't the gold bulls
that are religious, folks. It's the paper preachers that are. They
are the ones constantly preaching falsities to solicit our full
faith & credit.
Buy and hold; Buy the dips;
Stocks are not expensive over the long term; the dollar is money;
money supply has to grow with the economy; inflation is measured
by price indexes; aggregate computing power determines productivity;
Greenspan is a capitalist.
These things are largely false but
can work to an extent if we believe they will. They can all be made
true by the economic participant's willingness to offer his or her
faith. Isn't that Larry Kudlow's favorite line? Have faith?
But if you don't, just buy gold.
'Cause it's still really cheap.