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Wednesday, May 23, 2012

This Is the Bottom for Gold – John Hathaway

In an interview with Louis James, John Hathaway discusses the US’s economic outlook and why he’s delighted by the current bearish sentiment toward gold.

[To be a successful speculator, one must be willing to go against the mainstream investment trends, as John is. There's no better way to get a primer on contrarian investing than by sitting in on the recently concluded Casey Research Recovery Reality Check Summit – and you can do that by ordering the Summit Audio Collection today. Every presentation, every chart and graph, and every actionable investment tip can be yours, in either the instantly available MP3 files, or in CD format.]
Louis James: Ladies and gentleman, thanks for tuning in. We’re at the Casey Research Recovery Reality Check Summit. We’re talking with John Hathaway, one of the more successful fund investors – institutional investors – in our precious metals field near and dear to my heart. John, can you give us a quick version of what you talked about here, for those who didn’t make it to the conference?
John Hathaway: Sure, yes. I think we’re at the end of a correction that resulted from the peak last summer. It was overcooked, kind of hyperventilated hysteria over the debt-ceiling talks, the rating downgrade of the US sovereign debt, and I think basically the stocks and the metal had been working off that boiled down to what we now have is a simmer. I think we are at a position where there’s not a lot of downside, and I would not be surprised by revisiting the previous highs of $1,900 and maybe even new highs over $2,000 this year.
What will do that is basically – so much of the narrative has been quantitative easing. When Bernanke announced on the 29th of February that they were done with quantitative easing (and if you believe that I’ve got a bridge to sell you, but for the time being let’s assume that there won’t be any), I was very impressed that gold did not go to a new low. It printed somewhere below $1,600 at the end of the year, made a couple-of-day swoon, but it didn’t go to a new low. And then when the Fed minutes came out it also did not go to a new low, it kind of reiterated what Bernanke said. So the narrative may be changing. I’m not ruling out quantitative easing as a possibility, but there are things out there that gold might be looking at that the CNBC mentality hasn’t figured out.
Remember that gold rose for many years before we even heard of quantitative easing; it was in a steady uptrend. So what could those things be? What would take gold – what would be the new headlines that might take gold to higher highs? To me, the biggest thing is that the Federal Reserve has purchased something like 61% of all new Treasury debt in the last year; and if they aren’t going to continue that, then what’s going to happen to rates?
Louis: Right.
John: The Chinese – who had been big supporters because they were rigging their currency – have not been generating foreign exchange to anything like the extent they were, so their participation rate in Treasury auctions has gone way down. If you look up the TIC numbers, foreign buying of Treasuries has dropped precipitously, so you have the two biggest pillars of support for keeping rates low in question here, and let’s see what happens on June 30th. If you don’t have a political buyer, either the Chinese and foreign buyers who are manipulating currency, and the Fed because they said they aren’t going to do it, what are rates going to do?
If you are going to get a risk-free return inflation-adjusted today that’s not politically motivated, it’s got to be somewhere around 4-5% on the short end of the curve. Every hundred basis points adds a huge amount to the budget deficit, so to me we’re in a real trap here, where it’s going to be a game of chicken as to whether the Fed can really live up to what Bernanke said on the 29th.
Louis: Isn’t that really the bottom line? They can’t allow that interest rate to rise with the debt outstanding –
John: It seems very difficult. The recovery, the alleged recovery that we had, is very… I’ll grant that things are better than they were a year ago or two years ago, but you’d have to call it feeble at best and maybe not sustainable. That’s one thing that I think could affect the gold market.
The second thing, and I think it’s very important too, is that inflation is rising. Even though the economy is soft, the number I look at – and I know we’re going to have John Williams speak at lunch, and we know he has a very good take on it – is the MIT Inflation Index, because that’s real-time pricing of billions of products. You can get to that website just by googling “MIT Inflation Project”; and that does not include services. Most of the services I take are inflating at more than 5%; they are closer to 10%. But goods that could be measured in real time are rising at 5%, so that’s also going to be a factor. That means if rates stay where they are, the Feds are just going to be that much more behind the curve.
So those are two things; and the third thing is that there’s $1.5 trillion of liquidity in the system that should the recovery – and I’m not a macro forecaster, but let’s say the recovery does sustain itself – you’ve got $1.5 trillion of free reserves that could just turn into money supply. Then you really would have a potentially hyperinflationary scenario, and the Fed would be completely powerless to do anything about it. So I think that’s bullish for gold – gold is not backward looking, it basically looks forward. I can go on and on. You’ve got the European unresolved sovereign debt crisis in Europe.
Louis: Let me jump in with a question about this, then. You’ve stood out really from the crowd in that most people agree on the general prognosis for gold. Most people are sort of near-term bearish, you know, the ones –
John: It makes me so happy.
Louis: [Laughs] But, you know, once a bear sentiment sets in, it seems to almost have its own momentum.
John: Yes.
Louis: You’re the only who’s saying “I think we’re near the bottom.” Most people are saying, “Sell in May and go away” –
John: Yes, I heard a couple of things from this session that just made me want to jump up and buy –
Louis: I understand the contrarian reason for that, but can you tell our audience a couple of reasons why you think we might be near the bottom or why you’re ready to buy now and not waiting to see how this summer turns out?
John: Sure. Well, first of all, I’m not a trader. I mean, I’m long, and last summer I thought, “Gee, this is really a little spooky, we’re not at a sustainable level,” but there wasn’t a whole lot I could do about it. And here we are and we have some cash, we have some inflows, so we are able to put money to work. And what is it that makes me think we’re there? Sentiment numbers are extremely negative, historically, when they’ve gotten to these levels. By the way, I put out a quarterly newsletter now that has a lot of this data, which can be found on our website.
Louis: Go ahead and give us the website.
John: It’s the Tocqueville Asset Management website, and it should be fairly easy to find. So sentiment is at levels that have been associated with big rallies. Traders’ commitments, net longs, net spec longs are way, way down there. I look at that a lot just as a way to see where the market is positioned. The guys who can create some volatility are not there, and so if gold starts moving, they won’t want to miss it, and so they’ll come in. And then, we’ve looked at some technical stuff. I’m not a technician but most of what I see from a technical perspective is extremely constructive. So I put those things together.
Sentiment is rock bottom. COMEX traders’ commitments are very, very constructive, and technical things that we look at are very constructive. So I would say all of those things, plus hearing these guys say that they are not going to step in – that’s more anecdotal, but that to me is just very, very positive. So I – frankly I don’t stake my reputation the way that Dennis Gartman does on making trading calls, but just as an experienced observer of this market for some number of years now, I think we’re ready to make a move higher.
Louis: Okay, well, thank you very much. Word to the wise.
John: Thank you.

Comments : Ino.com
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Paksu: Next support $1525, it's possible...

Sunday, April 15, 2012

RSI – How Do You Do



Sometimes, review is a good thing. Thus, I pulled this from my vast archives of writing because it speaks to a volatile market (it pertains to equity as well as forex trading), much like the one we now are in, again …

Another week in the market is now under our belt.  Although, I can’t complain, as things have been going my way, I can say that I hope the economy stabilizes sooner rather than later, which I guess puts me in the company of, oh, just about everyone else in America.  Be that as it may, I do have the question below to answer, and so I will …
I am new in forex the field.  I learned that if RSI is above 70 than I should sell, and if it is below 30 than I should buy.  Mostly, though, the RSI seem to remain in the 40, 50, 60 range most of the time.  What should I do at these points?
The first thing I will tell you is that one indicator does not a trade make.  If you are relying just on RSI (Relative Strength Index), then you are making a mistake.  
Generally, indicators work in combination with other indicators to both find and confirm potential trades.  Thus, the RSI only has meaningful value when compared with other indicators, if you ask me, and you did.
Second, even if you rely solely on the RSI, or if you do use it in combination with other indicators, the 70/30, buy/sell “rule” is not a rule at all; it is a guide.  
Generally, when in the 70 range, a market is considered “overbought.”  When in the 30 range, a market is considered “oversold.”  But even though the readings may be such, you should consider other factors in the RSI, such as the timing of the move into either the 70 or 30 range, how long the indicator has remained within either range, and the general volatility of the market itself during the trading time you are viewing.  Outside of the RSI, in my opinion, two of the best indicators to use in combination with the RSI are MACD (Moving Average Convergence Divergence) and Stochastic.  Both indicators give information on momentum, which allows you to compare with what the RSI is telling you (See the chart below.).  
Note how all three indicators are telling almost the same story – the market has enjoyed certain stability and a bit of an upturn.  The RSI, however, suggests that that the “run” may be over.  The other indicators, although not as definite as the RSI, suggest the same.
As to the notion that in forex, the RSI seems to be in the middles ranges most of the time, I really don’t have much to say to that, other than you just might need to spend a lot more time watching the charts.  Where the RSI goes is wholly dependent on the price action of the market, and in these days of high volatility, I would think the forex markets would spend at least as much time in the 70/30 range as they spend in the middle range.  As to what you should do when the RSI is in the middle range … Well, I guess that just depends on your strategy.  You do have a strategy, right?
Trade in the day; invest in your life …
Trader Ed  
 

Thursday, February 2, 2012

Why Gold Is Shining Bright & What the Fed is Doing

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
~ Thomas Jefferson ~


As the weekly chart of gold futures illustrates below, gold has recently pulled back sharply and has broken out. I will likely be looking for any pullbacks in gold as buying opportunities as long as support holds.
Gold Weekly Chart
 
In closing, for longer term investors the stock market might have some serious short term juice as cheap money and artificially low interest rates should juice returns. However, eventually equities will start to underperform. At that point, gold will be in the final stages of its bubble and the term parabolic could likely be applied.
If central banks around the world continue to print money there are only a few places to hide. Precious metals and other commodities like oil will vastly outperform stocks in the long run if the Dollar continues to slide. The real question we should be asking is who will win the race to debase, Draghi or Bernanke?
January 30th, 2012 at 12:24 pm
By: Chris VermeulenFree Weekly ETF Reports & Analysis: www.GoldAndOilGuy.com
Co-Author: JW JonesFree Weekly Options Reports & Analysis: www.Optionnacci.com

Tun Mahathir comments on printing more money to recover economic problems.

The Governor of the Bank of England has advised printing money to overcome Britain’s financial crisis. This is a great idea. When you lose money just print money to make up for the losses. The United States had printed 300 billion USD to bail out banks and overcome the crisis. Of course if Malaysia had printed Ringgits to pay off debts during the financial crisis we would be soundly condemned. No one would accept our Ringgit and we would be bankrupted. But rich countries apparently can print money to pay debts.

Tuesday, January 31, 2012

It's A Time, Major Uptrend - Clive Maund

This Gold Market update is going to be short and to the point for 2 reasons. One is that I am too busy writing up stocks for subscribers to devote much time to the world at large - they are being written up as fast as possible, for reasons that will become obvious as you read on. The other reason is that for the 1st time in many months, the situation is nice and clear, and doesn't require a time wasting diatribe.
On the 7-month chart for gold we can see that on Wednesday it broke out from the consolidation pattern that it has been stuck in since it peaked last August-September. This was a strong move on significantly increased turnover, which is bullish, and was a move confirmed by a massive upblast by PM stocks. This breakout is therefore viewed as marking the end of what has turned out to be a period of consolidation, and the start of a major uptrend that should take gold MUCH higher - comfortably to new highs.

The 5-year chart for gold is most interesting as it reveals that its bullmarket advance from the 2008 low is defined by an inner normal channel, and an outer extreme one. As we can see, the recent recovery from the December lows has defined the lower boundary of the outer channel for the 1st time, and it is interesting to observe how the already defined upper channel boundary could have been used to predict the exact low in gold at its recent bottom. Not only has this parallel outer boundary held, but with last week's breakout, the price has regained a foothold back within the inner channel this past week, and now, having broken out from its downchannel in force from September, it is in position to advance towards the upper channels boundaries again. The target zone given assumes that it will make a run at the outer channel boudary again - but it may instead be content to advance within the confines of the inner channel, which will still result in new highs and very worthwhile gains from here.

Although PM stocks have not yet broken out - to do that they will have to rise clear above the broad zone of resistance at the apex of the Fish Head Triangle in the indices that they broke down from in December, shown on the 7-month chart for the HUI index shown below - the massive up day on Wednesday is a sign that they have gathered the strength to do just that, and the fact that this up day occurred as gold broke out upside is of course no coincidence.

The Fish Head Triangle makes up the final stages of a large Diamond pattern that can be seen to advantage on the 2-year chart for the HUI index (it is also evident on the GDX chart). Diamond patterns are normally, although not always, bearish, which is a big reason why we were wary earlier, but in this modern age of market manipulation and meddling, politicians are not prepared to give the forces of capitalism free rein to do their necessary work of straightening out distortions, since that conflicts with their agenda. Thus, instead of letting European banks collapse, the Fed has decided to rescue them with "back door" QE dressed up as swaps etc - the reason is, as you might expect, not altruistic - if the European banks collapse, they will drag down the US banks, and as the US banks are the Fed's masters and the bosses of the entire system, that cannot be allowed to happen, whatever the cost elsewhere. That is why the markets are rallying again across a broad front and why the outlook for gold and silver, and commodities generally, is once again bright, for the European bailout means money creation - and inflation.
The breakouts in gold and silver are bad news for the dollar - and that implies a recovery in the euro. Thus it is interesting to observe that a lot of market players are still gambling on an all-out collapse by the euro, if the latest COT chart for the euro fx, shown below, is anything to go by. One thing is for sure, it isn't the Commercials gambling on a collapse in the euro - just the opposite, so once again it looks like the hapless Large Specs have set themselves up to be royally fleeced. This COT chart looks like the final stages of a big tuna hunt where the nets are pulled together and the catch is finally hauled aboard.

Conclusion - a major uptrend is just starting in gold, gold ETFs and Precious Metals stocks. Good time to buy if you haven't already.  
Source www.clivemaund.com | Gold Market Update originally published January 29th, 2012