Posted at 4:02 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Gold came roaring back today as equity buyers from yesterday barfed them all up today in a case of indigestion that was reportedly due to disappointment over lack of further news out of China in regards to their stimulus package. That was at least the rumor – whatever – the fact is that yesterday’s blip turned into a classic example of a “dead cat bounce”. By the way, for those new to the investing and trading jargon – if you drop a dead cat from a high enough building, it will manage a small bounce after it hits the ground. Now that we have that cleared up…Did you ever think you would live to see CITI trading as a penny stock?

While yesterday was a “reflation” day in the commodity sector with money coming back in on the China news, today was a “deflation” day in which most of the commodity markets got sold off once again. Yo-Yo – let’s all play hedge fund Yo-Yo.

Copper ran out of buyers today but silver, platinum and gold were all higher. Again, these three metals are trading as precious metals or safe havens in today’s session. Today hedge fund computers were selling commodities as the equities collapsed. Panic buying also hit the bonds today forcing shorts out and driving the long bond up into the 20- day moving average. For the life of me, I do not understand the obsession of bond buyers in the face of a coming avalanche of supply and serious dilution of any value those paper IOU’s might have but I suppose old habits die hard and lemmings will always be lemmings. It dovetails nicely with Monty’s comments on the rush into the Dollar in his remarks yesterday. Bond buying will run its course when serious minded investors realize that bonds are a sucker’s play. I harp quite a bit on this because if only a small fraction of the knee-jerk, reflexive buying that screams into bonds would instead move to gold, it would easily surpass the $1000 mark again. Of course the cynic in me says that the feds are delighted to see the bonds soaring higher because it sends a signal to the market that those paper scraps are actually worth something especially as they intend to issue gazillions more of them and desperately need some sucker/(s) to buy them. Oh yes, I forgot – they are backed by the “full faith and CREDIT of the US government”. I don’t know whether to sit down and guffaw about that or to weep. The words, “confidence” and “US government”, are like oil and vinegar. They no longer mix.

Technically gold found support near that 40 day and 50 day moving average region that I have detailed. There is a zone of congestion that occurred back in late January and early February that lasted for around 2 weeks from which it may be able to set up a trading range with perhaps $930 as the upper portion of that range and $890-$900 as the bottom of the range. I am simply not sure just yet and need some more time to elapse to get a better read on things. That being said, should $930 give way on a pit session close, it would bring back $960 as a probable test.

The HUI put in a potential spike bottom on Tuesday of this week but needs to close above the 290 level to confirm that. The XAU’ action is very similar and needs a close above the 120 level to confirm a short term bottom is in.

The action in the Dollar is interesting in this sense. Today should have had a lot going for the Dollar with the bonds soaring on a safe haven bid and the equities tanking. We have seen the Dollar put in strong gains on days like this in recent weeks. Today however it seemed to run into a wall of selling just below the 90 level. I do not want to call a top yet in the Dollar because it has defied gravity and been the recipient of safe haven but the fact that sellers were willing to step in on a day like today, at a technically significant level, is something I take notice of. Again, it is too early to make any predictions yet but I am keenly watching this especially because the shorter term technical indicators are showing some signs of bearish divergence. I am also watching the Euro which came well off the session lows.

I want to repeat this even at the risk of beating a dead horse and mainly on account of the emails I receive every single time gold experiences any sort of price movement that is not straight up. The deflationists are dead, flat out wrong about the future of gold prices. The Prechterites, who have been wrong on gold going back as far as this bull market in gold began, continually are forced to raise the ceiling from which their long anticipated and predicted collapse in gold prices must occur. Anytime you see them coming out of the woodwork like roaches keep this in mind – GOLD IS NOT A COMMODITY – it is a CURRENCY. Loss of trust in paper currencies is why gold shines. Whenever you hear chatter about market tops and such, remember that their analysis is US centric and is not global. IN other words, they base their entire premise on the Dollar price of Gold. That is their fatal weakness. While many here in the US think we are the be all and end all of things, there are millions and millions of investors outside of the US who do not price gold in Dollars; they price it in terms of their own domestic currencies. Contrary to the foolish deflationist assertions that gold is experiencing a contra rally in a bearish long term trend, gold has just come off of making new, all-time, record highs in terms of most every other currency on the face of the earth. That my friends, is not a bear market and any assertions to the contrary display an ignorance that is nothing short of remarkable.

According to this mentality, record inflows to the gold ETFs, scarcity of gold bullion coins, high premiums in those same coins, record all time highs in price, etc. are all somehow synonymous with a bear market rally in gold! Astonishing….the only explanation that I can come up with for such a nonsensical assertion is that the proponents of such blather have just loaded up on put options and are hoping like hell that they make some money to compensate them for all their previous trading losses in gold.

Folks – savvy investors buy gold because they are worried about protecting themselves from the depredations of Central Bankers and their currency-debauching activities. Short term oriented traders on the other hand move in and out of gold and will go long or even short at times, but their time-line and their motives are not the same as those seeking safety and capital preservation. Do not confuse the two.

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini

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Posted at 10:18 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Click the following chart to enlarge today’s Monthly Gold chart in PDF format with commentary from Trader Dan Norcini

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Why the U.S. Dollar Is Vulnerable to Decline Now
March 04, 2009

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The Technical Outlook
If we observe the $USD graph for March 2, 2009, we see that the USD has just broken above the resistance level of 88. Will this mark the beginning of a new run higher in the U.S. dollar? Currently the U.S. dollar is benefiting from the propaganda of other countries (i.e. China), political games, intervention ofthe Exchange Stabilization Fund, and the foolish actions of the Bank of England [BOE] and the European Central Bank [ECB] which have caused Europeans to flee the Euro and the Pound Sterling.

However, fleeing the Euro and the Pound Sterling for the U.S. dollar is akin to fleeing the Lusitania for the Titanic. All three currencies are sinking ships and fleeing one sinking ship for another sinking ship is just not intelligent and is destined to end poorly for all involved parties.

Therefore, I believe that this subsequent “breakout” above 88 will be short-lived. While the U.S. dollar may meander higher for a short-time longer above 88 as the U.S. Treasury and the Exchange Stabilization Fund reach deeper into their bag of monetary tricks, I do believe that when it breaks back down below 88 sometime shortly, the retreat will be marked by periods of extreme volatility and rapid decline.

On a subsequent decline below 88, which in my mind is imminent, I have noted an important level of intermediate resistance at around 81-82 in the above chart, as this was the floor that existed for three years before the USD plummeted below it in 2007.

If it breaches this level, the next point of resistance would be at 76. If the USD breaches 76, then the bottom would be anyone’s guess at this point. This breach may take some time to develop, but right now, I would have to say that the dollar’s breakout above 88 is likely to be a false breakout.

However, my belief in a sharp, and at times, violent decline in the dollar’s not-so distant future is not based upon the above technical analysis so much as the political clues that are beginning to slowly rise to the surface in not so aboveboard comments made by other nation-states. So even against the unsound and increasingly risky Euro and Pound Sterling currencies, betting on the U.S. dollar is still a very risky play at this juncture.

The More Important Political Outlook

On February 11, 2009, the Financial Times out of London reported:

“China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its “only option” in a perilous world, a senior Chinese banking regulator said on Wednesday. China has used the dollars it accumulates selling manufactured goods to US consumers to accumulate the world’s largest holding of Treasuries.”

“Mr. Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said: ‘Except for US Treasuries, what can you hold?’ he asked. ‘Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.’ Mr Luo, whose English tends toward the colloquial, added: ‘We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .We know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.’”

This is my analysis of the above statement. If you have ever played poker before, you know that Mr. Luo is bluffing to conceal the true intentions of the Chinese government. If you are planning to dump a significant portion of assets (U.S. Treasuries) that you believe will be heading towards massive depreciation, the last thing an intelligent market player would do is to tip his hand before executing his plan. Instead, an intelligent player would tell the world what he wants the world to believe, i.e., that he has no choice but to continue to hold U.S. Treasuries while he makes alternate plans to offload them. The monetary crisis that is the root of all global economic problems today is a game with massive stakes at hand, and no player in this global game, even a key one such as China, is going to reveal her true intentions.

That said, I imagine that Mr. Luo is not a very accomplished poker player, because it appears that he played his bluff very poorly. If I were him, I would have not said another word after telling the world that “U.S. Treasuries are the safe haven.” Instead, Mr. Luo ruined his bluff by trying hard to convince us that China has no options with his statement: “We hate you guys…we hate you guys but there is nothing much we can do.”

More… http://seekingalpha.com/article/123965-why-the-u-s-dollar-is-vulnerable-to-decline-now

Posted at 5:54 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

China grows and everyone acts as if it is a surprise. We have followed China for many years, and have been calling for strong Chinese growth in 2009. This is not due to our personal wisdom, this is due to the work of our 3 favorite economists. These economists are based in China and have been remarkably accurate in the past. We also have seen the work of 12 or more China based economists who have not been accurate in the past. Our bullish outlook for China has been based upon the economic outlook of the accurate economic forecasters. Now we get corroborations from the numbers and from the statements of government officials.

China will grow in 2009 much more than any other country of any size.

However let us be realistic, China’s growth alone or when combined with slower growth from India will not be enough to create any semblance of growth in Europe and North America.

The global depression in Europe and the US will continue and accelerate in coming months.

THE US DOLLAR AND THE REPATRIATIONOF US ASSETS TO THE US….. THE CURRENT VIEW VERSUS THE RATIONAL INVESTOR

According to several currency strategists, the US dollar will continue to rally for months or even a year. They say that global fear and panic in the investment and banking environment are causing the repatriation of massive amounts of US dollar assets held overseas to be repatriated into the US and placed back into dollars. They argue that as US holders of foreign stocks, bonds and direct investments made by US companies and individuals for the last 20 years are being repatriated. It is argued that the massive amount of foreign investment by US organizations dwarfs the amount of currency held by central banks, and willy-nilly repatriation based upon fear will cause the US dollar to continue to rise.

This is clearly the current psychology and the reason that so many speculators are buying dollars and selling other currencies… but we doubt the staying power of this thesis.

WHY WE DISPUTE THIS THESIS

We are asking the question “Why would those who want their assets to grow, repatriate them to the US? Why would they not move them from Europe, or other parts of the world where they are not providing good returns to China and India where the economic growth rate is positive, and the opportunities for profit are good?”

The answer is that fear and not rationality is dominating the investment process currently. So some investors are indeed repatriating assets to the US willy-nilly. However, we doubt that most investors are so short term oriented or so panicky. If investors were acting in a rational manner they would seek positive returns in China, India or some other country with good growth prospects, not minute returns in US Treasury Bills.

Further under new US tax proposals, profits will be taxed at higher rates in the US [should profits develop], and there is no doubt that the environment has become decisively less pro business in the past 2 months..

As time passes and rationality returns to the investment process, global investors will for many reasons, send money to those parts of the world where growth continues to be strong.  At that point in time, the dollar will once again begin to decline.

Some say it will take a long time for people to become rational and that they will remain panicky for quite a while. I dispute that argument. Those who panic easily never make money in the first place, those who have made money and thus hold it abroad, are not the panicky types and thus we see the dollar rally lasting for a much shorter time than some other observers.

Respectfully yours,
Monty Guild
www.GuildInvestment.com

Posted at 5:47 PM (CST) by & filed under General Editorial.

My Dear Friends,

I feel that gratuitously fielding calls from those that hide their numbers from view is somewhat of an inappropriate arrangement.

I certainly understand a desire for privacy, however if you wish to enter my privacy and hide yours that is an unfair arrangement.

All calls will be returned from voicemail later and according to my available time if they are appropriate.

Respectfully,
Jim

Posted at 5:18 PM (CST) by & filed under General Editorial.

Dear CIGAs,

Gold’s job is, and will always attempt to during periods of monetary stress, balance the INTERNATIONAL Balance Sheet of the USA.

Putting the Numbers Into The Equation:

$3,125,000,000,000 / 260,272,000 ounces of gold = $12,006.67 per ounce of gold.

In the early 70s I put an advertisement in Barrons predicting gold would rise to $900. When it got near that level, I left for 21 years.

I reappeared officially when Forbes published an article on my career December 10th of 2001. Click here to view the Forbes article…

The mathematics behind the $900 number came from the following equation plus reasonable trend estimates on the number going into the future.

You will note the number today fits in nicely with Alf’s high levels.

  • Major ONE up from $256 to $1,015 (actually 4 times the $255 low);
  • Major TWO down from $1015 to $699, say $700 (a decline of 31%);
  • Major THREE up from $700 to $3,500 (a Fibonacci 5 times the $500 low);
  • Major FOUR down from $3,500 to $2,500 (a 29% decline);
  • Major FIVE up from $2,500 to $10,000 (also a 4 fold increase, same as ONE)

I would not have revealed this unless a recognized expert who has a 100% track record such as Alf Fields predicted it first.

I did not wish to yell "fire in the theatre."

It certainly make the Comex manipulators, who could easily be stopped, look long-term silly today.

Jim

See the following two links as support:

http://research.stlouisfed.org/fred2/data/FDHBFIN.txt

http://en.wikipedia.org/wiki/Official_gold_reserves
In the past, I believe you have said that the price of gold could reach a level whereby in dollar terms this equation will hold:

Oz’s of Gold Held by US x $ Price of Gold = External Debt

From the above links we find:

Federal Debt held by Foreign Investors = $3,125,000,000,000 (as of 12/31/08)

Official US Gold holdings = 8,133.5 tonnes (or 260,272,000 oz’s)

Putting the #’s into the equation:

$3,125,000,000,000 / 260,272,000  = $12,006.67 per ounce of gold

My question is – what is the mechanism or thought process that makes the equation true?

(I guess that I am looking for the why?)

Thank you for your time.
CIGA Rich Gold

Posted at 4:32 PM (CST) by & filed under Guild Investment.

Dear CIGAs,

WE ARE SORRY THE NEWS IS BAD.  GOOD NEWS IS OUR PREFERENCE, BUT WE BELIEVE YOU WANT THE FACTS.  HERE ARE THE FACTS AS WE SEE THEM.

WILL THE EUROPEAN MONETARY UNION CONTINUE?

When Eastern European economies and currencies began to implode, many analysts began to question how long the European Monetary Union can continue. The banking system in Europe is under tremendous pressure from bad loans to over-levered individuals, companies, and governments in the former Soviet Union and Eastern bloc states, such as Russia, Poland, Hungary, Ukraine, Kazakhstan, and the Baltic States to name a few.  I have been thinking of writing about this subject for some time.  Coincidentally, the cover article for this week’s The Economist magazine is a story titled "The Bill that Could Break Up Europe".  

The article has a few main points: 

1. Clearly, one of the big issues of coming years will be the survival of the European Monetary Union and the Euro.

2. Banks in Austria, Italy, and Sweden lent heavily to Eastern European nations, often in the lending country currency.  After the collapse of many Eastern European currencies, these loans are now more expensive to repay.

3. Greece and Ireland are also weak.

4. The European nations who have been slow to install real economic reforms, mainly former Soviet states, must do so immediately.

5. Regulators and banks must watch for and avoid:

a. Currency loan collapse,
b. Bank depositors panicking and removing deposits,
c. Bank shareholders panicking and collapsing the banks’ share prices,
d. The default of the $400 billion in loans owed by Eastern European borrowers that are due in 2009.

If these four problems are handled, most economists believe that the monetary union will hold. 

Many more cynical observers disagree and are backing up their opinions with short sales. European banks are widely shorted, European stock markets are collapsing.

OUR OPINIONS

In our opinion, Europe will break off its admission of unstable Eastern European states.  The monetary union may collapse altogether, but every effort will be made to rescue the system.  It is by no means a sure thing that the Union will collapse, but there is a good probability that at least the European Monetary Union, the Euro, will eventually fail.

Hungarian Forint-Globex CME

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Currently, protectionism, a focus on national self interests and politics over regional interests is leading to the potential break up.  We will go into this in much greater detail in future notes.

THE GLOBAL ECONOMIC OUTLOOK IS NOT BRIGHT

As we mentioned in an earlier letter, the U.S. GDP decline for Q4 2008 was restated with a significantly larger decline.  We look for continued economic slowing and substantial declines in corporate profits worldwide for several more years.  As our readers know, we believe that corporate profits are the key determinate of stock market appreciation or depreciation.  A few industries may buck the trend. 

Below is a summary of the past five quarter’s GDP as reported by the U.S. Government, and our estimates for the next two quarters.

U.S. GDP (% change from the preceding period)

2007          2008                                    2008 (Guild’s Estimates)

Q4             Q1      Q2     Q3     Q4                      Q1         Q2

-.2%         +.9     +2.8*   -.5     -6.2                    -6.5       -5.0

* The first round of stimulus hit Q2 2008.

THE CURRENT WORLDWIDE RESCESSION/ DEPRESSION WILL PROBABALY CONTINUE TO WAX AND WANE FOR SEVERAL MORE YEARS.

IN OUR OPINION, MOST WORLD STOCK MARKETS WILL FALL SUBSTANTIALLY MORE BEFORE THE BEAR MARKETS ARE ENDED.
Global stock market rallies will occur and they will be selling opportunities.

THE TWO TRILLION DOLLAR DEFICIT
In the U.S., calendar 2009 could easily see a $2 trillion budget deficit.  The budget’s official projection is for $1.75 trillion, but the actual number will be higher due to the traditional rosy scenario modeling with unrealistic assumptions about tax receipts.

IN OUR OPINION, THE BEST INVESTMENTS CONTINUE TO BE GOLD AND AGRICULTURE

Gold-COMEX

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For those who sell short we suggest that retail, finance, and real estate continue to be attractive industries from which to pick short sales.

THE U.S. DOLLAR

Continued flows into the U.S. dollar are keeping it strong, in spite of terrible domestic economic and financial problems that have arisen, and are growing, in the U.S.  At some future date, the dollar will roll over and decline substantially.  We do not know the date, but we believe that constant monitoring will allow us to identify dollar weakness, and to move to other currencies at the appropriate time.

REMINDER, FOR A LIMITED TIME…

For no charge, as a service to our readers, we will be happy to examine your current investment portfolio, and explain how we might restructure it to meet your needs for income and capital appreciation in the current environment.  In recent weeks, we have received a number of requests to review investment portfolios and have been responding to them as time permits.  In order to provide a more meaningful evaluation of your portfolio, we will need additional information about your overall financial picture.  Please give us a call if we can help you in this regard.  

Thanks for listening.

Monty Guild and Tony Danaher
www.GuildInvestment.com

Posted at 4:20 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

General long liquidation and some fresh short selling continues to occur in the paper gold market at the Comex as short term oriented traders express disappointment in the lack of a reported increase in holdings in the gold ETF, GLD. Gold is still probing for a low from which to base. See the chart for some comments on the various technical levels where that might be found.

Gold moved inversely to the equity markets today as stock prices moved higher in a bit of a relief rally after being down for 5 straight days in a row. Chatter was that China was on the verge of an economic recovery and what is therefore good for China is good for the entire global economy. The surge in copper prices today after yesterday’s strong move higher also fed into that theory. What those espousing the “copper theory” do not understand apparently is arbitrage. Copper prices in Shanghai and London were and are trading at two different price levels and arbitragers are taking advantage of that price discrepancy. That has copper flowing to China and drawing down supplies in London which is being interpreted as signs that China is going to recover first. My view is that once arbitrage corrects the price discrepancy and the Chinese are finished restocking at bargain prices, the drawdown in LME copper stocks will come to an abrupt halt. China is certainly planning on using some of that copper with its own economic stimulus plan but one has to wonder if that sort of thing is going to produce lasting economic gains seeing that part of the problems in China are excessive production and supply capacity. I guess we will find out…

Crude oil prices were strongly higher today as data from the EIA showed a significant drawdown in stocks. The news pushed prices back above the $40 level once again. Crude is up near the upper boundary of its 3 month trading range. I am more confident than yesterday when I suggested that some of the weakness in gold is spreading taking advantage of the high gold/crude ratio. This source of gold selling should not be underestimated.

Generally what we are seeing is what I like to term, “the reflation trade”. Commodities across the board were higher with the rally in the equity markets which undercuts the safe haven bid for gold and for bonds, both of which were lower today. Should the stocks fade the bonds and gold will recover their losses. Should the rally in equities continue a while longer, expect for more pressure to be brought to bear on both gold and Treasuries. If you notice, gold is moving lower as the Dollar exhibits weakness which again, is signifying the lack of safe haven flows.

In an observation, all of the metals, platinum, palladium, silver and copper were higher today. Only gold was down.

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini

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