Justin Thyme

there was lots of talk on here last week about a dollar rally this week. If true then gold might take a hit. I'm not too worried. Just look around at the devastation in the financial wasteland...

Another week, another potential lifeline. Two weeks ago, it was the weekend OPEC meeting, this week it's the G8 summit in Japan. There's waffle and double waffle about dollar support being fairly high on the agenda

but my guess is that what Peter Schiff said here

Intervention advocates must believe that if the ECB and a few other central banks joined the fray, that a better outcome would be achieved. However any additional efforts to artificially prop up the ailing dollar will be equally ineffective. Even if ECB intervention could slow the dollar’s decent, what possible reason would they have for doing so? The ECB is already concerned about inflation and is preparing to raise rates as a result. Intervention to support the dollar will only worsen Europe’s inflation problem and run counter to these efforts. This is because to buy dollars the ECB must increase its own money supply. That is exactly what is happening in countries like China and Saudi Arabia, which is why inflation in those nations is already much higher than it is in Europe.

will most likely be the theme running through the colective minds of the delegates.

I think this week is also earnings week for the Wall Street banks so plenty of turmoil to spoil the dollar bull party.

Easy, fellas ! The dollar bulls needed something to go into the Independence Day holiday on a high. Let's look at what they're coming back to next week . . . The ECB's credibility is intact, the Fed's is in tatters. The non-farm payrolls and the jobless claims confirmed the economy is in recession in everything but name. GM is worth $6bn. Trading in Ambac's shares were halted yesterday and heavy bank writedowns are just around the corner.

The dollar's still toast and gold's still heading up. This time last week we were under $900 . . .

Madness - Eurozone rate goes up, so dollar strengthens significantly [so gold etc fall]

 

...someone please explain

The rate hike had been priced in for about a week and a half so a classic "buy rumour, sell fact" on eurodollar which weakens gold. Trichet's statement apparently wasn't hawkish enough and the payroll numbers weren't as bad as they could have been - even though they were worse than estimates . My guess on the size of the drop is that there were lot of sell orders just in case Trichet held. They were probably positioned - like mine - around $940 although, I didn't figure the hike and worse -than-estimate numbers would trigger it.

What a daft world, eh ?

My experiences with spreadbetting firms have been fairly uneventful. After a fair amount of research, there was a general feeling that if you became too successful, the firm might not fill orders, stops etc as promptly or the trading platform would "malfunction" and self-rectify just after you suffered a loss on your position.

Although I was new to the concept, I intended to become proficient at it one day so I opened accounts with 4 providers so that in the event of my eventually making more money than I lost, I wouldn't have to suffer too many instances of provider tomfoolery. After a year or so, I'm now making modest profits thanks to tips and reference from GEI contributors (thanks) amongst other sources.

Silver and Gold ticking down this morning - assuming light profit-taking and re-positioning ahead of what could be a big move dependent on what the dollar does after the ECB decision and the US non-farm payroll numbers.

Oops ! Apologies for multiple posts yesterday. Computer flipped out . . .

I'm not expecting gold to simply breeze through $950. Gold's correlation to the dollar is almost move for move at the moment and with the market already pricing the expected ECB rate hike into the greenback's price action, I'd expect the classic "sell the fact" activity to cause gold to chop around for a day or so. If, however, Italy, Spain and Ireland's bleating have softened Trichet's heart (unlikely, I know) and he leaves rates on hold, then I'd hazard a guess that all bets are off . . . but my GOD, I hope he hikes - it'd really cement his reputation as a cold, hard central banker !

I'm not expecting gold to simply breeze through $950. Gold's correlation to the dollar is almost move for move at the moment and with the market already pricing the expected ECB rate hike into the greenback's price action, I'd expect the classic "sell the fact" activity to cause gold to chop around for a day or so. If, however, Italy, Spain and Ireland's bleating have softened Trichet's heart (unlikely, I know) and he leaves rates on hold, then I'd hazard a guess that all bets are off . . . but my GOD, I hope he hikes - it'd really cement his reputation as a cold, hard central banker !

Hi GF,

Why use both BV and GM? Wouldn't one or the other suffice?

 

Cheers

 

Tinecu

Not sure that BV do silver . . .

It's been a good run for gold recently. That $935 - $950 will be tough is a given but there'll be lots of speculators with buy orders on the other side of 936 so wee'll probably get a boost like we did at 900. Even so, I get the feeling that this rally feels a little fragile . . . Maybe that notion will evaporate once the usual NY smackdown attempt passes . . .

Now that the Federal Reserve's effectively shown its hand, there are more rumblings about intervention int he currency markets to save the buck. However, I just read this from Peter Schiff.

He says

However, the U.S. government should think twice about bringing a knife to a gunfight. The Treasury only has about $75 billion in foreign currency reserves with which to intervene. The war chest is just a spit in the ocean.

The extent to which the Fed has hobbled itself is startling. I'd imagine the recent talk of relaxing rules governing private equity investment in banks must be in response to a rather less gullible sovereign wealth fund community who fell for Wall Street's and Paulson's assurances that there'd be no "Credit Crunch 2" just before they forked out for stakes in Citi, Merrill and Morgan among others.

I'm glad I stayed put. I'm too much of a scaredy cat to trade. I hope you come out ok

You could do a lot worse than pay attention to Marceau's occasional musings. I don't mind admitting that I took some of his short-term bearishess on board and tried as best I could to avoid the dyed-in-the-wool goldbug mentality and as a result, I've banked some very handsome profits this week both on gold itself and long positions on depressed miners. For example, Randgold Resources had taken an absolute pounding last week - got down to £18 - a long trade was a no-brainer with the Fed hold just around the corner - It closed today at £22.60

getting whacked now on NY open

Not so sure . . . $920 - 921 holding fairly stiffly but tightening stops just in case. Think we'll see more upside today - commodities seem to be the only play at the moment. A lot of longs got on board at $900 so I think tthere might be a little more meat on the bone here

Interesting... they're wheeling out the technical analyists now talking about the S&P, FTSE-100 both being at or around trend and risking critical support. All good for gold although I haven't seen that chart pulled up yet!

Very nice day for gold, yes and very encouraging to see the $910 resistance looking like becoming support.

Incidentally, has anyone heard from Dr.B ?

CNBS is like a comedy today. The shock and horror at all this unjustified weakness in stocks.

 

And quote of the day which says it all (re Golden Sacks downgraded GM & Citi):

 

"And they did it just 3 days before the end of the quarter"

They appear nigh on incredulous that GS could even dream of hosing their rivals so they can buy up their stock nice and cheap ready for the next bounce

The Fed statement was so wishy-washy that, frankly, they'd've been better off hiking cos looking at the Dow's numbers off 230 points so far this morning, at least the dollar would be firmer against the euro. Brent Light Sweet is showing more expensive than WTI - I've not seen that before . . . has anyone else ?

The mother of all smackdowns once New York opens?

Surprisingly not. CNBC reckoned there was a wave of autostop buying as soon as gold hit $900. It's looking ok at the mo . . .

Well that was all a bit of an anti-climax. Oil sold off and then rallied to 134.

Gold did diddly despite a weak and wet Fed statement and rightly or wrongly, for me, this is cause for a little concern. The way I see it, the markets were expecting a LOT more hawkishness from the statement in the absence of a hike so, realistically, gold should have done more than the equivalent of opening one eye before drifting off back to sleep.

Ah well, maybe things'll take off tomorrow eh ?!

Although I'm far from pleased with gold's action today, I inadvertently made a cheeky profit on the surprise drop. In an uncharacteristic display of discipline, I set up a sell order at $895 in preparation for any unexpected Fed rate hike this week. Couldn't believe it when I got back in and gold was trading at $879. As the drop was so fast and as I simply couldn't believe that some soft IFO numbers from Europe could cause a sell off of that magnitude, I closed out the trade expecting a bigger bounce than we got.

I sincerely hope this is a forced sale situation otherwise, as Marceau says, a heavier correction could permanently scare new blood outta the market. Oil's looking like the only game in town at the moment . . .

This may be remembered as the first of many . . .

http://www.telegraph.co.uk/news/newstopics...discontent.html

"This really is going to sound some alarm bells in Downing Street," one said on Wednesday night. "It is going to make settling public sector claims difficult."

IF you are lucky enough to even HAVE a union!

 

People I talk to know they are being squeezed, but there's a sense of resignation that there's little anyone can do about it. Wages in my industry have been nominally static since 2000 or so, and I'd wager my industry is not at all unique.. Unless you are lucky enough to be in an industry that is benefitting from the commodities boom, there's just not the margins there to be pressing for pay rises.. Why? because wages are being held down, so noones got money to spend, yet input costs continue to go up, so margins are squeezed, so wages are further held down. Viscous spiral..

 

Its pretty sad that about the ONLY thing to be in permanent real deflation, never taking any benefit from all the money creation, whether its boom or bust is the price of human labour ..unless you were a banker, that is..

You're right there but I think it's just a matter of time before we start seeing RPI-based wage demands from the public sector. I'd be very pissed off if the nurses get less than the RPI but the rozzers can whistle for it as far as I'm concerned . . .

Just "one more" pull back to support. God, I can't wait till this is all over . . .

Looks like the Iranians got their money out in time, eh ?

http://edition.cnn.com/2008/WORLD/europe/0...iref=newssearch

Brown said new measures against Iran, including a freeze on overseas assets of the country's biggest bank, would be continue if the Islamic regime failed to address concerns over its nuclear ambitions.

With the DOW staring into the abyss?

Point taken but can anyone guarantee that gold wouldn't sell off if the Fed did raise by 25bp ?

We may sit down at these levels for a while longer, but as that Fed rate decision on the 25th approaches, all the strong dollar muppets are just going to disappear. Talk is cheap, actions matter, when the Fed doesn't do what the market expects, all hell will break loose.

Hmm . . .

But just to be on the safe side, I'll think I'll play safe and have a hedgie in place like the last time the Fed kneed us where it hurts with the 75bp cut instead of the 100 everyone was expecting. If, for whatever reason, the Fed were to sling another 25bp on the funds rate, gold would see something of a dip . . .

Courtesy of the Fat Prophets

Comment of the day, 12 June 2008

 

The inflation dragon could be waking up.

 

Its Friday the 13th tomorrow and a big number is on the way; the US CPI; expectations are already high at 0.5% month on month. This is coming off the back the previous month's benign 0.2% rise.

 

Given that the both the Fed and the ECB have now pegged their credibility on their ability to bring inflation expectations down. In light of volatile oil and inflation numbers in recent months, more hawkish monetary rhetoric is here to stay, even if oil prices retreat or the CPI is better than expected.

 

At this point it is unlikely that oil prices will retreat. Rather they will continue to rally towards $150. With oil front page news the world's economy will move a step closer to a collapse and inflation will be a topic for everyone to discuss.

 

And barring some statistical quirk it remains unlikely that US inflation will be low.

 

There is no doubt that a high number this Friday will see the market pressure the Fed to make good its threats.

 

For the Fed, all this inflation scaremongering is well and good on paper. There are a number of problems that are lurking beneath this sudden holier than thou vigilance the central bank has adopted.

 

Firstly how far must they raise rates in order to curb inflation?

 

Answer, by more than they are prepared to effect. Rates will not change the cost of supply rather they will affect the cost of servicing demand. Rates have also just been cut 3% since the 18th of September 2007. To really have an impact on inflation the Fed must raise rates aggressively to halt domestic demand in its tracks sending the world spinning into a recession even a depression.

 

Typically once inflation takes a hold of an economy it’s too late to stop it.

 

Raising interest rates has another major consequence in the markets; that is the impact on Equities. Increasing interest rates is not good for equities as they directly impact earnings by raising the cost of servicing debt. Add to this the pressure on earnings already associated with an economy in recession and you almost have a perfect concoction of reasons to sell equities. All you are waiting for is FEAR.

 

So will the Fed raise rates enough to combat inflation?

 

Or will they baulk when the stock market falls like an anvil from the sky?

 

They will baulk, they cannot afford to risk a catastrophe in the equity markets

 

The day they baulk is the day that gold will take off.

I'm gutted I wasn't here to add to what sounds like it was a heck of a party on GEI - a good few pages of quickfire posts complete with a rollercoaster of emotion. A genuine pleasure to read

I did, however, have a cheeky buy stop order on WTI come in at $134.55 with an 85pip trailing stop which took profits at $137.50. A fantastic Friday night on the lash in Bangkok and a nice profit at the expense of the greenback as well . . . perfect.