Morning Gold Fix: July 6, 2010
Courtesy of www.fmxconnect.com
On Friday, gold recovered slightly after a big drop at the end of last week, opening at $1199 per 100 troy ounces and closing at 1207.7. Gold has risen 1.70 today since opening at 1209.27.
Is Gold Spiraling Out of Control?
It is beginning to look like a big unwind in the markets. Perhaps ”rewind” is a more appropriate term.
I don’t often rely on technical analysis in my observations, but take note when my own short term opinion is lacking.
According to one technician we follow, GRI,: “ The drop under 122400 alerted for a bear turn and possible follow though down to the 1220-120560 zone.” Well, the guy was and is pretty good, so here we are… now what?
With regard to Gold appreciating during deflation. Generally speaking, it will sell-off if deflation is perceived as being under control. That being said, Gold competes with money as a store of value when deflation threatens to unravel into a default. Greece fallout would be a classic example of that. Gold is a reflection of fat tail risk, something we understand. So to recap our never ending quest to quantify gold’s reason for movement:
· Inflation: appreciates in terms of the inflated currency.
· Deflation: gold goes down.
· Default risk: Gold over performs relative to most assets, as it has no counterparty risk (referring of course to the actual metal).
We view the deflation genie as something that can be controlled, only because we know what we do not know, and we are biased gold longs in our personal accounts. For disclosure purposes: my PA is essentially 55% bonds 5 years or less: AA munis, TIPS, and corporates; and 35% gold equities, bullion and spreads. Equities include NGD, AU, and GDX (miners ETF). Bullion is in coins and bars. The rest is short S&P and long some Oil MLPs.
What will happen should be obvious to anyone with the ability to see from a politician’s point of view. The governments of the world must continue to put money into their economies. Why it hasn’t worked so far is a mystery. I call it the sticky carburetor. The fed has the pedal floored on its old POS 1970 Malibu but the carburetor is stuck. Either the stuck spring will break (deflationary default) or it will snap open and the car will lurch forward (inflation). This behavior will continue until someone fixes the damn fuel system. I was told to read up on Endogenous credit by a colleague who sat thru my car analogy, so I’m off.
For the rest of the week starting tomorrow, we’d like to go thru the mechanics, risk and opportunities of how the Comex/ OTC Arb works.
August gold was up 0.5 to $1207.9 per 100 troy ounces as of 7:06 AM EST, this morning. The September U.S. dollar index was down .267 to 84.595. July platinum was up 9.3 to $1508.5 per 50 troy ounces. Silver was up 11.1 cents to 17.830.