The Trouble with Porosity and Prosperity
That one or the other should be favored, is a fascinating debate. Currently, almost all central bankers have a targeted level of inflation that approaches 2%. Some even argue for higher levels now that deflationary demons approach in peripheral Euroland. They argue that the 2% level is sort of like a firebreak. Once inflation approaches zero, goes their theory, the deflationary firestorm is difficult to stop. With interest rates at zero and quantitative easing approaching potential political maximums, there is little water left to pour on the flames. Best then to keep inflation at a reasonable 2% so that the zero hour never comes. They have a point, but then how to explain to the average 30-year-old citizen that if so, his/her retirement dollar will only be worth half as much come 65, and if inflation averages 3%, it will only be worth a third. Actually, a 30-year-old citizen of the 1970s (yours truly), has experienced a 75% depreciation of his purchasing power. The cost of a firebreak can be expensive insurance.
Gold price tumbling to $1,000 as rising dollar crushes confidence
Precious metal tipped to fall further as US economic growth and the Fed's retreat from QE to see investors dump holdings
Gold prices slumped last week to a four-year low, but do not expect a turnaround in fortunes any time soon with analysts now predicting that a level of $1,000 (£625) per ounce could present the next point of resistance for the precious metal.
Traders will be watching for market signals from figures including the US Institute of Supply Management (ISM) manufacturing data, US employment data, the Chinese Purchasing Managers Index (PMI) and the European Central Bank meeting, which could all give further indication of where the world’s economies are heading and provide further focus for the bullion markets, according to GoldMoney. Traders are also closely watching for the outcome this month of the Swiss gold referendum. The Swiss People’s Party has proposed a motion dubbed “Save our Swiss Gold” that will prevent the central bank from selling the precious metal, while forcing it to hold 20pc of its assets in gold.
The fall in gold prices comes as the US dollar continues to strengthen against a basket of major currencies in expectation of stronger growth in the world’s largest economy and that the Federal Reserve will soon end its asset-buying programme.
Gold prices like oil are closely linked to the strength, or weakness, of the greenback and the recent declines in the precious metal have also coincided with US crude falling below the critical $80 per barrel level last week. As the US dollar continues to strengthen this will dampen demand across commodities such as gold and oil, which are primarily traded in the currency.
The glum mood around gold prices has also filtered through to silver. The so called “devil’s metal” was down close to $15.90 per ounce at the end of last week and traders are forecasting further declines in line with gold and oil. The white metal has already dropped 20pc since July and is now also trading at its lowest level since the beginning of 2010.
DYI Comments: Vanguard's Precious Metals and Mining Fund peaked on April 3, 2011 at $28.35 and now rests at $8.80 (+ long term capital gain dividend .30). Vanguard's precious metals fund is down (28.35 -8.80 + .30) / 28.35 x 100 = DOWN 70%. This drop in shares is far greater than the actual metal. Gold peaked on September 6, 2011 at 1921.5 and is currently today residing at the price of 1168.60....(1921.5 - 1168.60) / 1921.5 x 100 = DOWN 39%. This is one heck of a over shoot (very typical of markets) from the traders creating an excellent time to re-balance funds from this high flying stock and bond market into precious metals. Please note that this is not an "all in" type of signal as I've stated many times before gold is pricey but still has value at a smaller percentage of one's portfolio.
Chart 1
Fred's Intelligent Bear Site brought to you by Fred Filskov. Public, private, and commercial distribution of this material is permitted as long as a link to this site is attached.
Chart 2
Fred's Intelligent Bear Site brought to you by Fred Filskov. Public, private, and commercial distribution of this material is permitted as long as a link to this site is attached.
If gold declines below $1,000 as the article suggests the DOW/GOLD RATIO has a possibility of popping above the green line or the half way mark as shown by Fred's Intelligent Bear Site (chart 1). At that point gold would move our sentiment indicator back to Relief "Market returns to mean." As it stands now I'm moving back gold's indicator one notch from Media Attention to Optimism.
No comments:
Post a Comment