Six Weeks To Save The Euro

Six weeks is too far away (even if there was a "solution" waiting there for them).

Political timescales and market timescales are out of synch.

Our so called political "elite" are presiding over the shattered wreckage of their "world vision". They are in shock and denial that their world view has been destroyed. As such they are a danger to themselves and a danger to the world economy, as they are attempting to put in place "solutions" for a world vision that no longer exists.

IMO, Germany should leave the Euro and allow those who remain to devalue it to bring their shattered economies back from the dead.

Sadly, because those in charge still cling to the their shattered vision, the reality will be a Greek exit coupled with the PIIGS falling one by one.

In other news, gold fell last week not because of the strength of the dollar (as incorrectly reported in the media) but because news leaked to a few that gold margins were to be increased (news officially only released yesterday).

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Playing Politics With People's Lives - Satan's Sandwich

I see that the politicians on Capitol Hill have just about managed to act with some commonsense at the eleventh hour, and have passed a bill in Congress that allows the debt ceiling to be raised. The Senate is due to vote today.

Neither "left wing" democrats, nor the swivel eyed of the Tea Party are happy with the compromise.

Representative Emanuel Cleaver (Democrat), said:

"This deal is a sugar-coated Satan sandwich. If you lift the bun, you will not like what you see."

The bill raises the debt ceiling by $2.4 trillion, which theoretically will allow the government to meet its debt obligations until 2013.

However, $1 trillion will be cut immediately from government spending, with a further $1.4 trillion to be agreed by the end of the year.

The markets, having briefly rallied, fell as they digested the news that US manufacturing has grown at its slowest pace in two years.

Whilst all this self indulgent nonsense has been going on, those with an eye for playing the markets will have done very well out of the rise in value of gold then, if they anticipated the vote in favour of a deal, the fall back in value of gold.

Let us trust that those politicians who played games over this issue were not some of those who played the gold markets!

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Playing Politics With People's Lives

The markets are beginning to realise that, thanks to the intransigence of the politicians, the US may well default on its debts. The opening sessions in all major countries this week saw falls in their key indexes.

Sadly, the politicians are more concerned with playing politics with people's lives rather than raising the country's $14.3 trillion debt ceiling.

Some cynics are of the view that the chaos caused (and flight to gold - today it touched an all time high of $1,622.49 per ounce) by the ongoing impasse in raising the debt ceiling is benefiting those with an interest in gold.

Let us trust that those politicians who are blocking a deal are not found to have significant holdings of gold.

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Shockingly Bad Value

The OFT have issued a scathing report about the business practices of various cash for gold companies, that buy people's gold jewelry at below market price and smelt it down.

CashMyGold, Cash4Gold and Postal Gold have all agreed to change their business practices as the OFT was concerned that people were being "locked into" accepting offers for their gold.

The firms state that customers can reject their cash offer. However, failure to contact the firm in the short time frame offered was taken as consent.

People who are desperate enough to use these firms are being given a very poor deal, as the prices that they can obtain from even pawn brokers are higher than offered by the cash for gold firms.

Which? found that these firms offered an average of 6% of the retail price of the gold, compared with an average of 25% offered by pawnbrokers and high street jewellers.

As Which? noted, this is "shockingly bad value"; it quite correctly warned people not to use them.

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Wednesday Commodities Round-Up

Let's take a look at gold.

Click on all images for a larger image



Above is the chart that bothers me the most -- and I hope I'm reading this wrong. BUT, the longer term gold chart could be seen as a reverse head and shoulders formation. This implies that gold has one hell of an upward run in the future.


I used the 6 month chart to get a better read of the the SMA picture. First, notice the 200 day SMA has been near neutral for the better part of the year. Considering the extreme moves we have seen, that's a pretty amazing stunt and implies the long-term outlook is still cloudy. However, the short-term indicators are pretty positive. The shorter SMAs are above the longer SMAs and all the SMAs are moving higher. The 10 day SMA has taken a short-term dip, but prices are just below and are using the 20 day SMA as technical support. If prices move through the 20, then the 10 day SMA will be in trouble. But until that happens, we're still in an up-swine.

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The Flight To Commodities

Fear and panic are sweeping the world's financial markets as the effects of the ongoing credit crunch, self inflicted by the greed and stupidity of the banks, claimed another high profile victim.

Carlyle Capital Corporation (CCC), a $21BN mortgage fund, collapsed. This fund, although it invested in "high quality" mortgages, had leveraged itself to hilt. Thus proving the old adage, don't invest with money that you can't afford to lose.

The City is bracing itself for a string of similar fund collapses.

The result of this carnage is that there is a flight away from financial products to commodities. Gold is leading the way, breaking through the $1000 an ounce barrier.

This should come as "heartening" news to Gordon Brown who, when he was chancellor, sold much of Britain's gold reserves off for less than a third of that amount.

Could someone please ask him why he did that?

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Is Gold Moving Higher?

This is a chart I've been watching closely for the last few months. As inflation picks-up, I've wondered when gold would follow. Well, it looks like gold may be doing just that.



Notice that prices have been consolidating in a triangle pattern for the last two months. Yesterday we saw prices move through resistance on solid volume.



On the 2 year chart, notice that prices consolidated twice in 2007. The first consolidation occurred in March to September while the second occurred in October to November.

I use gold as a proxy for inflation expectations. In that vein, consider these long term charts.



Agricultural prices are in a three year uptrend.



Oil prices are in a two year uptrend.



While the dollar has enjoyed a technical bounce over the last few weeks, it is still firmly in a downtrend.

The bottom line is prices are picking up across a variety of commodities. This is a demand driven situation -- 2 billion more people from India and China and living better. This was bound to happen sooner or later. Now we have to figure out how to deal with this development.

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Is Gold Moving Higher?

This is a chart I've been watching closely for the last few months. As inflation picks-up, I've wondered when gold would follow. Well, it looks like gold may be doing just that.



Notice that prices have been consolidating in a triangle pattern for the last two months. Yesterday we saw prices move through resistance on solid volume.



On the 2 year chart, notice that prices consolidated twice in 2007. The first consolidation occurred in March to September while the second occurred in October to November.

I use gold as a proxy for inflation expectations. In that vein, consider these long term charts.



Agricultural prices are in a three year uptrend.



Oil prices are in a two year uptrend.



While the dollar has enjoyed a technical bounce over the last few weeks, it is still firmly in a downtrend.

The bottom line is prices are picking up across a variety of commodities. This is a demand driven situation -- 2 billion more people from India and China and living better. This was bound to happen sooner or later. Now we have to figure out how to deal with this development.

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Oil and Gold Rising, Dollar Falling (But There's No Inflation)

From the WSJ:

The dollar plunged Friday against several Asian currencies and reached a fresh all-time low against the euro, although it rose against the yen as investors sold the Japanese unit in favor of higher-yielding currencies.

"We're in an environment where we're seeing weak data from the U.S. and the market is expecting aggressive U.S. interest rate cuts," said Ian Stannard, a currency strategist at BNP Paribas in London. "That means we're going to see risk appetite back in place and we're going to see the dollar coming under continuing pressure too," he said. BNP Paribas expects the euro to reach $1.45 to $1.46 by the end of the year.

From the WSJ:

Crude-oil futures punched deeper into record territory Friday in Asia, briefly rising above $92 a barrel, and helped push spot gold prices to new multiyear highs.

With heightened tensions in the Middle East again putting supply flows at risk, and on the back of falling global crude and refined products stockpiles, expectations for a supply crunch going into the high-demand northern hemisphere winter have encouraged traders to go long and abandon bets on a price retreat.

"This week, in the wake of the latest [U.S. Department of Energy] statistics, traders are focusing on supply shortfalls in an environment of consistently growing consumption," Peter Beutel, president at trading advisory firm Cameron Hanover, said of weekly oil data released Wednesday. "It keeps coming back to one major fundamental factor: supply is running 1.8 million barrels a day behind demand."

.....

Record oil prices helped push spot gold prices to new multiyear highs, with the rally likely to continue, traders and analysts said. Gold rose 1.5% to a new 28-year high of $778.65 a troy ounce when the London bullion market opened, before easing somewhat to $776.10 an ounce.

When political tensions build in oil regions, oil's price increases. That's a no-brainer. We have tensions on the Northern Iraq border between Turkey and the Kurds and continuing rhetoric against Iran from the Bush administration. Put those two factors together and you get higher oil prices.

However, something that doesn't get mentioned nearly enough is the inter-relationship between the dollar and oil. Because oil is priced in dollars a decrease in the dollar is a de factor price increase in oil's price. With the dollar coming under pressure from a slowing economy and more rate cut speculation in the markets, oil traders are seeing the value of their investments decrease with the dollar. Hence, they fell obliged to big up oil just to keep pace with the dollar's drop. Hence you get the following inter-relationship between the dollar and oil over the last month or so as the dollar has continued to move to record lows.





And on top of those inter-related developments, the declining dollar and increasing oil prices are stoking inflationary expectations as evidenced by gold's move through upside resistance. Also note that gold has built an incredibly strong base over the last year which could give the metal one hell of a base to move higher from.



But remember --

1.) Despite oil's continued move higher

2.) The dollar's continual move to record lows, and

3.) Golds hitting new highs

core inflation is still low, so everything is hunky dory.

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Oil and Gold Rising, Dollar Falling (But There's No Inflation)

From the WSJ:

The dollar plunged Friday against several Asian currencies and reached a fresh all-time low against the euro, although it rose against the yen as investors sold the Japanese unit in favor of higher-yielding currencies.

"We're in an environment where we're seeing weak data from the U.S. and the market is expecting aggressive U.S. interest rate cuts," said Ian Stannard, a currency strategist at BNP Paribas in London. "That means we're going to see risk appetite back in place and we're going to see the dollar coming under continuing pressure too," he said. BNP Paribas expects the euro to reach $1.45 to $1.46 by the end of the year.

From the WSJ:

Crude-oil futures punched deeper into record territory Friday in Asia, briefly rising above $92 a barrel, and helped push spot gold prices to new multiyear highs.

With heightened tensions in the Middle East again putting supply flows at risk, and on the back of falling global crude and refined products stockpiles, expectations for a supply crunch going into the high-demand northern hemisphere winter have encouraged traders to go long and abandon bets on a price retreat.

"This week, in the wake of the latest [U.S. Department of Energy] statistics, traders are focusing on supply shortfalls in an environment of consistently growing consumption," Peter Beutel, president at trading advisory firm Cameron Hanover, said of weekly oil data released Wednesday. "It keeps coming back to one major fundamental factor: supply is running 1.8 million barrels a day behind demand."

.....

Record oil prices helped push spot gold prices to new multiyear highs, with the rally likely to continue, traders and analysts said. Gold rose 1.5% to a new 28-year high of $778.65 a troy ounce when the London bullion market opened, before easing somewhat to $776.10 an ounce.

When political tensions build in oil regions, oil's price increases. That's a no-brainer. We have tensions on the Northern Iraq border between Turkey and the Kurds and continuing rhetoric against Iran from the Bush administration. Put those two factors together and you get higher oil prices.

However, something that doesn't get mentioned nearly enough is the inter-relationship between the dollar and oil. Because oil is priced in dollars a decrease in the dollar is a de factor price increase in oil's price. With the dollar coming under pressure from a slowing economy and more rate cut speculation in the markets, oil traders are seeing the value of their investments decrease with the dollar. Hence, they fell obliged to big up oil just to keep pace with the dollar's drop. Hence you get the following inter-relationship between the dollar and oil over the last month or so as the dollar has continued to move to record lows.





And on top of those inter-related developments, the declining dollar and increasing oil prices are stoking inflationary expectations as evidenced by gold's move through upside resistance. Also note that gold has built an incredibly strong base over the last year which could give the metal one hell of a base to move higher from.



But remember --

1.) Despite oil's continued move higher

2.) The dollar's continual move to record lows, and

3.) Golds hitting new highs

core inflation is still low, so everything is hunky dory.

Read More