Friday, September 16, 2005, 8:20:00 PM EST
Gold and Dollar Market Summary
Author: Dan Norcini
Gold bulls showed their mettle today smashing through COT’s Maginot Line at $459-$460 like it was non-existent. Gold call sellers of the 460’s were forced to eat those today and had no choice but to buy futures again.
Funds continue their buying. Plenty of new money came in yesterday with the open interest increasing over 17,000 new contracts, bringing us to 343,286 as of Thursday.
The strong showing in gold with it notching a 17-year high is attracting all manner of attention. The result is that plenty of speculators want in. Goodness gracious, even CNBC mentioned the word “gold” today more times I think than they did all year. One thing is for sure – gold is definitely on the radar screen of a goodly portion of the investment world and has entered into the second phase of its generational bull market. COT will have its work cut out for them.
Eurogold came in at €374.294 for the PM Fix and continues to move steadily higher. Its chart is very strong.
Both the HUI and the XAU put in performances that can only be called “stunning.” The HUI blasted through its March high and is within striking distance of last year’s November peak at 248.18. It closed today at 239.54.
The XAU continues to soar and is less than one point shy of its November peak at 111.50, finishing today at 110.54.
The weekly charts of both indices are exemplary and reveal what took place this week. Many of the gold and silver shares woke up and managed upside breakouts of broad trading ranges that have held them in confinement for the better part of this year. The South African miners, which have been mostly lethargic this year, really came to life today: GOLD, GFI and HMY all looked very solid.
Even silver got in on the fun – finally. Strength in gold yanked it north and it ripped into the fund buy stops that were sitting above the market, barely setting back at all during the session as the buying came in nearly continuously. Its close above that tough resistance band near 712-715 puts it squarely on target to challenge the August highs near 740.
The big data release today was the current account number. The current account deficit for Q2 narrowed to -$195.7 billion but only because the numbers for Q1 were upwardly revised. The Commerce Department revised the first quarter gap to a record -$198.7 billion versus the -$195.1 billion deficit that they had initially reported last month. Without the upward revision to last month’s number, we would have seen the CA deficit increase. Even at that, the shortage was the second highest on record. The market had been looking for a number closer to -$193 billion.
What is numbing about this number (a little word play there) is that Commerce has a habit of revising these things and they always seem to grow larger. If the trend continues, we are talking about a Current Account Deficit for 2005 approaching -$800 billion.
With the federal budget deficit projections continuing to rise and come in closer to -$400 billion, we have the very real possibility that the combined yearly deficits will be in the vicinity of -$1.1 trillion. That is personally mindboggling to me. What is also interesting about this report is that the investment income balance went negative.
The Treasury also released its International Capital Flows data today for the month of July which came in at a much higher than expected $87.4 billion compared to expectations of $60.0 billion. The US trade deficit was $57.9 billion in July so this was more than ample to cover the shortfall there.
Net foreign purchases of US debt, both government in the form of Treasuries and agency debt, in addition to corporate debt accounted for the bulk of the flows. Equities were basically a wash. Amazingly, the world continues with its appetite for dollar-denominated debt. Quite frankly, this astonishes me. For now, the American party at the expense of the rest of the global community continues. As long as they are willing to lend us their money, it appears the show will go on.
The dollar, which first reacted a bit negatively to the current account info, moved up some when the TIC data was released. Even with that data, it could not manage a higher close for the day and settled down a tad at 87.81. If the dollar cannot get above 88.55 very soon, it will head down and either establish a range trade or break through support and resume the next leg in its long-established bear market.
The Canadian dollar was strong all day even in the face of weaker crude prices. It continues its trek steadily upward and onward and could very well become one of the strongest performers among the major currencies. Canada is resource rich, especially in oil, and that should tend to keep money flows there quite strong.
Meanwhile back in La-La land, equity bears managed to snatch defeat from the jaws of victory once again as the stock market made another of those “remarkable recoveries" to save itself on the technical charts. Another down day today would have been the coup de grace for the S&P and the Nasdaq on the weekly chart. That would have been a no-no.
The reason given for the rally, as if we really need one these days, is that the bulls were optimistic about all that federal money that was promised in last evening’s speech by the President and the impact on the economy. Talk about forward looking!
The stock market seems to have some sort of morbid fascination with government indebtedness. Coming on the heels of yesterday’s abysmal Philly Fed business index and shaky Empire State Manufacturing survey, the bulls are running on nothing but hope as there is certainly nothing justifying their current giddiness from a fundamental standpoint. All of the recent economic data has been especially shaky and reveals an economy with decelerating momentum.
I keep coming back to the point I have often made in these reports. Based upon the thinking of current equity investors, the best thing that could now happen to the US would be a massive earthquake along the San Andreas Fault line coupled with a direct hit of another portion of the Gulf Coast by a new hurricane. We would easily see DOW 12,000 should that occur since the federal government could have even more money to throw at the subsequent rebuilding efforts. I suppose we can just endlessly print money to fix things in this country and never worry about paying the piper.
What a fairytale land so many of these guys live in. The University of Michigan’s consumer sentiment index fell to a 13-year low of 76.9 in early September from 89.1 in August. The number was even worse than what the market had expected. Never mind was the attitude – we are going to be getting lots of FREE federal money to fix things so it’s “no worries mate” time again.
Crude oil prices were down as well with gasoline getting hit especially hard. Perhaps that gave equity bulls some more Rah-Rah juice. Strange how one of the reasons given for the equity rally was a brokerage upgrade of Exxon by Deutsche Bank which raised its rating from “hold” to “buy,” saying that oil supplies are likely to remain tight over the coming year.
Oh I get it now: We should buy Exxon because oil prices will remain so tight over the next year but we should also buy other stocks as well because energy prices are falling and becoming cheap for consumers once again. Makes perfect sense to me. Don’t try to figure it out as you will only harm your brain.
Gasoline is now back at levels last seen the week prior to Katrina. The talk is that the sharp rise in prices that resulted from the storm shut down demand. A simple glance at the price charts of both unleaded and heating oil reveals that we only just imagined Katrina. It never really occurred. All those refineries are just fine thank you. Hope the upcoming winter is mild.
Bonds continued breaking down as more and more of the flattening trades are lifted and the curve begins to get back to more “normal” levels. For now, even rising interest rates cannot dampen the equity bulls’ giddiness. It’s time to chase those “cheap” stocks higher again.
Chatter among the equity bulls that the Fed will pause in its interest rate hike schedule is obviously being lost on bond bears who continue dragging the yield on the all- important Ten Year Note higher. Think adjustable rate mortgages…
That’s it for now. I hope you all have an enjoyable weekend with your family and loved ones.
![:]](https://goldseiten-forum.com/wcf/images/smilies/pleased.gif "Freude"){kind=small}