Full Market Update
Dec 23, 2002
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This news was intended for the next HSL. But Uncle Harry passes
this on to FMU readers today in case the Iraq war begins before
the next HSL whereupon censorship will be imposed on news of
use to enemy intelligence.
The UN team was ordered to "confiscate back issues of the International Harry Schultz Letter & other subversive literature which may refer to govt or private efforts to depress the price of gold, suppress accurate inflation & productivity data, or carry criticism of US civil rights abrogation in US Patriots Act or new British civil rights law." Adolph Flix said "The Truthbombs must be destroyed before they spread their deadly mind-awakening, head-clearing power throughout the world & arouse public protests." But Uncle Harry told Reuters, "Superhero is on his way to help the truthsayers."
***Now for something serious - and happy. Uncle Harry says "There has been a dramatic sea change! Greenspan has become Goldspan!! This is good news. Friend Jim Sinclair describes it well here:
Federal Reserve Chairman Greenspan Confirms Governor Bernanke's Reintroduction of the Subject of Gold as Relevant to Present Economic Circumstances
By Jim Sinclair, 12/20/02:
I have learned over time to recognize that when a Federal Reserve Chairman discusses the monetary system, it is wise to take it seriously, not only what is said, but also, the fact that it is said. It was this approach that gave me the cue to know in 1980 that Chairman Volcker was going to take the anti-inflationary stance that he did successfully. It was this understanding that gave me the courage after having led the 1968 - 1980 gold bull market as its largest trader to sell 900,000 ounces of physical overnight plus an additional 1,200,000 ounces of gold as represented by Comex contracts the next day. The day before gold had traded on the Comex at $887.50. Something equally as important happened today and you must be informed. It is the absolute opposite of March 1980 and means to me that gold is in a very long-term bull market and will not be opposed by central banks. This is a major starting point for gold for many years to come.
We have already heard from Chairman Greenspan suggesting we might have come full cycle from the Volcker experience. Now let me quote to you the opening remarks of Chairman Greenspan today, December 19, 2002, speaking to the Economic Club of New York.
"Although the gold standard could hardly be portrayed as having produced a period of price tranquility, it was the case that the price level in 1929 was not much different, on net, from what it had been in 1800. But, in the two decades following the abandonment of the gold standard in 1933, the consumer price index in the United States nearly doubled. And, in the four decades after that, prices quintupled. Monetary policy, unleashed from the constraint of domestic gold convertibility, has allowed a persistent over issuance of money. As recently as a decade ago, central bankers, having witnessed more than a half-century of chronic inflation, appeared to confirm that a fiat currency was inherently subject to excess." 
You have just heard the Chairman of the Federal Reserve speak the Gospel of Gold. It was not said randomly. When a subject is put at the beginning of a presentation to an important group by the Chairman of the Federal Reserve System, it is there for a reason. I believe I know the reason. Gold is on its way back into the monetary system not, IMO, as convertibility, but rather as a Gold Cover Clause different in form from the previous Gold Certificate Federal Reserve Ratio that affected the cost of money as a corrective mechanism. This time the Gold Cover Clause will function as a control over the creation of fiat currency as a ratio to money supply in a free market for gold and valuation of US Treasury gold at market. I will explain to you during Christmas how this will effect gold trading in a firm range, in my opinion, at higher levels than we have so far experienced. I believe the price of gold is headed higher without significant interruption. I firmly believe that gold is headed back into the monetary system in a control mechanism with an adjustable market mechanism. Gold will be trading between $450 and $550 in 2003.
Chairman Greenspan went on to say "Moreover, a major objective of the recent heightened level of scrutiny is to ensure that any latent deflationary pressures are appropriately addressed well before they become a problem." This statement confirms the statements of Governor Bernanke that the Federal Reserve intends to use the tools at hand that have historically (1930 - 1934) been used to stimulate economic activity when decreasing interest rates fail to push business activity forward as is possible, if not probable, now. 
Now the Chairman says, " Although the US economy has largely escaped any deflation since World War II, there are some well-founded reasons to presume that deflation is more of a threat to economic growth than is inflation." This confirms to me that the Federal Reserve and the Bush administration will move to whatever is required to whatever degree is required in order to stave off the political implications of deflation. I have said before that deflation would not be entertained. The Federal Reserve and the Bush administration will burn the barn down before accepting the political implications of deflation. I have defined the barn as the dollar. I am now more than ever convinced that I was and am correct in this assumption. The US dollar on the USDX is headed, IMO, to between .73 and .80 as I see it.
Greenspan goes on to say, "the expansion of the monetary base can proceed even if overnight rates are driven to their zero lower bound." This interprets, IMO, as a statement that guarantees two events: Interest rates will continue to be reduced and monetary aggregates will continue to be expanded.
The next important statement is: "Clearly, it would be desirable to avoid deflation. But if deflation were to develop, options for aggressive monetary policy responses are available." That means to me that a plan to fight inflation is in fact being pursued now by the US Fed, but it is prepared to expand significantly regardless of the effect on the dollar.
There is however herein given a hint of the dollar rescue plan that is envisioned. That is the reintroduction of gold into the monetary system via a somewhat restructured Gold Cover Clause that recognizes the changes that have taken place in the world in the last seventy-five years.
The Federal Reserve has announced to those with ears to listen that gold is no longer a rejected subject. Quite to the contrary, Governor Bernanke has described gold as a tool used to resuscitate economies. Fed Chairman Greenspan has introduced gold's role in two ways. First, gold is defined as a means of price predictability. Secondly, he touched on the control function that gold offers over the natural excess inherent in a fiat monetary system in the overproduction of money.
I firmly believe that you can now expect a rise in the price of gold without significant interruption unless it runs too hard, too fast. Since that is the nature of gold, you can expect gold to be turned back at certain levels as it was yesterday (Thurs 12/19) at $354.50. It will be turned back again at $372. However I am now convinced that we will see a price in the area of $529 in the not too distant future as the Federal Reserve acts to offset incipient deflation by significant additional expansion of monetary aggregates and the attendant effect on the dollar.
Gold will be called back into the system somewhere in the middle .70s on the USDX to then prevent the dollar from experiencing a free-fall in the form I have suggested above. In my opinion it will work when it is done. Since the need exists now to expand the monetary aggregates, gold will not now find its way into the system.
I now believe that with this plan in hand, the cyclical bottom due in the general equities market by June of 2004 has a good chance of occurring. Everyone laughed at me a year ago when I suggested that the bond market would find a top by November of 2002. Well, it did. So grant me the possibility that I might be right in my cyclical analysis that suggested equities as long-term investments in June of 2004, now along with gold shares. Yes, along with gold shares.
Gold companies that survive the excesses of over-the-counter derivative hedging will be transmuted back into the utilities they were when gold was trading at $35 an ounce and mining costs were extremely small. South African shares then yielded between 18% and 22%. As a young trader of 19 years old, I bought physical gold and borrowed against it in Swiss Francs at 6%. I covered my currency risk against the dollar by going long future Swiss Francs to cover my debt and used the 95% borrowed funds to buy high yielding South African gold shares. This was my first pyramid and my first fortune.
You now have seen the future. Sure, I will ignite some of the web site owners in the gold community, but that seems to be my unintentional habit. There can easily be changes in timing and price levels to the scenario described above, but I know what I heard and I know what it means. When I sold 900,000 ounces of gold into the Asian, British and European cash market the night after gold had sold at $887.50 in the US, I was blamed for having broken the gold bull market. Barron's editor Bleigberg wrote an editorial that criticized me sharply for having said publicly that Chairman Volcker was a "class act" and that he would attack inflation successfully. It was my opinion that gold was finished and that it would be 15 years before interest in gold could resuscitate it. I was wrong, it was 22 years.
© 2002 James E. Sinclair
Schedule Change: As we have a reconfirmation of a
bull mkt in gold, now into a dynamic phase, it is logical to devote
more time to R&D on gold, the mkt, timing, individual shares, vetting
new shares, vetting juniors, checking gold derivatives, & monitoring
gold indicators as greater rewards are to be made. But, it is vastly
time consuming! We are only a small team & we have a weekly deadline
with the successful Gold Charts R Us trading service.
We haven't found a way to create clones of ourselves. So the only alternative
is to cut down the number of FMU's we issue. This will benefit
U, as the fruits of expanding gold research means much bigger profits,
via safer pathways in buy/sell tactics & in more shares studied.
***Barrick Gold Corp. & J.P. Morgan Chase & Co. Accused by Blanchard and Company Of $2 Billion Illegal Gold Market Manipulation
Corporate News 12/18/2002
"An anti-trust lawsuit filed today accuses Barrick Gold Corp., Toronto, and J.P. Morgan Chase & Co., New York City, of "unlawfully combining to actively manipulate the price of gold" and making (US)$2 billion in short-selling profits by suppressing the price of gold at the expense of individual investors.
"The suit was filed by Blanchard and Company, Inc., New Orleans, the largest retail dealer in physical gold in the United States, and by Blanchard clients who bought gold bullion. Blanchard (www.blanchardonline.com) is paying the costs of the suit, which asks the Federal Court to terminate the trading agreements between Barrick and J.P. Morgan Chase and other, as yet unnamed, bullion banks. Blanchard believes its clients suffered substantial losses as a result of Barrick's and J.P. Morgan Chase's unlawful price manipulation, anti-trust violations and unfair trade practices.
"Since the end of 1987, when the collaboration between Barrick and J.P. Morgan began, the growth of global income and wealth would have lifted the gold price to approximately $740 if the price had been able to respond to the normal laws of supply and demand," stated Blanchard's Chief Executive Officer, Donald W. Doyle, Jr. "If gold had kept pace with inflation, the price today would be approximately $760."
"The lawsuit claims that in the past five years Barrick and J.P. Morgan Chase injected millions of additional ounces of gold into the market - additions that were several times as great as the annual production of every gold mine in South Africa, the largest gold producing nation in the world. By using privately negotiated derivative contracts and concealing the addition of billions of dollars worth of (physical) gold with off-balance sheet accounting, Barrick was able to make it virtually impossible for gold analysts and investors to determine the size and the market impact of its trading positions.
"The same type of accounting maze that hid Enron's debts made it possible for Barrick to manipulate the price of gold without the checks and balances that come from public scrutiny. As a percentage of Barrick's total assets, its off-balance sheet assets make Enron look like a champion of full disclosure," said Doyle. "Is Barrick a gold mining company, or is it a hedge fund with a mine out back?"
"The suit alleges that J.P. Morgan Chase financed Barrick's repeated short selling with remarkably advantageous terms not available to others, including deferred repayments and no margin calls. Doyle said the short-sales scheme between the bank and Barrick appears to be the proverbial "money for nothing."
"Over the past five years, J.P. Morgan Chase loaned gold to Barrick at approximately 1.5 percent; sold the gold into the market and invested the dollar proceeds at approximately 6.5 percent; then paid both the proceeds from the sales and the 5 percent interest differential to Barrick whenever it repaid any of the borrowed gold. During a period when the price of gold dropped by more than 25%, Barrick's annual operating cash flow increased by more than 400%."
"In 1983, Barrick was a start-up with a single mine in Canada, a founder with no experience in the gold business, and principal investors from Saudi Arabia. Today, through a combination of market manipulation and a 1992 transaction that the U.S. Secretary of the Interior described as `the biggest gold heist since the days of Butch Cassidy,' Barrick has amassed off-balance sheet assets that are worth more than the market capitalizations of the next five biggest gold mining companies in the world combined," said Doyle.
"Doyle explained that "Blanchard and Company was founded on the belief that gold and other tangible assets are essential to proper portfolio diversification. However, because of the illegal manipulation of its price, we advised our clients to avoid gold like the plague until such time as the free market laws of supply and demand were allowed to dictate the price. We believe that the anti-trust lawsuit filed today will stop the illegal suppression of the price of gold and other hard assets and return them to their roles as stores of value and financial insurance."
"The suit was filed by the law firm of Jones, Verras & Freiberg, LLC of New Orleans in the U.S. District Court for the Eastern District of Louisiana. It is document number 02-3721 Section C, Blanchard and Company, Inc. V. Barrick Gold Corporation; J.P. Morgan Chase & Co.; and ABC Companies. A web site is being set up to provide ongoing information, www.savegold.com". End.
***More excellent analysis from Stephen Roach of Morgan Stanley, Dec 06, 2002 (www.morganstanley.com):
The Perils of Competitive Currency Devaluation
"Guns are blazing on the anti-deflation front. Policy makers in Japan and the United States have elevated deflation to their number one concern. Even European authorities have finally joined the game, as evidenced by an aggressive 50 bp ECB easing, with the euro-zone inflation rate still above the so-called price-stability threshold. The full force of the global policy arsenal now seems aimed at arresting deflation. And that's very good news. The bad news is that there's no guarantee the medicine will work. Policy traction is most difficult to achieve at low levels of inflation and nominal interest rates. Just ask Japan. In the case of the US economy, stabilization policies typically work their charm on three sectors - consumer durables, homebuilding, and business capital spending. With all three sectors having gone to excess in recent years, any response to policy stimulus could be surprisingly muted. In Europe, monetary stimulus is being offset by the combined headwinds of fiscal consolidation and lingering structural rigidities, especially in the labor market. History tells us that deflationary remedies must be administered early and aggressively. Only time will tell if it already isn't too late.
"But there's another piece of bad news on the deflation watch - the risk that a policy clash gets played out in foreign exchange markets. That's especially the case with respect to Japan and the United States, where senior officials in both countries have lately hinted at playing the currency-devaluation trump card in the battle against deflation. Haruhiko Kuroda, the Japanese MOF vice minister for international affairs, has become quite vocal in recent days attempting to manage the yen lower - first with an opinion piece in the Financial Times and now with a rhetorical salvo implying that the Japanese currency has only just begun to fall from a position of "excessive strength." At the same time, Fed Governor Ben Bernanke has introduced the possibility of dollar devaluation as an anti-deflation remedy as one option in a broad array of "non-traditional" actions that the US central bank could take against deflation. While the coexistence of a weaker yen and a weaker dollar seems highly unlikely, just the mere suggestion by authorities in both countries to reflate through currency depreciation conjures up the perils of competitive currency devaluation - a highly disruptive outcome for the global economy and world financial markets.
times like this that bring out the worst in xenophobic policies. When
does the unbalanced state of the global economy suggest that yen
"Yet there's always the risk that such a strategy will backfire. That's especially the case in Japan. To the extent that the Japanese economy enjoys the temporary reflationary benefits of a weaker yen - stronger external demand and imported inflation - the incentives for structural reform might diminish. That's, in fact, exactly what happened in the latter half the 1990s. The pressures for such reforms were extreme in early 1995 when the yen/dollar cross-rate briefly pierced the 80 threshold. The urgency to act, however, was tempered by three and a half years of sharp currency depreciation, which took the yen/dollar cross rate back to 147 by August 1998. Led partly by exports, Japanese GDP growth accelerated to a 2.4% average annual rate over the 1995-97 interval, and the imperatives of restructuring were quickly forgotten. Based on that experience, there is good reason to be suspicious of Japanese promises to deliver on structural reform while the yen is depreciating. A stronger yen, by contrast, would leave Japan with little choice other than to restructure.
"The same argument could be used with respect to Europe: A stronger euro would leave Corporate Europe with no choice other than to restructure. It is in that context that the efficacy of currency policy should be considered. In my opinion, the currency can either be a "a carrot or a stick" in shaping structural change. The experience of the last 25 years - especially the restructuring of Smokestack America during the strong-dollar era of the early 1980s - tells me that the "stick approach" is far more effective. And so I reluctantly conclude that just as the world now needs a weaker dollar to temper global imbalances, the world also needs a stronger yen and a stronger euro to force long overdue restructuring in both regions. Nor do I believe that a world in distress will sit back and tolerate a unilateral initiative by Japan to reflate via currency depreciation. If it becomes evident that traditional counter-cyclical stabilization measures are not gaining traction in the US or Europe, then the authorities in both countries might well consider shifts in their own currency policies. The result could be an increasingly vicious cycle of competitive currency devaluations that would achieve nothing but ill will. That would then up the ante for national policy makers to turn to trade protectionism as a true last-gasp option to shield their economies from imported deflation and the seemingly unrelenting pressure of import penetration into domestic markets. Sadly, that's right out of the script of the early 1930s.
"It doesn't have to end that way. If US policy makers establish traction with their recent and prospective monetary and fiscal actions, then deflation can be avoided without an explicit shift in dollar policy. At the same time, if the rest of the world embraces pro-growth policies of its own, the currency lever need not be utilized to accomplish this objective. If, however, the authorities fail to achieve these results, then all bets would be off for the US and the broader global economy. Competitive currency devaluations almost always end in tears." End.
BBC News, 12/19/2002:
Chinese shoppers queue for gold
"China has allowed its citizens to buy gold bullion for the first time since the Communist Party took power in 1949. Shoppers queued last Thursday to look at gold bars on sale in department stores in Beijing and the southern city of Nanjing. Easing restrictions on gold sales is designed to create a new investment outlet for China's huge pile of household savings, worth nearly $1bn. Analysts think demand for gold in China will rise sharply as a result of opening up sales of the metal to individual investors, and could even double.
"The gold bars on sale ranged from 10 grams to one and quarter kilos, the official China Daily newspaper reported. Some were stamped with a design of a sheep, a Chinese astrological animal. The year of the sheep begins at Chinese New Year in February 2003, making the sheep a particularly auspicious sign. However, the gold price is set by the Shanghai Gold Exchange (SGE), created when China ended the state monopoly on pricing gold two months ago. The price of gold in the shops "cannot be as sensitive as SGE's and the store will not change price too frequently," said Wang Chunli, manager of Caishikou Department Store in Beijing, which is selling gold bars.
"Gold demand in the country will soon double from the current level of around 200 tons a year as result of the opening up of the business," Liu Shan'en of Beijing Gold Economics Research Centre reportedly told China Daily. All the gold bars available for retail sale are 99.99% pure gold, the paper said. Buyers can sell their gold bars back to the distributors, minus commission." End.
***From Friend & US Congressman Ron Paul:
What Does Regime Change in Iraq Really Mean?
"The buzzwords in Washington concerning Iraq these days are "regime change," which in a sense is surprisingly honest. It means the upcoming Gulf War II will not be about protecting Kuwait or stemming Iraqi aggression. The pretenses have been discarded, and now we've simply decided Saddam must go. We seem to have very little idea, however, what a post-Saddam Iraq will look like. We should expect another lesson in nation-building, with American troops remaining in the country indefinitely while billions of our tax dollars attempt to prop up a new government.
"With this goal of regime change in mind, the administration recently announced plans to spend nearly $100 million training an Iraqi militia force to help overthrow Hussein. A NATO airbase in southern Hungary will be used for military training. The problem, however, will be choosing individuals from at least five different factions vying for power in Iraq, including the fundamentalist Kurds in the north. Given the religious, ethnic, and social complexities that make up the Middle East, do we really believe that somehow we can choose the "good guys" who deserve to rule Iraq?
"Of course any of these groups will be happy to use American military power to remove Hussein, and will form a short-term alliance with the Pentagon accordingly. Their opposition to the current government, however, should not be mistaken for support for America or its policies. As we've seen so many times in the past, the groups we support in foreign conflicts rarely remain grateful for long.
"Saddam Hussein and Osama bin Laden are perfect examples of our onetime "allies" who accepted our help yet failed to do our bidding for long. Both gladly welcomed American money, weapons, and military training during the 1980s. With bin Laden we sought to frustrate the Soviet advance into Afghanistan, and many Pentagon hawks undoubtedly felt vindicated when the Russian army retreated. Yet twenty years later, bin Laden is a rabid American-hating madman whose operatives are armed with our own Stinger missiles. Similarly, we supported the relatively moderate Hussein in the hopes of neutralizing a radically fundamentalist Iran. Yet this military strengthening of Iraq led to its invasion of Kuwait and our subsequent military involvement in the gulf. Today the Hussein regime is belligerently anti-American, and any biological or chemical weapons he possesses were supplied by our own government.
"We've seen this time and time again. We support a military or political group based on our short-term objectives, only to have them turn against us later. Ultimately, our money, weapons, and interventionist policies never buy us friends for long, and more often we simply arm our future enemies. The politicians responsible for the mess are usually long gone when the trouble starts, and voters with a short attention span don't connect the foreign policy blunders of twenty years ago with today's problems. But wouldn't our long-term interests be better served by not creating the problems in the first place?". End.
***Excellent article kindly sent in by Hslm AR. Another view of Ben Bernanke's recent speech from www.afr.com, 09/12/2002: (http://afr.com/marketwrap/money/2002/12/09/FFXF4X9TF9D.html)
bells ring at Fed
"It was a conference to mark Milton Friedman's 90th birthday last month, and who should give the toast to the world's most famous monetarist? A governor from the US Federal Reserve, naturally. The man from the Fed, a monetary expert in his own right, Ben Bernanke, delivered a dense, 10-page tribute to Friedman's contribution to modern economics, then this punchline: "Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton ... regarding the Great Depression: You're right, we did it. "We're very sorry. But thanks to you, we won't do it again."
"A couple of weeks later, seemingly following through on this pledge, Bernanke delivered an unprecedented speech in Washington DC. The title: "Deflation: Making sure it doesn't happen here." It was the Fed's emergency plan, the economic equivalent of the The Worst-Case Scenario Survival Handbook. Bernanke laid out the extraordinary measures the Fed could take - including buying assets from private companies - if the US economy fell into that condition people associate most closely with the Great Depression - deflation, a fall in the general level of prices, the opposite of inflation. If inflation is too much money chasing too few goods, then deflation is too little money chasing too many goods.
"How close is the US to deflation?
"Fed chairman Alan Greenspan told anxious members of Congress in October that "we are not close to the deflationary cliff". But how good are his forecasting skills? The Fed, by its own admission, utterly failed to foresee Japan's slide into deflation seven years ago. And a solid core of serious analysts now believes it to be a very real risk. The Fed's own behaviour betrays a distinct unease. A month ago it cut the key official interest rate by an aggressively large increment - from 1.75 per cent, already the lowest in over 40 years, to 1.25 per cent. Fed officials have called that move insurance. Although the financial markets think there is little chance that the Fed will cut rates again at its policy meeting this week, "the Fed is, I won't say panicked", says Steve Roach, economist for the investment bank Morgan Stanley, "but it is very much on alert". The decision by President George Bush to replace his economic team last week is another indicator that American officialdom is alert to the need for decisive action to keep the economy from quicksand. As the Fed's Bernanke says: "Sustained deflation can be highly destructive to a modern economy and should be strongly resisted."
Consider the evidence of deflation so far.
"The broadest measure of price pressures in the US economy - the gross domestic product deflator - is barely above zero. In the year to the end of September, it was up by 0.83 per cent, its feeblest in half a century. The essence of deflation is that business leaders know they do not have pricing power," the ability to raise the price of their products, points out Wayne Angell, a former governor of the Fed and chief economist for the Wall Street investment bank Bear Stearns. And the prices received by US firms overall have declined in each of the past five quarters, the longest run in more than 50 years. For the latest quarter, they were down 1.3 per cent. At first, and sometimes for years, executives think that this lack of pricing power is temporary, due to a downturn in the business cycle, Angell says. They expect that pricing power will return with recovery. With deflation, it doesn't.
"This is precisely what is happening in the US economy today. Consumer prices in the US are still rising - by 1 to 2 per cent a year, depending on the measure. But David Rosenberg, an economist in the Canadian office of the US investment bank Merrill Lynch, points out that the price of 40 per cent of the hundreds of items that go into the basket to make up the consumer price index are falling. Indeed, all the inflation in US consumer prices is coming from only five areas that make up a quarter of the index - housing, tobacco, car insurance premiums, hospital services and tuition. "There's a compelling case for deflation," says Morgan Stanley's Roach. "We are in a rarefied and highly dangerous period."
"The two top-most international finance officials in Japan last week took the warning even further. They declared that it was not just a danger facing the US - it was a risk to the entire world economy. In an unorthodox move, the Vice-Minister for International Affairs at Japan's Ministry of Finance, Haruhiko Kuroda, and his deputy, Masahiro Kawai, put their case starkly. "Monetary policymakers around the word are still fighting the old enemy of inflation, not the new foe of deflation," they wrote in the Financial Times. "There is an urgent need to switch to global reflation in order to avoid a deflationary spiral." They called on the Europeans, Americans and Chinese to join Tokyo in heading off a global deflation. And the Japanese know something about contemporary deflation - they pioneered it.
"The mainstream of US forecasters does not foresee deflation in the US. But then again, the mainstream does not have such an enviable record of forecasting - the consensus of US economists conspicuously failed to foresee the length of America's boom of the 1990s, and completely missed its 2000 bust. What of Milton Friedman's school, the monetarists, whose believe that the supply of money is the key to inflation and deflation? A respected US monetarist, Allan Meltzer, professor of political economy at Carnegie Mellon University and author of a new book, A History of the Federal Reserve, dismisses the possibility of deflation as nonsense. "It's just bad thinking by badly trained Wall Street economists," Meltzer says. "I don't think any competent economist can make the case for deflation with M2 [the base money supply] growing at 8 per cent year on year and the economy expanding. "You hear it from that Morgan Stanley guy, and his policy is being able to say, if something goes wrong, 'See, I told you so!', and he hopes that people forget the 800 times he was wrong." What does the Morgan Stanley guy - Roach - have to say about this? "I don't want to call a guy like Allan Meltzer simplistic ... but he's pretty consistent with his monetarist framework. "With all due respect to him, the money supply may be growing, but there's no guarantee that it will go into consumption or prices. It's a circuitous route, at best - especially in an overindebted economy. "Money can go into debt or saving; if you print enough of the stuff it will eventually spill over, but it's a long and arduous path." It should also be pointed out that Roach's forecasting record is quite good, and better than most.
"But even if you disbelieve the case for deflation, the most persuasive case for vigilance comes from the Fed itself. An important research paper by 13 Fed staff economists, titled Preventing Deflation: Lessons from Japan's Experience in the 1990s, says: "Japan's deflationary slump was not anticipated. This was true not only of the Japanese policymakers themselves, but also of private-sector and foreign observers, including Federal Reserve staff economists. "Moreover, financial markets had no better handle on the economy's prospects ... The failure of economists and financial markets to forecast Japan's deflationary slump in the early 1990s poses a cautionary note for other policymakers in similar circumstances: deflation can be very difficult to predict in advance. "In consequence, as interest rates and inflation rates move closer to zero, monetary policy perhaps should respond ... to the special downside risks - in particular, the possibility of deflation."
"Deflation is not necessarily a bad thing. The world economy has enjoyed booms while prices were falling, during the 1920s, for example. But it looks malign at the moment for two main reasons. First, there is a kind of good deflation that happens when productivity is high and the economy is robust. This is not that kind of deflation. Today's deflationary pressures come from excess supply of goods and industrial capacity. Second, deflation is especially dangerous now because the US has unprecedented proportions of debt. Why does this matter? In an inflation, money loses value, so the inflation-adjusted value of debt shrinks as the years go by. So inflation is kind to borrowers. But in a deflation, the opposite holds. Because prices are falling, the real value of money goes up in a deflation. So the value of debt actually rises, and borrowers are punished. This can create a debt trap, forcing firms and families into a spiral of cutbacks to service a growing burden of debt - even though they're not borrowing a cent more. This pattern of retrenchment and bankruptcy can create recession and depression. "We've already got debt deflation stories - we do have quite a large number of firms that are facing those kinds of pressures from unexpected sort of deflation already," says former Fed governor and leading forecaster Larry Meyer. "And, as slack builds up in the economy, we're likely to see inflation fall below the implicit target" of the Federal Reserve, says Meyer. "And, we know in those situations, again, following the lessons of Japan, that the policy authorities have to be particularly even more aggressive about pushing inflation back [up] to its target."
"The Fed's contingency plan includes drastic options. If the key official interest rate should hit zero and the Fed loses its ability to stimulate the economy in the customary way - the current rate is already at 1.25 per cent - it could buy up masses of government debt, even private corporate debt and private real estate, as a way of pumping liquidity into the economy. Fed governor Bernanke also points out that big devaluations of the US dollar have helped defeat deflation in the past. Ultimately, "the US government has a technology, called a printing press ... that allows it to produce as many US dollars as it wishes at essentially no cost ... Sufficient injections of money will always reverse a deflation", he says. Morgan Stanley's Roach says that the Fed's speech and its actions "are all very carefully orchestrated; they are shaping policies as if deflation is going to happen - and that's a good thing, because it is such a dangerous time". End.
***From the Prudent Bear website:
Week Analysis, by Chad Hudson, Dec 19, 2002:
"On Thursday, Fitch Ratings issued a report questioning the strength of a retail recovery next year. Within the press release announcing the report, the following paragraph sums up the situation very well:
"Slow economic growth, combined with continued rapid expansion of retail selling space by the discounters, will keep a lid on comparable store sales increases and make it difficult for the supermarkets and department stores to gain much traction. Sluggish top-line growth will dampen earnings momentum for the industry as the benefit of inventory and expense reductions achieved in 2002 will be difficult to repeat."
"It is difficult to get a gauge on consumer spending since most of the bad news coming from retailers is not indicative of aggregate consumer spending. Retailers spent the late 90s aggressively expanding their store base. Now that consumer spending has moderated, retailers are suffering. Best Buy announced its revenues increased 10.4% in the third quarter on a pro-forma basis (pro-forma is including revenues for recently acquired companies in the year-ago results), but same-store-sales actually declined 0.4%. This is happening throughout the retail landscape. I know I've harped on this before, but it is important to realize that these retailers are having disappointing results while consumer spending is still relatively strong. A few retailers are starting to realize that the aggressive growth plans of the past have to be scuttled, however several are actually accelerating store growth. Pier 1 Imports announced it will add 90 stores this year and 115 in 2004. Just last quarter Pier 1 expected to open 90 net new stores in 2004.
"Online sales will be another obstacle for retailer to overcome. Online sales hit an all-time record on December 12. The $288 million worth of goods topped the previous record set on the same day last year by 10%. Overall online sales this year are running 23% ahead of last year. Traditional brick-and-mortar retailers have already started experiencing declining same-store-sales due to over-expansion. With online shopping starting to take a bigger slice of the pie, retailers will only see their plight worsen. Not only are online retailers taking a larger slice of the pie, but the internet gives consumers an easy way to price shop, which will lead to shrinking margins.
"McDonald's announced it would post its first ever quarterly loss as a public company. The company anticipates losing five or six cents per share this quarter due to expenses relating to the closure of 175 restaurants and job cuts amounting to 31 cents per share. Even excluding these expenses, McDonald's will fall short of the 25 to 26 cent EPS estimate by about a nickel. McDonald's also announced same store sales are down 1.3% through the first two months of the quarter. While this is better than the 1.5% decline McDonald's experienced year-to-date, McDonald's expects December sales will be lower than the first two months of the quarter. Only Latin America is achieving same-store sales growth.
"Even though it seemed obvious to everyone except the automakers, GM just announced that sales incentives, mainly zero percent financing, have pulled sales forward and will reduce next year's sales by 400,000 vehicles industry wide. Additionally, two auto retailers lowered earnings forecast for the fourth quarter and for next year during the past week. Last week, Group One cut fourth quarter guidance and on Tuesday, Sonic Automotive reduced fourth quarter guidance by about 22%, and 2003 guidance by 8%.
"The commercial real estate market was handed a blow from the credit rating agency Fitch. Fitch said that commercial real estate loan delinquencies should double in 2003, from 1.26% to 2.5%. Areas showing the most weakness are hotel, office, retail and multifamily loans. We have chronicled the weakness in commercial real estate for the past couple of years. Hotels are suffering from the lack of corporate traveling as companies continue to cut expenses. Office real estate has been weak due to the weak employment situation and a widespread oversupply. Multifamily developments have been hurt due to low interest rates encouraging families to buy houses instead of living in apartments. While total retail sales have remained positive, they have suffered on a same-store sales basis. Fitch sees consumer spending declining in 2003, "posing additional stress." End.
Gary North's Reality Check, Issue 198, 12/16/02:
"Sunday evening, December 15, should go into the history books as the day that Secretary of Defense Donald Rumsfeld emphatically assured Americans that the Administration's willingness to invade Iraq is in no way connected to the issue of oil. "60 Minutes" ran an interview by Steve Kroft in which Rumsfeld made this statement. Rumsfeld could not have been more emphatic.
"Kroft then interviewed other interested parties, all of whom assured him that oil is a factor in America's foreign policy goals in Iraq. Nobody who appeared on the show believed Rumsfeld. That means that the producers of "60 Minutes" didn't believe him, either.
"Iraq has 130 billion barrels of proven reserves of oil. This is the second-largest national source of oil after Saudi Arabia. Saddam Hussein has cut deals with Russian and French oil companies, leaving traditional Anglo-American oil companies out of the loop. Anglo-American oil companies have been the dominant Western participants in the extraction of Middle Eastern oil ever since oil was discovered there.
"If the United States invades Iraq, it will win the war at some price. This nation's government will then be in charge of establishing control over the sale of oil. It will not do this directly. It will install a puppet regime. The hatred of the United States in Iraq is sufficient so that the United States government will not be able to let democracy work without its intervention.
"Once the United States military has established control over the oil fields, which I assume it will do at the beginning of the invasion, Iraq will not be able to feed itself. Control the flow of oil, and you control the only thing worth controlling in Iraq. The government will topple. Even if it doesn't, who cares if the U.S. government controls the oil?
"At that point, the oil-drilling concessions will be handed out by the United States government's puppet regime. "Y'all come!" This will buy off Europe's foot-dragging politicians, who will be able to go to their voters and say, "fait accompli." They will have offered token resistance to the United States, which is all that European voters expect. Now they will reap the rewards, either directly by the participation of their national oil companies or indirectly by enjoying a lower price of oil." End.
***The time to act is NOW!
Have You Done for Gold?
James E. Sinclair
The gold futures trading action seen in December 2002 is a perfect example of the machinations of the Exchange Stabilization Fund, The Gold Cartel and the common interest trading of the Gold Carry Trade. Aren't you just fed up with "The Bullies" manipulating your gains away? Aren't you just fed up with "The Bullies" pushing gold around and your gains away?
Gold traded above $336 early in the US, Friday December 13, 2002, when, of course, the Blue Coat Cavalry rode in on their shiny horses. Blam! - Slam! - Wham! was the sound of their selling. Selling that seeks to move volume is real selling that never announces its presence. This Blam-Slam-Wham type of selling has only one purpose. That purpose is to sell the least amount of gold with the most negative price impact on the gold market. I wrote about the difference between manipulation and stabilization being perception. This is written from the perception of a long.
The Gold Community, of course, chokes at the sight of the Blue Coats coming. Away the gold community runs like the Knights of Ni in the Monty Python movie, Monty Python & the Holy Grail. Run Away - Run Away" is the cry of "Our Crowd." "Sell-Sell!" is their lament and they are chased back toward $330 by the smallest amount of gold being sold to make the biggest impact on the community that cries "Foul-Foul-Foul," yet does absolutely nothing about it, with the exception of the Gold Anti-Trust Action Committee (GATA).
GATA has mobilized the gold community-at-large for one of the most serious offensives in the history of gold. With their BIS/Fed suit, they took on the establishment elite in an effort to make the fact of manipulation known to the public. What do they receive for their efforts? - The mainline press has ignored it, and from within the gold community a competing metals/mining site gleefully calls them, "Trailer Trash."
The Time Has Come
Buying of gold shares or options or futures does nothing for gold bullion or the gold price. Buying of gold coins does very little other than re-circulate the storehouse of already-minted gold coins. Writing about gold informs, but does little for the gold price. Complaining about manipulators' presence in the gold market on a daily basis does as much as screaming at the dark, because it lacks action.
Now that gold has broken out above $330 and attained the first price objective of a touch of $338, it is time for you to consider dealing in the real stuff. It is quite simple, but falls primarily to those who can afford it, but the cost is not large.
Every gold trader who has invested in the gold market consider helping gold by considering dealing in the real stuff and not paper substitutes.
I therefore propose the following individual action. Those in the International and US Gold Investment Community, who are financially able, would purchase one COMEX gold contract and take delivery of that contract. By taking delivery of the actual bullion gold in an individual, orderly, constant and therefore non-distruptive manner the COMEX will be transformed. Over time, this individual, orderly, non-disruptive action upon the COMEX gold futures market will accomplish several goals.
Physical (rather than paper) ownership would move the COMEX towards becoming as much a cash and paper gold market in reality not just as a contract potential.
It would serve to improve the viability of the COMEX marketplace.
This action would make it infinitely more costly and difficult for the obvious execution of orders to effect price as a primary goal.
It would alter the COMEX's present purpose for being.
It would put pressure on the mechanism for those that wish more to affect price than execute legitimate buy and sell interest depend on.
For those who believe in gold's discipline and have invested in it or gold-related investments, based on your individual decision, buy 1 COMEX gold contract and take delivery. You then have done something very important for gold, because you are buying gold bullion and not simply playing a paper game called gold that settles in cash. One COMEX gold future contract represents 100 ounces of gold and is valued presently in the US $33,650 at delivery.
Are you willing to do something for gold bullion that really counts or just carp about being run ragged by the bullies?
If you do not do something for gold, you have no right at all to expect gold to do something for you.
to select an International Bank or Broker
Inform your selected international bank or broker, both verbally and in writing, that you intend to take delivery of the underlying gold represented by the COMEX future you have purchased.
Make your purchase of a COMEX gold contract with a financially comfortable delivery date.
Your international bank or broker will contact you on or just before first notice date.
Again inform your international bank or broker that you intend to take delivery.
Be sure that your account at the international bank or broker has a credit slightly more that the difference between your credit/debit balance in your account and the price of gold you purchase the future at. For instance, if you had purchased gold for December delivery when it was trading at $300, you would have a credit balance per contract of at least $3300. In order to take delivery of 100 ounces, you would have to have an additional $26,700 plus expenses in your account with your international bank or broker in order to effect delivery.
How to Take Delivery of Gold Futures Contracts
The Commodities Exchange (COMEX), a division of the New York Mercantile Exchange (NYMEX), provides a forum for the trading of gold futures and options (as opposed to the "traditional" means of investing in gold, such as bullion, coins, and mining stocks). In addition to trading futures ("contracts with firm commitments to make or accept delivery of a specified quantity and quality of a commodity during a specific month in the future at a price agreed upon at the time the commitment is made"), investors can actually take possession or "delivery" of their gold futures contracts if they wish. It is rare that a trader ever takes possession of the physical commodity he/she trades, but not impossible. Presently, less than 1% of all gold futures contract trades result in delivery.
Taking delivery of gold is also referred to as "exchange of futures for, on in connection with, physicals" or EFP. Deliveries of gold bullion against futures contracts traded on COMEX are available to an investor during any business day within the month specified in the contract. The first day a seller can give delivery notice to the buyer is the next to the last business day of the month prior to a maturing delivery month. The last day a seller can give delivery notice is the second to the last business day of a maturing delivery month (the day after the last trading day). The last trading day is the third to the last business day of a maturing delivery month. So, if an investor buys a December 2002 gold contract, the first notice day would be November 27, 2002.
Any gold delivered against a futures contract must bear a serial number and identifying stamp of a refiner approved and listed by the Exchange. Delivery must be made from a depository located in the Borough of Manhattan, New York City, licensed by the Exchange (listed below)
Establish a long position in gold by ordering a purchase via a broker or international bank with a correspondent able to execute an order on the COMEX.
Wait for the account to clear through a COMEX clearinghouse.
Hold the contract to the delivery month.
The clearinghouse will settle accounts and allocate the percentage equal to their percentage holding of open interest. Typically it is allocated through the first in, first out method.
Pay for the gold position in full.
Receive the warehouse receipt from the clearinghouse.
Contact the depository.
For delivery, a person in the US can either pick up the gold yourself, depending on the quantity (though, if it is a large amount, this is not advised for insurance/security reasons) or have an armored car deliver it to your bank.
According to Brinks (one of the armored transportation services recommended by the COMEX), the maximum charge for domestic gold delivery is .27¢ per ounce (with a minimum charge total of $135) plus a $20 security charge. The more gold shipped, the less the cost per ounce will be.
Other charges associated with delivery include the warehouse fee for taking the gold out of the warehouse (things such as labor costs, etc.) - typically this costs approximately $15 per bar.
The delivery services carry their own insurance (i.e. IBI Armored Car has $100 million insurance for all their transportation services) but you may choose to take out additional insurance.
Safety deposit boxes can be as large as 55" by 54" and cost approximately $2800 a year (quote from Bank One in Chicago).
Approximate costs involved in taking delivery of gold in the U.S.*
The domestic shipping maximum quote of delivery is .27¢
For international delivery, there are a few more steps
According to Brinks, the shipping company will need specific mailing and packing information for each shipment:
How much it weighs? (by kilos for international shipments)
How it is packaged? The gold bars must be packed correctly for shipping. Either the Depository or the shipper can do. Typically, the Depository delivers gold on a palette. It must then be transferred into pails (which fit 8 bars) or into tubs (which fit 160 bars) for international shipping. The shipper must be able to see and count all bars. Brinks will transfer the gold on the palette to their Brooklyn vault and then package it themselves.
The base rate for international shipping 100,000 ounces would be .12 ¼ ¢ per ounce (approximately $12,250, or .04% of the total cost - quoted by Brinks). This includes the charges for pick up, packing the bullion (by Brinks), the air freight rate flight, having the shipment met by a local branch representative, customs entry, and a $25 airport security. All other fees, such as duties and all other customs are not included in price estimate. The shipment must be from a bank to a bank; they will not pick up at a residence. Brinks will deliver to England, France, Germany, Switzerland, India, Hong Kong, Australia, Russia, etc.
To ship one 100-ounce bar, Federal Express will ship precious metals. The cost to ship a 7-lb. package (one 100-ounce bar of gold) from New York to Zurich would be $100. There are no duties or taxes to pay for delivery gold to Switzerland. The bottom line estimate for delivering one 100-ounce bar of gold from New York to Zurich will be around $100.
An important note: any gold that is signed out of a COMEX depository and shipped internationally must be assayed before it is brought back to the COMEX for resale, at a cost ($138 per bar - the cost descends as the volume increases).
New York Mercantile Exchange (NYMEX)
contact Jim Sinclair, Chairman & CEO, Tan Range Exploration:
S&P500 March futures closed Friday Dec. 20 at 896.70 ie, up 10.20pts on the week.
Note: Due to technical problems, no Commitment Of Traders data is available.
S&P 500 March futures weekly chart - line on close:
Indicators: weekly MACD & Spinner lines confirming loss of negative pressure via higher highs/lows when compared to price. But if the downside cross in MACD plot lines/downturn in Spinner (red) timing line continues into negative territory, picture would turn decidedly bearish. Break above nearby resistance (Aug closing peak) needed to keep indicator lines in shorterm bull mode.
S&P 500 March futures daily chart - line on close:
Indicators: strong bearish divergence apparent in daily momentum indicators due to lower highs/lows since Oct peaks (when compared to price). Break above Oct downtrend needed to reverse shorterm negative pressure.
Weakness in daily indicators combined with breakdown from bearish up-wedge & possible (toppy) irregular H&S formation in price is tilting odds back towards bear's camp. Break below nearby 876.50 support likely to pave way for tradable down leg.
No trades entered since HSL629, so recommendations remain unchanged, ie: price in breakdown from possible bearish up-wedge (starting Oct low) with theoretical downside target of 777.00, but strong intermediate support located at 876.50 (closing basis). Sell short 2-dc below 876.50 (intraday if runaway downside action develops); stop 2-dc over 911.20. Take full/partial profits at 800 & re-short break below 775.00.
Bulls buy 2-dc over Aug closing peak of 952.60 for possible run towards 1050 resistance. Stop ½ on 2-dc below 911.20; ½ at 876.50-stop. Gamblers buy small longs on 2-dc over 911.20.
DON'T give hard earned profits back to the mkt due to churning/volatile trading range action. Enter all positions incrementally, via S&P mini Cx's, & only increasing exposure if/when price moves in favor of trades. 1 e-mini = $50/pt, compared with $250/full pt.
The Nasdaq Composite Cash Index closed Friday Dec. 20 at 1363.10 ie, up 0.65 on the week.
Nasdaq Composite weekly breadth figures show declines beat advances (2044-1703), new lows beat new highs (193-171), & declining volume outpaced advancing volume by a slim ratio of 1.17-1.
Nadsaq Composite weekly (continuation) chart - line on close:
Indicators: positive cycle action in momentum indicators since mid Aug. But lines now at critical levels as new short signal would be triggered if Spinner (red) timing line confirms downside cross in MACD plot lines via move below (blue) confirming line. Sustained rally in price above key Sept 2001 resistance needed to keep weekly indicators in bull mode.
HSLP-Nasdaq chart (HSLP = our in-house mkt predictor) line on close:
Price in extended pullback following breakout from possible inverted head & shoulders with horizontal neckline at 1926 (price must hold on/above current levels otherwise validity of H&S becomes questionable). Note a 2nd & slightly larger reverse H&S with up-slanting neckline would be completed by a move above 1970. Ominous non-confirmation signals continue in MACD & Spinner indicators via lower highs/lows (since Oct) while price has rallied to new highs.
Nasdaq Composite March futures daily chart - line on close:
Indicators: daily momentum indicators more bearish than bullish due to downside divergence since Oct highs, but lines strengthening from oversold extremes. Move into positive territory in MACD, confirmed by upside cross in Spinner lines needed to validate stability of possible upside.
Failure for price to hold breakout strength of reverse H&S & subsequent pullback below neckline support turning picture shorterm bearish. 2nd inverted H&S development may prove to be valid, but in either case sustained upside needed from current levels to avoid possible re-test of Oct lows/lengthy corrective action.
No trades entered since HSL629, so recommendations remain unchanged, ie: Gamblers sell short 2-dc below 984 (intraday if runaway downside action develops) for downside target of 900. Stops no higher than 1-dc over 1075. Take full/partial profits at 900 & re-short sharp solid break below same level for downside target of 815 (& lower).
Bulls buy small foothold longs on 1-dc over 1075. Stops no lower than 1-dc below 984. Buy more on 2-dc over 1135.00. Theoretical upside target of H&S is 1335.
Note: traders are advised to use e-mini Nasdaq contracts for incremental trading, in/out in stages. 1 e-mini contract = $20/pt, compared with $100/pt for the full contract.
The American Association of Investors Intelligence (AAII) bulls at 41.4%, down sharply from 52.9% of 2 weeks. Bears rising to 24.10% from 17.7% of 2 weeks ago.
Market Vane Bullish Consensus Index at 31%, down from 35% of 2-weeks ago.
Consensus Index Bullish Opinion at 41%, in sharp drop from 52% of 2-weeks ago.
comments from top S&P trader Christopher Cadbury of New York "As
explained before, seasonality becomes important about now as a "Santa
Claus" rally usually begins from Dec 14th to 24th. Seasonality
is expected to be especially important this year. Since 1950, the S&P500
has never been down more than 4% in December. So far this Dec the S&P500
is down aprox 5½%. Therefore a gain around 1½% in needed
not to make this Dec the worst Dec in more than 50 years. If this Dec
is not one of the eight worst Dec's in 50 years, the S&P500 will
climb almost 5%. The average gain for Dec is 1.8%. If this Dec were
an average Dec, the S&P500 would need to surge nearly 8% be the
end of the month".
Best & Worst Dow Jones US industries over 3-months:
Best Performing Industries
Worst Performing Industries
March T-Notes closed Friday Dec. 20 at 113^25, ie up 0^01 on the week.
Note: Due to technical problems no Commitment Of Traders data is available.
10-Year T-Note March futures chart - line on close:
Indicators: momentum indicators offering bullish divergence via higher lows since Sept, but have yet to confirm stability of strength via higher highs. MACD & Spinner in positive territory, but upside looks limited as lines pushing towards recent overbought extremes. Chart indicators shorterm neutral to bullish.
Breakout from bearish descending triangle pattern offering glimmer of hope for upside, but nearby closing resistance of 114^03 & prior 115^06 peak reducing odds for noteworthy/tradable move.
Price action/indicator lines tentatively bullish, but we prefer sidelines. Gamblers may consider buying small longs on break over 114^03 resistance &/or on renewed strength after pullback towards downtrend breakout point of 113^00. Stops no lower than 1-dc below lower boundary of 112^07-113^01 support zone.
Bears sell short 2-dc below 110^25 (gamblers on 1-dc below 112^07). Stops basis your dollar pain levels, but no higher than 1-dc over 113^01.
CRB futures Price Index
CRB Futures Price Index closed Dec. 20 at 236.68, ie up 1.90 on the week.
CRB Futures Price Index weekly chart - line on close:
Break above Oct 2001 resistance confirming underlying strength in CRB commodity index. Temporary easing of upside pressure possible following sharp rally-leg from Oct 2001 low, but momentum indicators have plenty of scope for further upside. Continuing strength in commodity indexes, oil & gold, combined with further US$ weakness will help reduce deflationary pressures.
DJ World Index
DJ World Index closed Friday Dec. 20 at 139.80, ie down 2.35 for the week.
DJ World Index monthly chart - basis line on close:
Bullish divergence increasing in monthly indicators via higher lows, but breakout above downtrend/2nd (red colored) neckline needed to confirm stability of possible upside. Even if shorterm rally-leg seen, the massive head & shoulders top patterns clearly spells long-term trouble for global equities.
Feb gold contract closed Friday Dec. 20 at 341.00 ie, up $7.20 for the week.
"NEW YORK, Dec 20 (Reuters) - Gold retreated Friday on profit-taking before the year-end holidays, but traders refused to rule out further safe-haven gains for the metal as the United States pressured Iraq over weapons of mass destruction.
"Steadier U.S. financial markets gave speculators a pretext to cash in on gold's runaway rise to near six-year highs on Thursday, expecting liquidity to dry up during Christmas week, when many traders will be out of the market. February gold ended down $5.50 at $341.00 an ounce, trading from $348.90 to $339. Early Thursday morning the contract topped at $355.70, the highest since February 1997.
"Forget about the day-to-day stuff," a commodity brkr said, "A week ago yesterday we broke through one of the most important technical levels in years, probably, for gold. This is the beginning of a bull market, it appears." A falling dollar, jittery stock markets and surging oil prices, along with geopolitical uncertainty, sent investors running for safe havens like gold, U.S. Treasuries and the Swiss franc. But the dollar steadied above the week's three-year lows against the euro and the Dow Jones industrial average was up 145 points Friday, taking bullion off the boil as investors calmed down.
"Commodity funds, mutual funds and small investors have competed tooth and nail for gold since the breakout above $330 an ounce last Thursday. The market has not been this overbought in years. According to CFTC Commitments of Traders data released late Friday, speculators increased their net long position to 55,200 (100-ounce) gold contracts as of Tuesday, from 51,359 contracts the previous week. But they kept buying in subsequent days.
"At its highs, gold was up 12 percent for December and about 28 percent for 2002. Though momentum is waning, it might not take much to get it going up again, especially after Washington on Thursday all but started the war clock ticking by declaring Iraq in "material breach" of a United Nations disarmament resolution." End.
Gold monthly (continuation Cx) - line on close:
Note sharp break from Nov 1987 downtrend channel & above key resistance from Feb 1993 low.
Gold weekly (continuation Cx) - line on close:
Note Spinner (red) timing line has further upside scope before reaching prior overbought extremes & (blue) confirming line is starting new up-cycle from zero (compare to similar action early 2002).
Gold Feb daily futures chart - line on close:
Indicators: easing of downside pressure apparent in MACD & Spinner indicators via downturns at over bought extremes. Shorterm consolidation following sharp breakout move from 6-mos inverted H&S likely (due to profit taking), but widespread number of breakouts in gold shares reducing odds for deep, long-drawn-out consolidation. Momentum lines positioned to ride out shorterm corrective phase without dipping into negative territory. Indicators shorterm neutral to bullish.
Jim Sinclair say's "Sell into strength & buy into Weakness. Why? Because this is a long-term bull market built, IMO, on solid fundamentals. We did not need a lawsuit to get gold to the $348-$352 range. Nor will we need more of anything to get gold back to the high side of the range. The dollar will accomplish that for us nicely, thank you. A close above $354.50 and gold goes directly to $372.00." End.
Per HSL629, traders took ½ profits at mkt & re-bought aggressively on breakout over inverted H&S neckline. Traders who didn't take full/partial profits as gold approached 348.00 (per recommendations in Gold charts R Us) take partial profits at mkt & place orders now to buy more (incrementally) on a dip to 337.50, 335.00, 332.50 & possibly 330.00. Stops basis your dollar pain levels, but no lower than 2-dc below 324.20.
Theoretical upside target of inverted H&S is 352.00. Take full profits as gold approaches 348.00-352.00, & re-buy a break over 354.50 for upside target of 372.00.
***We ardently recommend you subscribe to our weekly Gold Charts R Us service. The size of our individual stock charts are user friendly & guidelines tell exactly where to buy below mkt & when to sell on next rally. We discuss R/S (relative strength) for best buys. "If it's Wednesday, it's Gold Charts R Us."
British pound vs. US$
March British pound futures contract closed Friday Dec. 20 at 159.38 ie, down 0.02 for the week.
British pound March futures chart - line on close:
Indicators: MACDMA in dip towards zero (vertical lines on MACD indictor). Faster exponential moving average in MACD in downturn just below historical extremes (but has yet to confirm possible corrective action via downside cross). Spinner (red) timing line faltering at overbought extremes, while (blue) confirming line has started a new up-cycle from neutral territory. Conclusion: shorterm consolidation/pullback likely before sustained upside renews.
Traders long from 157.00 or lower lightened up on break below 156.74 before being stopped out via 1-dc below 154.00. Apologies. A 2-dc would have saved it. It always optional if you use 1 or 2 dc, depending on amount of risk you can afford. Although hindsight shows we were stopped out just before renewed upside kicked in, strict money management (limiting loses) is the ONLY way to make consistent gains in the futures mkt.
Price action maintaining strong bullish bias via irregular ascending triangle formation, but current rally leg looking somewhat over bought. Look to buy renewed strength after a pullback towards 155.00-156.00 support zone. Stops basis your dollar pain levels, but no lower than 1-dc below 153.00.
Theoretical upside target of ascending triangle formation is 162.96 aprox (closing basis). Take partial profits at 159.50 & use trailing stops on remainder.
Euro vs. US$
Euro March futures contract closed Friday Dec. 20 at 1.023 ie, up .005 for the week.
Euro March futures weekly chart - line on close:
Note how weekly momentum indicators worked off over bought conditions of March 2002 rally leg during the lengthy July/Nov consolidation phase & are now perfectly positioned for continuing upside.
Euro March futures daily chart - basis line & bar:
Indicators: MACDMA dipping into negative territory, as confirmed by downside cross in MACD plot lines that failed to confirm a new high (when compared to price). Spinner (red) timing line in downturn from same levels as its Nov peak, while (blue) confirming line is in firm up-cycle from zero. Indicators shorterm overbought.
Per HSL629, gamblers went long at 1.007 & took ½ profits at 1.028. Momentum indicators signaling shorterm corrective action likely, so traders are advised to take remaining profits at mkt, or tighten stops to squeaky tight levels.
Look to re-buy strength after a pullback towards 1.000-1.010 support zone. Stops basis your dollar pain levels, but no lower than 1-dc below .9800 (lighten up on close below Now low of .9860). Use our trailing stop strategy to lock-in shorterm profits.
Yen vs. US$
Yen March futures contract closed Friday Dec. 20 at .8335 ie, up .0006 for the week.
Yen March futures weekly chart - line on close:
Indicators: erratic/whipsaw action in price reducing effectiveness of momentum signals, but odds for corrective action increasing with lines weakening/nearing overbought extremes.
Price in tentative breakout from July downtrend channel, but solid overhead resistance located betwn .8350-.8400. Break above this level opens possibility for continuing upside, whereas renewed weakness below would offer gamblers short signal.
Bull gamblers buy small longs on 1-dc over .8400. Take ½ profits at .8600 & use tight trailing stop on remainder. Stops basis your dollar pain levels, but no lower than 1-dc below .8250.
Bear gamblers sell 1-dc below .8250 for downside target of .8050. Stops basis your dollar pain levels, but no higher than 1-dc over .8400.
New Stock Recommendations (good till Jan 3rd)
Biosite Inc (Nasdaq: BSTE) buy betwn 29.00 & 31.00; stop: 26.40.
Goldcorp (NYSE: GG) place orders now to buy a bit on dip to 12.05, 11.55, 11.05, &/or buy 1-dc over 13.18. Hedge below 9.15.
KB Home (NYSE: KBH) sell short betwn 45.00 & 47.00; stop: 52.05. Gamblers sell foothold shorts at mkt. Sell more at 38.95-stop.
Royal Gold (RGLD) place orders to buy some on dip to 21.15, 20.15 & 19.15, &/or buy a bit on 1-dc over 22.60. Hedge below 16.00.
Traders must adapt recommendations to shorterm mkt direction. If strength/weakness kicks in before pullbacks to buy/sell levels are reached, enter small foothold positions at mkt. Likewise if general mkt direction moves against open positions, exit at mkt rather than waiting for stoploss levels to be hit. Your interpretation & modification based on conditions of our recommendations often makes the difference betwn profits or losses.
Take partial profits on:
Diamond & raise stop to 24.95.
Lower stop on:
Thales to 30.10.
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LUTHER KING, JR.
***The HSL e-mail address for NON-subscription communication has lead to some confusion as it's hard to distinguish the 'L' from the '1' (number one). Here's the address in uppercases for reference, BUT please use LOWERCASES when e-mailing (after cameleon is the number one):
Our e-mail address for subscriptions & address changes is:
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number (2): (use if fax #1 doesn't connect)
If you experience trouble faxing our office in Costa Rica
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Next FMU Jan 5 or Feb 9 (depending Mkt conditions)
The HSL Team