Thoughts on Markets

Friday, October 10, 2008

Compare Preformance of DJI and Gold

The graph of the DJI, above, clearly showed the devastating effect of the bear market on stocks in the general market. Of course, this is an index and your individual holdings are likely to have suffered more or less. Have you checked your 401k or IRAs recently? As you look at the graph, notice the extreme drop from the high in about October 9, 2007, to the low on October 9, 2008. Now let's look at gold over the same period.
I am using the GLD (Street Tracks Trust Shares) as a proxy for gold. It is important to see that gold has performed remarkably better than the general stock market. Note to that GLD is above both the 50 and 200 day moving averages while the DJI is well below both. It has definitely been a Black October for general stocks. Even though selling in the general market has impacted upon the price of the mining stocks, they are beginning to show some life and are likely to move forward with the demand for gold which is great going into the rest of this year. Consider which would have been the better choice. For the rest of this year, gold and mining stocks are beginning to look even much brighter.

Presently, most mining stocks are down with the exception of DROOY @ 4.82: GFI @ 9.10; and HMY @ 9.95. These are three of the 20+ that I monitor. At the same time the DJI are off some 187 at 8393. Gold is 894.60 and silver 11.73. It is still early in the trading day. This is also the last trading day before a 3 day weekend.

The following from Casey's Daily Resource Plus should impact gold greatly:

"Record Dubai Commodity Exchange physical gold settlement (Reuters) "Dubai Gold and Commodities Exchange (DGCX) completed its largest-ever physical settlement of gold and steel reinforcing bar futures contracts with a total value of $25.2 million, it said on Wednesday. The settlement involved the delivery of 908 kg of gold and 40 tonnes of steel rebar for Oct 2008. No further details were available. Gold prices rallied more than 3 percent on Wednesday as investors rushed to purchase safer assets, while the worst financial crisis in nearly 80 years battered global stock markets. DGCX, which offers futures contracts in gold, silver, steel, fuel and crude oil and currencies, aims to become a major commodities centre in the region. Its activities almost doubled in 2007."

Then Reade's comments: "This is a very interesting story that merits further investigation. We have heard investors, unable to get physical investment bars due to the safe-haven induced credit crunch, have bought Dec Comex futures with an intention of holding them to expiry. It seems that a similar trade took place on the DGCX. Historically we have discounted the chances of a physical squeeze of Comex gold because so few futures investors take physical delivery and, if they did, metal would be shipped in from London and Zurich. But the shortage of Comex-eligible bars may make the physical settlement of large deliveries ‘complicated’ to say the least. We will be closely monitoring this situation: if the market remains tight for kilobars over the next month or two then a squeeze in Comex gold could materialise. And if gold lease rates keep heading higher due to a supply/demand mismatch in the loco London market, the gold market could get very interesting into the end of the year.""

This is significant news on gold which will spill over into the mining stocks when/if it comes to fruition. That is a unique way of taking possession of gold when there is a shortage in view of the demand.

There seems to be a possibility that OPEC will decrease the supply of oil in view of the current lower prices. This from Casey's Daily Resource Plus this morning:

"OPEC released a statement yesterday in which it said that the cartel will hold an “extraordinary” meeting on November 18 in Vienna, to “discuss the global financial crisis, the world economic situation and the impacts on the oil market.”

But analysts at Eurasia Group noted that Saudi Arabia will need to bring its own actual production down to its quota of 9.1 million barrels per day before the meeting, if it intends to ask other members to make cuts."

A brief comment on Dr. Copper which is an often used gauge of the world economy. Copper has been depressed for some time. This note is also from Casey's Daily Resource Plus.

"Copper got a pre-dawn bounce and traded higher for most of the day, finishing at $2.47/lb., up 6¾ cents."

From FX University Daily (info@worldcurrencywatch.com):

"By John Ross Crooks

Never a dull day. Unfortunately.

The central banks of Taiwan, South Korea, and Hong Kong followed the lead of the European and U.S. counterparts. They made a joint move to slash their overnight lending rates last night. Then, even the Central Bank of China, followed suit just minutes later with its own rate cut.

It's yet another sign that the financial meltdown is getting worse by the day. But it's not the only sign.

In one of the oddest stories of the financial meltdown to date, the Bank of England has agreed to make whole roughly 300,000 British individuals who had money on deposit with the recently failed Landsbanki Islands HF.

Why is that so odd?

Because Landsbanki is an Icelandic Bank!

The real lesson here is that the shockwaves from the global financial system are moving like tumbling dominos around the world. And since the direction is down, if you target the most vulnerable sectors of the global economy, you'll find the greatest profit potential...and a chance to rebuild your portfolio and even grow it...after the carnage of the past few weeks.

Specifically, you'll find great trading opportunities in the currencies of emerging markets. These are economies that have grown like gangbusters in recent years, but are now changing course with just as much speed...and creating enormous trading opportunities in the process."

As we go into this election, it is more important than ever that we pray for the Lord to raise up statesmen who fear offending the Lord as did George Washington. We should praise the Lord for the blessings of such men that He used in the founding of our republic. It is amazing how far we have degenerated from the original United States of America. This has happened as we have forgotten the God who guided our founders and established one of the best governments of man in well over 3000 years. We must return to Him and reestablish our founders' constitutional form of government for survival of our nation. He is in control and we must acknowledge this fact, and bow before Him.

Best to each, Doug

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