Thoughts on Markets

Wednesday, October 15, 2008

No Markets, Only Intervention - More on the Subject

So far today, the boyz have laid off of gold. It is moving upward. The mining stocks are mostly in the red, so they have not followed the path of gold yet.
Using GLD as a proxy for gold, the graph looks quite good. It seems that the 50 day moving average is an area of support for the metal. Were it to move upward from here and cross the 200 day average, it could be on its way for another upward spurt.

Some comments on precious metals from Casey's Daily Resource Plus: "Gold’s lack of sharp movement is obviously, at least partially, the result of it being pulled on hard from opposite directions. Those who want to believe that the bailout will return things to ‘normal’ are discounting the metal’s strength; while those who believe they’re witnessing big government’s last big failure are stockpiling like mad. Thus the disconnect between the paper futures market, and those on the ground who are paying any price to get their hands on actual gold."

This disconnect is what is a challenge to most of us into gold and mining stocks. The futures are driving the price of gold artificially down while the demand for physical metals at almost any price is a real mystery. It can only result from manipulation of the markets in violation of free market principles and rational thought.

On derivatives from Casey's Daily Resource Plus:

"Below is a graph that was in Bill Murphy's MIDAS commentary over at lemetropolecafe.com yesterday. It's data from the Office of the Comptroller of the Currency showing which American banks hold all the precious metals derivatives as of June 30/08. I get quite a few inquiries as to the identities of the '2 or 3' US banks that are holding the biggest gold and silver short positions on the Comex. This graph should tell you all you need to know. Both are market-making members of the LBMA as well."

So, there we are. The biggies are the likely players in our markets.

Another report on this topic follows:

Silver has met with more of the intervention of the bullion banks and deep pockets. It is on the way up, but was really beat down at the opening in NY today.

The following from the Daily Pfennig:

"It is of no surprise that the US government posted a record budget deficit for 2008 as financial market strains slowed the economic growth and spending rose the most since 1990.  The shortfall widened to $455 billion in the fiscal year ended Sept 30 compared with a $162 billion deficit a year earlier and the previous high of $413 billion in 2004.  The gap was 3.2% of GDP, up from 1.2% last year.  And with the bailout and 'rescue' plans which Bernanke and Paulson have recently concocted, the shortfall will likely quadruple to about $2 trillion in the coming year.  Yes, we will likely have a budget deficit of nearly $2 trillion in fiscal 2009!!
With this kind of debt, there is just no way the dollar will hold on to its value. A reader sent me a very scary looking graph yesterday, and I would love to share it with you but I haven't figured out how to paste it in. It illustrated the money supply figures and how they have spiked here in the past few weeks. With the Treasury secretary and Fed Reserve chairman throwing an unlimited supply of dollars into the markets, the value of our US dollar will undoubtedly be debased."
"The Brazilian real bucked the trend of other high yielding currencies and rose slightly for a second day.  Brazil's central bank announced it was selling dollars in the spot market yesterday in order to support the real.  Later, the authority said it will sell up to $1 billion worth of US dollars at auction today.  The real has risen nearly 8.5% vs. the US$ in the past few days, nearly erasing last weeks plunge."
This shows some clear economic thought of the part of the Brazilian monetary powers. They are taking advantage of the temporary upward move of the dollar in relation to most other currencies and dumping some of the worthless paper trash. I wonder if they shredded them first. That could have been a valuable addition to their compost pile.

Brazil has been doing most things correctly of late and is taking advantage of their resource based economy. Of course, China is one of their major customers. By the way, it seems that the Chinese are re firing their manufacturing plants. Even with the lower exports to us and to Europe, the Asian tigers have a growing consumer base which helps them a great deal. The growing middle class in that area has great demand for products which have been lacking.

The DJI are already off 332 to 8981. Wonder if this is a confirmation of a dead cat bounce? It is certainly nasty for most retirement accounts not based in precious metals.

Silver still pushed down to 10.34, but gold is up 10.50 to 845.10. We must continue to hang tough to preserve wealth using precious metals and mining stocks. The physical metal is the safest way to preserve wealth, while the mining stocks provide leverage when gold stages an upward sprint of lasting power.

The Lord God knows all about markets. We must pray daily to Him for guidance and then seek the answers in His word. Who on earth can know the mind of God without diligently studying His word and living in accordance with His law? The answer is a given, NO ONE! So, let's do our part and be grateful to Him for each blessing and for the failures which are redirection or discipline for the children He loves. He always disciplines out of love for our growth in grace. Praise the Lord Jesus Christ daily.

Best to each, Doug

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