Posted On: Friday, July 14, 2006, 5:45:00 PM EST
jsmineset.com
Gold and Dollar Market Summary
Author: Dan Norcini
Comex gold for August delivery closed at $668 even this afternoon, up $13.60 on the day. Geopolitical factors were once again the focus of the gold pit today, with the conflict between Israel and Hezbollah operating out of Lebanon heating up. It is hard to not call this development war when you have naval ships, jets, bombs and rockets passing each other going in different directions. Both sides appear to have no desire whatsoever to back away from the recent series of escalations. An all out war between Israel and Hezbollah would have wide ranging repercussions for the entire Middle East and explains why gold continues to surge higher. Once again we see one of many flash points igniting in front of our eyes, driving nervous investors to the safety and security of gold.
CBOT Gold actually continued heading another $1.00 or so higher when the pit session of the Comex closed for the day. Immediately upon the opening of Access trade in gold on the Comex, the market popped higher to catch up to CBOT gold and then was immediately taken down. We have seen this stunt before on Friday afternoons when the liquidity is very thin and the market can easily be moved one way or the other by comparatively small orders. More typically what we get is sell orders rather than bids from the usual culprits in the gold market who are probably the only nerds on the face of the planet who enjoy shorting gold in the middle of what appears to be an all out war in the middle East. Most prudent folks are very uneasy about shorting gold over a long weekend when these sorts of conditions are occurring in the world as just about anything could take place. Not these jokers. They get their heads handed to them during the regular trading session so they figure they might try to get some of that back when their competition has gone home for the weekend and all that is left is the little fish who they can easily dominate.
Euro Gold fixed at € 525.055, continuing its streak of closes above the € 500 level.
Considering the extent of the daily volume in the gold pits this week, the rather mediocre increase in open interest indicates a significant amount of short covering has been taking place. Gold has rallied $25 since Tuesday of this week, the date for the cutoff for the Commitments of Traders data. It will be a bit difficult gauging exactly which category of trader is doing the bulk of the short covering Wednesday thru today.
What we do know from today’s COT release is that the brunt of the selling seen in gold from Tuesday last week thru Tuesday this week was done by (News Flash!), none other than the commercial category. Surprise, surprise! There was some fresh buying by commercial end users of gold as they added a little better than 4,300 new longs in comparison to the bullion banks et al, who were wallowing in a bit more than 14,100 new short positions. Their selling was met by 11,008 new fund longs and 999 new fund shorts (my guess is the fund short category was doing the brunt of the short covering this week). The small specs basically did nothing for the week and were mainly spectators adding a meager 129 new net shorts. As usual we see the battle in gold being waged between the funds and the bullion banks who will undoubtedly be fighting gold’s rise all the way to $1,000 and above.
The mining shares finally showed some signs of life today after marching lockstep with the broader market downward for most of the week. The HUI managed a pop of 5.08 points going out on the day at 340.18, actually ending up .77 for the week. The XAU closed up 2.45 on the day at 145.05. It ended down .20 for the week. The gold ETF, GLD, added a bit less than 11.5 tonnes of gold for the week and now has reported holdings of 387.56 tonnes.
Crude oil continues to defy gravity putting in another stellar up day. It ran all the way to 78.40 in the overnight trading session setting an all time record high before meeting with some week ending profit taking and closing at 77.03, up nearly $3.00 bbl for the week.
More anecdotal evidence that the economy continues to slow was today’s release of the retail sales figure for the month of June. Once again, our uncannily inept analysts (Momma please let your babies grow up to be analysts - accompanied by Willie Nelson tune here) missed the actual number by estimating that retail sales would show a 0.4% rise for the month. Instead, sales unexpectedly shrank 0.1%, the first decline in this category since February. Getting past the headline figure the number is even worse – if you strip out gasoline sales, the number fell even further to -0.2%. In other words, the rising price of gasoline at the pump inflated the sales figure. In my mind this only further serves to convince me that much of the so-called growth in the US economy in terms of GDP is much lower than is actually being reported since I believe that the true rate of inflation in this country is deliberately distorted by government statisticians.
The Bank of Japan did exactly what some had a hunch they would do – they punted the ball down the field. They pulled a nifty little stunt by hiking 25 basis points to show how “tough we are on inflation” but then turned around and took it all back by issuing a statement basically saying that they had no intention to hike rates any further at this time. Truth be told, Japan’s political leaders do not want any more rate hikes and are not shy about saying so. Japan is interesting in the fact that their political leaders are quite candid and open about pressuring the Bank of Japan whereas over here in the States we like to maintain the illusion that ours would not dare stoop to do such things and that the Fed operates in an unbiased and neutral political environment. Yeah, right – and elephants roost in trees at night!
Needless to say, the yen got the stuffing knocked out of it on the Forex markets, losing better than ¾ of a penny at one point as the interest-rate differential crowd shrieked, “Yippee” and plowed back into the dollar with both fists. I continue to maintain that any massive yen-carry trade unwinding would be evidenced by a solid uptrend in the yen as yen must be bought for dollars to repay yen-based loans. A simple glance at the yen chart indicates a falling yen, not a rising yen and thus, in my opinion, all this talk of yen-carry trade unwinding is overblown.
As far as I am concerned, it is going to be a race to the bottom in the currency markets as each nation or nation block is going to favor its currency weakening against the others in spite of any assertions that might be publicly made to the contrary. That is one of the reasons gold continues to perform as it has. Astute players know exactly what games these Central Bankers and other monetary officials are playing as they talk out of both sides of their mouth. Gold is the only honest money that cannot be prostituted as fiat paper can by duplicitous mortals.
Speaking of funny money the dollar closed up 1.14 for the week at 85.78 and is pretty much right where it was trading a month ago. See what I meant when I said trading currencies lately is much ado about nothing? They make all manner of commotion and end up going no where when the smoke clears. What a waste of time. Currencies have a reputation of being one of the best trending markets to trade and that is generally true, but when they are chopping around and not trending, they will drive all but the most-shortest of time frame traders batty with their perverse convolutions.
The University of Michigan’s consumer sentiment preliminary index reading for July took a hit, falling to 83.0 from the June final reading of 84.9.
That, in conjunction with the lousy retail sales and high energy prices, was enough to knock the DOW for a 106.94 point loss. It closed at 10,739.75 for the day and down 3.2% for the week. The Nasdaq 100 looks absolutely atrocious on the price charts. It could not even manage a week ending short covering bounce going out on the day and the week near the low of the day, which incidentally was once again a new yearly low. It now has a realistic chance of moving down to important support near 1400, which is the swing low from April 2005, unless some good news for stocks comes out of somewhere soon.
The Ten Year Note closed at a week-ending yield of 5.07% down from 5.14% last Friday. The One Year closed the week at 5.20%, down from 5.25%. The portion of the yield curve from the 2 year on out to 10 year is still basically flat.
All in all it was a very impressive week for both yellow and black gold, namely crude oil. Gold traders will want to monitor events in the Mid-East over the weekend since gold will be keying off of those come Sunday evening trading time.
Enjoy your weekend.
Dan
|
