Imperfect Storms Create Gold Buyers
“Out of raging convoluted
markets and geopolitical events comes the seed of legendary
returns.” - Traderrog
Trading gold or anything else for that matter
gets dicey with increased volatility. We mentioned last Saturday
in our weekly letter about a “Creepy Calm-Utter Stillness
before the Storm.” This idea no sooner hit the streets
then today we learned the North Korean nutcase is busy preparing
to toss more missiles. Worse, Mumbai, India, a major gold
capital of the world suffered terrible violence by terrorists
against commuter trains. Additionally, the enemies of Israel
have kidnapped more soldiers and the Israeli government has
called up 6,000 troops for action and attacked Lebanon.
China is running that puppet show in North Korea
and is now quite worried the little freak has stepped too
far over the line. Our best contributing analyst said, “Bush
would love to blast this unstable person into oblivion along
with all his naughty toys. All that’s needed is a fearful
Japan saying to push the button.” Putting this into
proper context, it’s analogous to Fido in Cuba target
practicing with missiles near Key West, Florida. There are
some things you just don’t do as repercussions can be
severe, swift and sure. Japan may be unarmed but they have
good friends who aren’t and who could use the spring
training in spite of Iraq commitments. That American destroyer
in the Sea of Japan has enough missiles, with probably some
being nuclear, that Mr. Kim’s notorious criminal career
and others around him could easily and suddenly come to an
President’s Reagan and Kennedy negotiated
the USA and world at large out of deep peril with the communist’s
years ago. The gunslinger in our White House today would have
no compunction in our view of turning Kim’s capital
city into a smoking hole in the ground. The better solution
might be to tell China, to tighten the leash on their rabid
pit bull before he must be quickly euthanized. In our view,
this time the blackmail goes unpaid and Mr. Kim gets a Chinese
spanking. China is in charge of Mr. Kim and will not endanger
their 2008 Olympics being non-attended over his shenanigans.
The real concern here other than one of Kim’s
misguided missiles falling on Japan is little Kimmy’s
ordering the 10,000 artillery pieces to open fire from their
site along the 38th parallel within range of South Korea’s
capital. We noticed thousands of USA troops recently deployed
on a large nearby Seoul airbase have been moved away. As is
common in these matters, it is first a neat idea to remove
the head of the snake. China knows this and will probably
take charge after more dust-ups before quieting things down.
In our view, the worst thing Bush could do is give Mr. Kim
a nickel to go away and behave. If he is paid-off, he will
return for the next payment very soon. This is his history.
Mr. Kim Jong is attempting to perform a hold-up
on the USA to see how much blackmail American taxpayers will
allow before writing him some very large checks. Technically,
North Korea has been at war with 56 years of “Police
Action” since 1950 and it’s not over yet. They
might have signed an armistice but Mr. Jong has never honored
it and neither did his daddy. Historically, it has been proven,
the only way to negotiate with this kind of person is to flatten
him like a size 12 shoe on an insect. In our view, the sooner
it’s handled the better. Any signs of appeasement or
weakness merely encourage more trouble. England’s Neville
Chamberlain quickly learned this, to his dismay in 1939 in
trying to appease Adolph Hitler. Weakness will only encourage
The Mumbai thing, sadly, is only one page in
an on-going nightmarish novel. Hopefully the instigators will
be captured and squeezed until they squeal and give up more
gang members. Britain’s M-5 and Israel’s Mossad
seem better at this sort of thing than our gumshoes. Perhaps
they should be persuaded take over this task. We were strongly
impressed with the work M-5 did on their recent London train
and bus disasters. They got busy, caught the perpetrators
and persuaded them to talk with no restraints. We think they
did a very quick and professional job netting a big criminal
Politics is not our field, but these events
impact all global markets and as analysts we must work to
think these things through and help our readers and traders
find a path through the mayhem. When stock markets are weakened
and have zero buying leadership as in today’s situation,
these geopolitical events greatly add to the burden and traders
run for safety. Unfortunately, amateurs usually call brokers
and tell them to sell everything, even their strong performing
gold positions as they must sell good stuff to cover margins
and pay for other non-performing investments.
Last week in our Friday reports we suggested
gold and oil were resisting and topping while traders shed
stocks and bought bonds for security. We think bonds are no
place to hide either as our U.S. Dollar and bonds are forecast
to sink together this fall along with stock markets.
If it all looks so nasty, where do we go
for both security and growth?
One Hour Gold Chart on 7-11-06 Reacting
to North Korean and Indian Problems.
August gold futures were primed for a mini-rally
with a double bottom last evening of 7-10-06 and in the middle
of the night with overseas trading.
Long List of Persuasive Facts Tell Us to
1. Barclay’s bank issued a statement on
this morning of July 12th to stay out of bonds and purchase
commodities. When mainstream banks issue recommendations to
the public these statements typically carry more weight than
those of, shall we say lesser sources.
2. Citibank recently issued a gold forecast
for $850 with an uncertain timeline as I recall.
3. In my current review of selected top five
analyst’s forecasts for gold this fall and for the first
quarter of 2007, I find numbers that generally equate to mine
or in fact in some cases exceed my predictions. These advisors
all have stellar forecasting records.
4. Crude oil and its distillates have proven
themselves to be excellent forecasters of gold and its trading
action. The geopolitical problems we have just enumerated
will indeed, in our view, provoke gold buying with increasing
vigor. This is difficult to measure as the ferocity, frequency
and newsworthy effects are all strong gold price drivers.
5. Residential real estate is collapsing in
some markets to the extent property values will and are being
reduced by 50%. Trader Tracks
has forecast those re-packaged mortgages sold as derivatives
will be our national and subsequently the global Achilles
heel for economies. Several top Wall Street and Treasury official
meetings confirm this.
6. A little known situation which is just as
ominous, if not more so, is the regional and local banks being
horribly overexposed to highly leveraged real estate loans.
It has been reported there are significant numbers of banks
holding in loan portfolios, a naked exposure of 80% residential
and small commercial real estate loans. Under severe stress,
commercial will fail faster than residential as small business
people have limited cash and credit. Most cannot withstand
more than a few months of shortages.
7. We find it interesting that as stocks cave-in
traders are moving to bonds which contain the seeds of terrible
destruction as packagers of these instruments are taking risks
far beyond the norm to gain yield. This strain for gain could
prove to be their undoing.
8. Junk bonds have gotten junkier as we recently
wrote and many of the least credit worthy have a living shelf
life of less than three years. In some cases, certain issues
have been downgraded within a few months of their origination
sales to investors.
9. Japan and China are each holding close to
a trillion in USA notes, bonds, bills and cash. While in our
view, Japan can withstand the storm, China’s top four
national banks are already technically bankrupt and would
have died a natural BK death if not infused with more cash
from foolish stock buyers in New York. China National bank
was an example.
10. Millions in fees from new equity and bond
sales providing cash to the Chinese have been skimmed and
stolen. The funds are returning to nations other than China
to fund individual safe havens for criminals if and when China
11. The most important
reason why gold is a buy reflects gold’s regained stature
as a world reserve currency after the United States Dollar
and Europe’s Euro currency. Gold has grown with
new Exchange Traded Funds (ETF’S) and other metal investment
vehicles being offered to ease the investment and trading
path for gold buyers.
12. Conflicts among nations create fear and
cause gold buying which in some instances can be temporary.
Solid, long term investments in gold are the result of imperfect
monetary systems and their currency devaluations. This latter
reason is gold’s best friend.
Gold, Gold & Silver
Stocks and U.S. Dollar Weekly Trends
Forecast supports on these charts are: Gold
at $570 on the 41 day moving average. The trading range is
$540 to $640 with strong support at $600. XAU support is 140
and dollar remains in a trading range of 86.00 to 88.00 with
major support at 80.00. XAU 2006 high is range of 173-226.
Gold 2006 high $850 to $873 and Dollar November low is 80.00
Traders should expect a range bound period of
choppy trading for gold and the XAU until the end of August.
The dollar is trying to mini-rally and is struggling as the
primary trend is down. The Canadian dollar, a strong proxy
for gold, has been mildly down over national interest rate
news. Expect the C$ to rally this fall with the U.S. Dollar
sliding and selling to 80.00 support. Recent news regarding
disturbances in the Middle East has positively affected both
gold and oil. As we complete this report, news of more trouble
in Nigeria hit the wires while crude oil charts are moving
into a large three wave rally. The Tracks has forecast a rally
in energy until September 1-15 followed by fall selling with
most stock indexes.
Gold and silver begin their fall rallies
near the end of August and should accelerate in later September
and all of October as mainstream stocks sell down with vigor.
Do not fear market volatility. When you are on the right side
of this trade it will plump up your pocketbook. Buy gold and
gold related investments and shun most of the rest.–Traderrog