Talking Heads Remain in (Studio) Light


By Jon Nadler

Apr 9 2009 9:48AM


Good Morning,

Further lack of action is about all the markets got during the overnight hours. Apparently, every holiday this year is being welcomed way in advance of the calendar by stressed out speculators and tired investors. We have seen the equivalent of a full year's worth of volatility and drama having been crammed into the first 100 days of 2009 by now. No wonder that each time a long weekend was ahead, participants closed books early and headed home to try to forget the tumult at work.

This, will be a GOOD Friday, indeed. One to stay home and play with the wife/kids/dog/abandoned car project. The action thinned out noticeably as Thursday trading got underway, and minor or no moves were recorded in most assets. Perhaps, with the exception of oil - it surged by $1.5 to $50.85 on lower than expected gains in US inventories. That's a complex way of explaining it, but we will have to live with it.

We will also have to live with dismal statistics, such as Canada's highest jobless rate in seven years, declining March US retail sales, ING selling $10.6 billion in assets to raise capital, plunging German industrial production, etc., etc. Nearly half a million people have lost their jobs in Japan, fueling a wave of homelessness that has officials quite worried. This world is still looking as deflationary as it has in recent memory. No need to mince words.

New York bullion trading opened with a half-percent loss in gold, quoted at $876 per ounce. Thus far, the assault on the $$890 citadel has not been met with success, and thus the onus remains on courageous new buyers, Indian dowry shoppers, and "teotwawki-ists" to keep gold aloft and prevent it from heading towards the mid $800s and lower. Such arm-wrestling and its results may not become quantifiable until perhaps early next week, at best. In the words of one Bloomberg reporter who tried -quite valiantly- to put together a weekly survey recently: "There is no good reason to say why gold should go up."

Heavy-duty talk still permeates the airwaves when it comes to gold, commodities, stocks, the economy, and deflation/inflation. This morning's roundup has much to offer:

Money guru Dennis Gartman, appearing on CNBC this morning, showed friendliness towards aluminium and copper, but opined that gold has seen its highs 'for a while.' Mr. Gartman feels that we need another six-to-nine months before we see improvements in the commodity and stock sectors. He does note a significant breakout in copper, but believes that crude oil will oscillate on either side of $52 for quite some time to come. In brief, Dennis is leaning towards basic materials. That, and 'even idiots' being able to make a bundle by buying battered banking stocks. "Green shoots" are visible (lumber breaking to the upside, platinum and palladium relative to the weakness in gold, etc.) and the hopes are there that such buds will not be killed by a late frost. The frost, in fact, may be behind us altogether, said Mr. Gartman.

Nevertheless, up is where the survey respondents are looking to prices to head next week. "Gold may advance next week after prices rebounded from a two-month low, increasing speculation that investor demand is strengthening. Fifteen of 25 traders, investors and analysts, or 60 percent, surveyed by Bloomberg News said gold would climb. Seven people, or 28 percent, forecast lower prices and three were neutral." This concludes our public service announcement for short-term traders for today.

Silver started the day with a 10-cent drop, quoted at $12.16 per ounce. The holdouts in the metals complex remained platinum and palladium, with the former showing a $27 gain to $1202 (a new, six-month high) and the latter exhibiting a $5 rise to $236 per ounce. News? Fat chance at finding some. Okay, Chinese GM and Mercedes car sales rose, while overall domestic car sales rose 10%. But, that is not enough to explain the noble metals' recent spike. Hedge funds at play, combined with anticipated closure (in more ways than one) of the GM saga, provide more substantive excuses. However, they also make this rally's longevity suspect from the word 'buy.'

Back on the ranch, predictions of two and/or six thousand (!) dollar gold continue to assuage the recently frayed nerves of gold bugs everywhere. Marketwatch's Peter Brimelow brings us the roundup of the round numbers from the bullish roundtable:

"Yesterday, Harry Schultz's Gold Charts R Us service offered technical reasons for a rebound. Looking at the weekly gold chart, it said it saw:

"A one-year reverse Head and Shoulders development, with $879.40 left shoulder support (being tested as we write) -- that also coincides with a 50% retracement of the October rally-leg. If bullion manages to hold around this level, the odds for shorter, higher highs will remain intact via the formation of a possible right shoulder and a fourth attempt to breach the psychological $1,000 resistance." GCRU added that, if this doesn't work out, it expects "July 2005 uptrend line support, currently around $750."

GCRU concluded cheerfully: "Don't let this gold dip dishearten you. Our patience and discipline will soon be rewarded by a new golden sunrise."

The underlying reason for this cheerfulness is not technical but fundamental. There is disturbingly universal expectation among gold-watchers that Federal Reserve monetary expansion must blow off into inflation.

The Pamela and Mary Anne Aden's Aden Forecast is typical, commenting recently:

"Gold is the ultimate inflation hedge, and there's no telling where it'll end up, at least well into the thousands of dollars in the years ahead, and maybe sooner. ... Remember, gold's peak in 1980 at $850 is now the equivalent of about $2,200 in today's dollars. Gold has not even approached that level yet. Once the dollar declines again and inflation kicks in, it'll be another story."

And how many thousands of dollars? The Aden sisters write: "Using the gains in the 1970s as an example to forecast where gold could end up ... $5,800 would be the equivalent upside target."

Short term, they write in chartspeak:

"A 'B' decline is still underway, and if gold closes below $883, we could see $705 tested. Any weakness like this would provide a wonderful buying time. ... On the upside, once gold rises and stays above $945, the B decline will be over and a C rise will be underway. Once gold closes above its year-ago March level at $1,004, we could see gold jump to possibly $1,200."

Then there's veteran Bill Meridian of Cycles Research, one of the few editors who admit to using astrology -- openly, that is. He writes with remarkable confidence: "Gold has retraced 38% of its prior advance. This is a quite normal pullback in a bull market. ... Gold is likely to trade down into April 2nd-3rd, pop up again, and then make a firm low on the 10th or 13th. On those latter dates, Cycles Research will switch to a buy signal."

Fellow Hungarian Peter Munk - Barrick Chairman- appearing on "Squawk Box" this morning, appears satisfied with gold's trebling since the $300 level, but also opined that $2K gold would not be sustainable (nor, perhaps, desirable). Another fellow Hungarian, George Soros, said last week that he wholeheartedly welcomed IMF and other central bank gold sales as the need for cash among many a nation is as pressing as ever. Perhaps even more than ever. Looking and sounding as young and as classy as ever, the 65 year-old Mr. Munk laid out a good case for gold retaining an important role in the medicine cabinet of the financial world. This, as anxieties continue to buffet the psyche of investors all over the world.

However, Mr. Munk noted the shocking reality of India turning into a net exporter of gold, while places such as Turkey, Dubai, Abu Dhabi, etc. are not far behind. Gold, to Mr. Munk, is nothing but a fear barometer. He sees gold as a long-term 'hold' and as an excellent way to raise cash (especially to the folks in the aforementioned countries, for whom the current record gold price -in local currencies- is an opportunity to sell, not to be passed up). This instant ability to raise cash when needed was the Soros angle as well. Not some sinister support for the "evil cabal." Barrick's costs to produce the wonder-metal is near $400 at this point. Thus, Mr. Munk has little to fear even if deflation deflates gold to the $600s.

Optimism, pessimism. Pick your favorite leaning.

We are off to hunt for eggs of a non-golden colour.

Happy Holidays to all of your readers.

Last indications: Gold $880 - unchanged Silver $12.32 up 6 cents Platinum $1196 up $21 Palladium $232 up $1.00 as of 15:30 NY time.

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal


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