Recently, Gold prices have been trading below $900/oz after trading over $1000/oz in late February. This weeks benign CPI and PPI data have shown that we are currently in a deflationary environment and that inflation will not be a concern in the near term.

For the last few trading sessions, gold prices had been in a trading range between $880/oz and
$900/oz. Currently, spot gold has broken through $880/oz and is trading around $874/oz. Gold looks much cheaper now, and we know inflation will eventually be a problem, should we buy?

The answer is no. The technical momentum is not positive for gold prices right now. We tested the 200 day moving average at $870/oz back on April 6-7, and we are headed back down in that direction, which isn’t a good sign. Lots of CTA’s (Commodity Trading Advisors) use the 200 day MA as their stop, and if we cross through we are likely to see accelerated selling pressures. In the near future, it doesn’t look like inflation will be a problem, so Gold won’t move up on that. If you think the stock market is likely to crap out again in the near future, that would give gold a “safe haven” boost, but you’re better off shorting stocks in that scenario.

Don’t get me wrong, I eventually think Gold prices are headed much higher, but its hard with the stock market showing strength and deflation rearing its ugly head for me to buy Gold right now. I’m going to wait this one out for now. If we bounce off the 200 day MA and the stock market takes a big nosedive, I may reconsider.

Uncategorized gold

Following this morning’s disappointing retail sales numbers, it was hard for one to be optimistic about the economy, but speeches by President Obama and Ben Bernanke changed all that.

President Obama delivered a 45-minute speech on the economy at Georgetown University today designed to update the American people on where we are, what we have to do going forward, and lay out the steps that the government is taking to transition us from recession to recovery. During his speech Obama said “There is no doubt that times are still tough. But by no means are we out of the woods just yet. But from where we stand, for the very first time, we are beginning to see glimmers of hope.” I consider those to be very encouraging words.

Similarly, at a speech today to faculty and students of Morehouse College, Federal Reserve Chairman Ben Bernanke was upbeat about the economy as well. Bernanke said that he sees “tentative signs” that the steep contraction in U.S. economic activity may be waning, and that he is confident in the economy’s long term prospects. Bernanke cited recent figures on housing, consumer spending and new vehicle sales as some of those signs that the recession is slowing.

The words now coming from government officials are only echoing what the markets have been telling us for the last month as they rebounded off the lows. In fact, as of late, market expectations for economic data have been too dire, and the actual data releases have been consistently surprising to the upside.

Bill Hester of the Hussman Funds provides us with the following chart and writes:

“The rebound in the stock market has been at least partially fueled by economic data that consistently came in better than expected last month. Some part of this rally is likely relying on the continuation of these “positive” surprises.

To track the trends in economic performance, we keep an ongoing tally of how data is announced relative to expectations – a method of analysis originally inspired by Bridgewater Advisors . Economic data that surpasses expectations gets added to a 3-month running total. Data that comes in weaker than expected gets subtracted. A rising line means that economic data is generally coming in above expectations, while a falling line means that the data has disappointed. A descending line could be the result of an economy that is not expanding as quickly as economists predict or – like in 2008 – it could be the result of an economy that is contracting at a faster rate than expected…

The red line in the graph above tracks the S&P 500 Index and it shows that stocks have recently closely tracked the trend in data surprises. The market fell along with the deteriorating surprise line last year, rallied slightly prior to improved news in December, and then rolled over again as the news weakened versus expectations in late January. In March the market rebounded along with a more pronounced persistence in favorable economic news versus expectations.”

Even other indicators of “flight-to-quality” and fear have declined significantly since March. Gold is off its highs and is currently testing its 200 day moving average.

I’m optimistic that the worst is behind us.

Uncategorized bernanke, economic data, gold, obama