Could be having an interesting change today. Gold, so far 12/4 is up on stronger macro-econ news. I conclude it is because stronger macro-econ data will lead to inflationary pressures. Oil recently got below $92 and is now close to $97. Should oil continue to grind higher, it will tend to add to inflationary forces vs deflationary.
Another test will be Friday's jobs number. In the interim, most gold stock continue to get killed as tax-loss selling takes its toll.
XAU hit a 5 year low today and "yes" we are early. Still, I will be buying more to take advantage of tax-loss selling. But I will wait to see if gold makes a low below $1180.
In the last several weeks, the gold miners as measured by the XAU and GDX, have outperformed the GLD. Much more often than not, the miners have led the price of gold both up and down. Historically speaking, the recent relationship between the two offers encouragement for those of us long gold and/or gold stocks.
Still, I don't see anything that gets gold taking off, so it is still in a basing pattern. Stats this past week out of the ECB show loan and M3 growth are getting slower. For Oct loan growth was negative 2.1%, the lowest number all year and M3 was up only 1.4% y/y the slowest of 2013. Bottom line, if the Euro-zone is to get GDP growth fast enough to get unemployment down and service its sovereign debts without ECB aid, the "credit engines" of the member countries have to turn positive y/y. The ECB has to continue to ease aggressively.
Bullish for gold, but with a time lag as current policies are not working and new policies, when they come, will take time to be effective.
For the 5th week in a row, the 11 market indicators of inflationary or deflationary forces I look at, have pointed down. In addition, M2 has been down 4 weeks in a row for a total of about $70 billion.
Implications? The market does "fear" tapering and usually if M2 is down substancially while stock markets are rising gives caution as lack of new "juice" or M2 means stocks will start to fall soon. Also, with deflationary forces having the upper hand, the last 5 weeks, it does suggest that world GDP growth will not be accelerating in 2014 which goes against the market "consensus. Of course, if world GDP is less than forecast , then S&P 500 earnings will be tough to get to the 10%+ growth that is expected for 2014.
Reading some analysis that the Iran "deal" is being compared to the "Munich" deal that Chamberlin did with Hitler. Don't think it lead to WW3, but we do know the Iranians and the Syrians have been celebrating big time.
Other implications, expect to see greater cooperation between the Saudis and Israel-now that their common enemy just got stronger. Expect the Sunni#$%$ conflicts to magnify with the Israel/Saudi axis to stand up for the Sunni side.
Oil, as suggested before could go lower, but I'm looking at that being a head fake with NA oil and gas assets to be one of the best investment themes of 2014.
From my various readings, it is a bad deal and unofficially endorses IRAN's nuclear weapons program-Israel and the Saudi's are feeling betrayed and abandoned by the US.
Net, net in the short run, if may mean oil breaks below $90, although Iran is not expected to increase oil exports, but in the long run it will make the Middle East more unstable.
Investing implications, I have been bearish on oil, so my view is coming true, but I become a buyer if/when oil hits $85-86. Because I like NG so much and because DVN overpaid with their recent acquisition-DVN becomes a buy below $57.
Other implication, although I still think there is one more gold sell-off, the Iran deal is bullish for gold going out into the 2ndH of 2014 and beyond.
China, through Hong Kong, imported 131 tonnes of gold for Oct, 2nd highest of the year-March was 136. YTD imports are 967 tonnes. China, through HK, is on pace to import 1100+ tons. In addition, China will produce about 430 tonnes, so they will accum. 1500 tonnes of gold this year.
Some analysts are speculating that China is imported via other avenues to take this years accum to 2100+ tonnes. World production will be about 2750, so if you believe the higher estimate, China will take in 75%+ of all production this year.
I am surprised PCTI has continued its march upward since 3rd Q guidance was flat for the 4th Q and 1st Q orders could be weak for the 1st Q. Normally the 4th Q is the strongest Q for the year.
Insider selling makes sense to me.
I trimmed most of my inventory today at $7.15-with the RSI in the 80s it only seemed prudent. Unless there is a buyout deal, the stock got overstretched after it crossed $6.50.
Cramer recommended GOLD on his 11/25 show. I had bought some under $65, so fine by me.
In another sign, "metals" are bottoming, Jefferies's Bache unit is leaving the floor of the LME. Brokers tend to retrench at bottoms of markets and poach other brokers talent, paying big money, at the top of markets.
Last week, barely noticed by the markets, was a comment out of China that they will stop buying foreign currency reserves. By implication they will stop buying treasuries-their holding have been flat in recent months. By implication, they have to buy something with their trade surpluses. Since they (Chinese) have also publically stated that they want the "yuan" to be a reserve currency and that $ dominance needs to come to an end. It begs the questions:
1)What will China buy with their trade surplus $s?
2)Will they, over time, tend to wind down their holding of long term treasuries in favor of short-term treasuries or outright net sales of treasuries?
I have been posting that China has been quietly buying a substancial % of 2013's gold production. If China becomes a net seller of treasuries, then both will be bullish for gold as the FED will need to ramp up QE to absorb China's selling, plus the world will sense that is "short" gold because China will own so much of it.
Another example of market froth:
PIK (payment in kind) bond issuance YTD is $10.85 billion. The prior high for any year is $6.77 billion in 2007. PIK bonds pay no interest, but pay in more fractional % in the bond.
Bottom line, sell into strength.
NG implications. My "hunter" friends that have been taking full advantage of deer season so far have noticed two observations:
1)The deer have had very large layers of fat in their chest cavity
2)Oak trees have been dropping very large quantities of nuts
The "Old-timers" say both are indications of very cold winters. Bullish for NG
Another tidbit is possible negative influencers on 2014 GDP
1)Narrower budget deficit-tax revenues are going up 4X faster than GDP growth so that is sucking money out of the private sector-lowering consumer spending and capX
There is a direct relationship between budget deficits and corp profits-as deficits narrow corporate profit growth slows or goes negative y/y
2)Dodd-Frank and Basel bank rules will tend to force banks to increase equity and reduce loan growth. This will be on top of reduce residential real estate lending as refinancings will be way down because of rate increases
3)Obamacare will raise health insurance premiums for every body, so act as a tax
Bottom line, market cap as a % of GDP is at its 2nd highest in recent years, the highest was 2000. With corporate profits under pressure this year, up only 3-5% (much of it due to share repurchase vs increases in operating earnings), 2014 S&P 500 earnings "growth" will be under pressure again.
One of my better recent ideas is KCG to buy under $8.30-which got as low to around $8 and is now in the mid $10s. I'm holding as I expect more volume and volitility in markets next year. KCG, BGCP and ITG should all benefit from increases in vol and vol.
Eventually looking for mid teens. However, KCG's RSI is above 70, so it would be prudent to take some of your position off the table and buy it back under $9.50-if it gets there.
Gold analysts, currently, the most bearish since 6/21/2013 when gold got to $1180-the low for the year.
Euro-zone stock market VIX, hit a seven year low today at 14.51. As a contra-indicator, sentiment is very bullish in Europe as it is in the US.
NG resistance is $3.80, so if it breaks and holds, then $4.00 will happen in Dec. as inventory situation goes to larger and larger deficits vs the 5 yr average. This is still happening even though production is a record levels.
GFI, under $4.00, PSR is getting close to 1-which makes GFI the cheapest gold stock by far as measured by PSR. With production expected to increase and costs fall in 2014 and 2015, GFI is a great way to play any gold price increases. GS reiterated their 2014 end of year target for gold at $1050. Current reward to risk $2500 target (same price as 1980 peak inflation adjusted) vs $200 downside or about 6/1 reward to risk.