Gold's Advance Continues
John Lee
Gold
$455.2 Silver
$7.99
Last week's update can be found here.
The Dollar
The latest::
The selloff gathered pace after a
German newspaper cited a high-ranking
U.S. Treasury official as saying the United
States would intervene to support the
dollar only after the euro reached $1.45.
Dealers and analysts said they viewed
the German report with some skepticism,
noting that the Treasury was more likely
to be concerned about market volatility
than about a particular currency price
level.
The dollar perhaps can not be analyzed
like other markets because the supply
of dollars is unlimited. In a bear market,
no price is too low. If the dollar manages
to break beneath all time low of 80, it
will paint an extremely bearish picture.
The sense we get is US officials would
like to see an improvement in the trade
deficit before doing something about the
dollar.
Swiss Francs:
Sfrancs is struggling at 87.5, perhaps
a breather is due.
COT commercials have not reduced their
net short position of SFrancs (50k+ contracts).
Indicating the big price move may still
be ahead.
US Bonds:
Resilient. 30-year bond rebounded sharply
off 200 DMA on Friday amid weak economic
report, indicating long bonds are still
seen as a shelter for capital during economic
weakness.
Gold
Gold continues to rise. We are only $30
away from the important $480 level. Remember
it took mere months for gold to reach
$850 once $500 was taken out in 1980.
Strong support is at $430, a safe level
for new buying.
Silver
Silver continues to advance. Once $8.5
is taken out, there could be serious fireworks
as we continue to have extremely high
commercial short position (nearly 90,000
contracts, or 450 million oz). Never discount
the possibility of a quick re-test to
mid-6's.
Palladium
Palladium moved little. We rolled our
contracts to March 05 and put them to
bed. Patience is required for this potentially
very rewarding trade.
Gold stocks
XAU tried to break out of 112 last week
but ended on Friday with a 3% selloff
while gold declined only moderately. Is
the selloff in XAU a warning signal of
a correction to come? Or is it the last
shakeout of the weakhands before XAU breaches
the 112 resistance level? Buyers might
wish to wait for the breakout to enter.
We advise investors sit tight.
US market
Like long bonds, S&P 500 didn't give
clear signal last week. While we think
a decline in SPX is coming, we don't know
when. We haven't advised shorting yet
in 2004. COT commercials' net short is
unchanged at 30k contracts. We will wait
till Jan 05 AND a 80k commercial net short
to re-evaluate our neutral stance.
Nikkei
Nikkei is still consolidating. At this
rate, Nikkei is poised for a breakout
by Feb 2005.
We are entering the classic phase of
stagflation, where real economic growth
is stagnant, coupled un-usually with rising
inflation (as reflected by higher gold
price).
If the Fed were to give everyone a $100
bill, the effect on rising prices will
be immediate and does not affect output.
Currently, in lame terms, the injection
of money through debt and direct Fed intervention
has run their course in producing temporary/illusory
growth.
We wrote last week:
Gold is steadily climbing. Our studies
suggest gold will be over $500 and could
reach $800 by mid next year. To reach
this target two things must happen
1. Gold must rise independently of
the action of dollar index.
2. Gold must start rising at a faster
pace (i.e. $5-$10 daily moves).
The feeling we got is that the big move
is still ahead for gold and the dollar
(up or down we don't know). The safest
bet is buy XAU on breakout and begin to
establish positions in bottomed commodities
such as palladium, corn, and soybean.
John Lee
john@losb.net
www.maucapital.com
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