I came back from my trip, refreshed, and ready to read the responses I got from my letter to the Barron's authors. An empty inbox and a lump of coal in my stocking later, I still maintain high spirits because of my 12 confirmed blog followers. You all keep me up at my lowest moments. But, for those hoping I can show my gratitude by showering you with warm thoughts about gold, I am afraid you will be left disappointed. While I maintain my long term uber-bullish outlook, I just can't come up with the reason to step in and buy it here. Listening to technician Jeff Weiss on TV (I've met Jeff, he's a very nice guy) he warns that we are at a key point in the long term chart on GLD. As he put it, consecutive closes below 150 could be a real warning signal. So, for now, assuming we hold, perhaps we can make a case to buy. But unless we see that, you are working with significant downside risk, and little compensation for your upside.
Let's take a quick look at the story as its shaping up, and why I can be a short term bear and longer term bull. Gold is currently not a safe haven. I had thought that we might see gold regain its safety bid as the European crisis pressed on, but it looks like the dollar will steal the show. Despite an uncertain backdrop, sentiment has become more positive particularly with respect to US equities. All I seem to hear lately is how cheap US stocks are, how much cash the companies have, and how Europe has not brought down the US story. While some 40% (rough number) of S&P earnings come from Europe, optimism is maintaining strong footing (for now). But whether there is to be a pop in equities or not, our 10 year is still below 2% (even after our rally). My takeaway is that good stock market or bad, people want to have their money in US treasuries. I cannot say why, or that it makes sense, but that has been the trend and it has shown no signs of breaking.
The problem for gold is that the stronger dollar makes dollar denominated gold cheaper. If it is not perceived as a safe haven, than it will be difficult for gold to counteract the dollar's bid. But gold is an inflation hedge right? As my unanswered email points out, right now sentiment is not inflation fearing; rather the opposite. While we all know this is crazy, particularly given the mysterious rapid expansion of the ECB's balance sheet, for now, the environment is not inflationary (I have trouble writing that and believing I'm writing it). And besides, with this recent fondness for US equities, people will go with stocks instead of gold to counteract inflation.... especially with the expectation of continued dividend payments from cash rich stocks. Remember when gold was at 1200 on the way up and it seemed there was no downside scenario? If things were bad, gold was the safety play, if things got better, we were still printing, and that was good for gold. Now gold is in the exact opposite place. Nothing is good for it. If things are good, you'd rather be in equities. If things are bad, you'd rather be in treasuries. But this can't persist forever.
Treasuries do not have their best days behind them. Treasuries are the new gold, but that, like golds endless run up, will come to an end. If Kyle Bass knows anything (and we know he does), and if it is an indication of the systems fragility when we see as we do now that European banks are no longer lending to each other (and we know it is an indication) then we know that the likelihood of a liquidity crunch is high... and then? Print Print Print Print Print Print Print. If gold keeps getting smashed, it is highly probable that it will be at relatively depressed levels at the same time treasuries lose their luster. Then, the gold bulls can come back to the rodeo.
No comments:
Post a Comment