Gold May Be Looking Tired

The latest gold rally is already showing signs of having brought in too many bulls too soon in the (unending) European crisis.  I was lunching Friday with a hedge fund manager who noted that a very recent survey continued to show that the favored investment of Americans, per the poll, was gold.  I had pointed to what I believe was an earlier version of the same poll in the summer of 2011 as part of the reason why I had begun selling my gold when it hit $1900/ounce, and sold more as the price dropped off.  Too much belief.  Where were these when I was buying gold in the $300s (unfortunately I did not buy "enough"!) in 2002 as part of what I thought was an obvious weak-dollar set of policies by both the Bush administration and the Fed?

Now we see a negative CPI print and rising claims for unemployment.  Plus the obvious diminution of buying power in a spreading number of regions in Europe.  Sorry gold traders, against this deflationary backdrop, rumors of the obvious-- that central banks will "print" as needed-- the following survey from Bloomberg.com makes me negative on gold short-term:

Gold traders are bullish for a fourth consecutive week after hedge funds added to bets that prices will rally, exchange-traded products backed by the metal expanded and Europe’s debt crisis roiled markets.

Twenty-four analysts surveyed by Bloomberg said they expect gold to gain next week and six were bearish. A further three were neutral.

In addition, Harvey Organ's latest summary of the COT in silver looks overtly bearish to him, and his reading of the COT in gold is mildly bearish.  I have found his analysis to be pretty good-- he "called" the latest gold rally well, for example.

At this stage in the game, my POV is to take bad news as bad news.  Gold almost always directionally trades with silver and platinum, and both of them have even worse charts on the 50-200 day sma basis than does gold.

Meanwhile, Bloomberg also reports that Israel's stock market is up 2% today, supposedly on hopes that the European authorities will stimulate something or other. 

We know "they" will do their job-- that's what "they" do.  But sorry-- they are not rampant inflationists.  If they were, the STOXX 50 etc. would not be in a pronounced downtrend. Copper wouldn't be under $3.50/lb.  Whole countries would not be going bankrupt due to difficulty rolling over old debt and selling modest amounts of new debt, because "they" would be "printing" the new money needed to keep the game going.  What's going on is more subtle than that.  It's the biflation I wrote about a lot last year.  I actually think that the inflation is returning to U.S. housing prices, which are historically cheap relative to gold IMHO.  And while you can't eat houses, you can either live in them or rent them out for, one hopes, a positive cash flow.

Our job as investors and traders is to recognize the planted stories in the media.  Thus, it was revealed that part of the latest peak in Treasury prices was spurred (finally) by buying by the public.  (I don't know what duration bonds and in what vehicles these were purchased, so I don't know how much staying power these investors have if yields back up more for a while as I expect.)  So congrats-- the public is finally buying Treasurys near the end of an over-30 year bull market. Meanwhile I was pounding the table last spring and early summer for Treasuries in several posts on The Daily Capitalist, beginning when 30-year T-bonds were yielding over 4%.  That was just one year ago or so.

During the latest peak in Treasury prices, electric utilities that have 'A' or better financial ratings and have at least a modest amount of inflation protection were left temporarily ignored by the media and the public, and their yield spread versus Treasuries went to historically wide levels.  So it appeared obvious to take profits in Treasuries and arbitrage, as it were, into the utes.  I'm not perceiving any excess in the utes yet given they trade as if their yields were bond-like, and in fact when I talk to financial people, they doubt the move.  They all express worries about the scheduled expiration of the Bush tax cuts.  That strikes me as an uber-strange response.  Aren't Treasury interest payments taxable, also?  (Plus I own the utes in IRAs and own tax-free vehicles in taxable accounts.)

I mention the above as a long digression in a gold-oriented post because I continue to believe that the aging investor base in the Western world and Japan has a built-in, difficult-to-shake bias for income with perceived safety.  That 'safety' will, methinks, inevitably turn out to be illusory, but the Japanese example shows that seemingly illogical phenomena often have good reasons to have occurred and to persist.  When they buy GLD, the only thing that is certain is the ongoing trust expenses, plus commissions of course. 

Per Bloomberg, gold traders are heavily bullish in contravention of the intermediate-term charts and at a time when everybody and his sibling knows that the world is going to pieces.  Brilliant!  They ignore that the same sorts of growthy trends that were occurring in 2009, 2010 or most of 2011 are not the dominant trend now.  The dominant trend on a macro global basis is the ill winds swirling around and blowing out of Europe.  What is going on in Europe continues to remind me of what was going on in the U.S. in 2008- cascading serious financial problems in core parts of the economy-- large financial companies in the U.S., systemically important banks and increasingly major governments in Europe.  At least in the U.S., there was one national government and one powerful Fed to do what they did.  Europe lacks that advantage. 

Gold and silver, as assets that actually cost money to store and that are not valid to pay debts, became items that were liquidated post-Lehman, and their prices plunged to yearly lows post-crash.  There simply was no rush to buy into an orderly short-term gold uptrend pre-Lehman such as has been occurring the last few weeks in gold.

Thus for people who already have core exposure to these metals, I'm not thinking that this is an opportune time to add to the holdings.  (If one owns none of them, that's a different story.)

I'm also not thinking that all the attention being paid to yet another "critically important" Greek event is worth all the digital ink that's been spilled on it.  I'm waiting for further events in Spain, and critically Italy, to see how these historic and sad dramas will play out in asset prices.

The numerous economic and other strengths of the United States continue to become more obvious to more and more people, and IMHO support the "America First" sort of investment strategy that I propounded last fall.  When it comes to gold, I'm just speculating that we may well see a period of disenchantment with it in some poll later this year or next year out of America, and that it or silver may then be properly set up for yet another major bull move.