The price of gold is quietly rising. After peaking last September at over $1,900/oz, the price steadily declined to as low as around $1,534/oz (support level) a few times this year, most recently in May. Twice since then the price has rallied to around $1,635 or so (resistance level). Right now, August futures are around $1,622. So once again gold seems to be heading toward resistance. Should it break through this time, the next resistance level will be at about $1,680. My money is that the price moves higher.
Concurrent with the increase in the price of gold is the even stealthier increase in the price of silver. After falling to a low of around $16.25 in late June, the price of August futures has moved a bit higher, to $28.07. With a little push, the price could attempt to breach resistance at $30/oz.
For about a decade I’ve been advocating buying gold related securities (stocks, ETF’s and mutual funds). In fact, I suggested buying Newmont Mining (NEM) on my very first appearance on Fox News back in December 2002. I’ve been writing about the benefits of owning gold in my monthly newsletter “News and Views” almost since I started it in August 2003. I put my money where my mouth is as I have a reasonable percentage of my clients’ money in gold and we’ve done quite well over the past decade. The last nine months have been a bit of a struggle as the price has fallen in step with the increase in the value of the dollar. Many investors have fled the shiny metal. Not me. I’m convinced that the price of gold will rise again and reward those with faith and patience. An investment in gold is portfolio insurance and is a hedge against the ultimate debasement of fiat currency. The decade long bull market in gold is far from over.
Investors are fleeing social media stocks in droves. Pandora (P), Groupon (GRPN), Zynga (ZNGA) and Facebook (FB) are all being crushed. Angie’s List (ANGI) and Yelp (YELP) aren’t doing much better. Only LinkedIn (LNKD) is trading around where it was on the day of its IPO. Does this mean the end of the game for this sector of the Internet 2.0, or is it just a bump in the road? While I don’t have a horse in the game, I’ve come out publicly against owning any of these stocks. What do you think?
Yesterday, ECB head Mario Draghi unequivocally defended the Euro, saying that they will do whatever is necessary to ensure the future of the common currency. Those remarks sent stock markets around the world soaring, including here in the US. Is this simply bluster, or is Europe truly willing to spend untold billions (trillions?) to save the currency? Did he ask Angela Merkel what she thought first as Germany will likely be on the hook for a large portion of any rescues? Either way, US investors loved the news as the dollar sunk, sending the market broadly higher. We’ll take it.
Lots of big earnings announcements today. DuPont (DD) beat expectations but offered cautious guidance, thanks to Europe (a theme that will follow through many earnings announcements). AT&T (T) also beat expectations. Lockheed Martin (LMT) beat expectations and raised FY guidance but offered cautious outlook thanks to looming spending cuts. Texas Instruments (TXN) beat estimates but offered very weak guidance. UPS (UPS) misses estimates and lowered guidance. Overall, a pretty good day, showing US corporations, by and large, are going better than expected. Apple (AAPL) announces after the bell.
Lot’s of news today centered around Chinese M&A and earnings. The Chinese are taking advantage of lower prices to pick up some companies on the cheap. The big earnings story was that McDonald’s (MCD) had their first quarterly miss since 2005. Looking deeper it appears the majority of the problem was simply the strong dollar hurting their F/X conversions. Not a big deal to me. The bigger problem is Spain, and the rest of the PIIGS. It seems like there is indeed going to be a big default coming- no surprise there. Anybody paying attention knows there will be MASSIVE defaults in the Euro zone; it’s just a question of when and how big. Interestingly, the market has recovered almost half the early losses, with an hour and a half before the close. Fun way to start the week.
A wealth of economic data released today gives mixed messages. Initial jobless claims almost 10% higher than last week. June housing starts were 6.9% higher than the prior month. This marked the highest number in almost four years, since October 2008. Yet existing home sales fell 5.4% due to constrained inventory. That same inventory shortage helped prices rise 5% to their highest level since September 2008. The Leading Economic Indicators fell 0.3% in June, after rising 0.4% in May. This gives further evidence of a slowing economy. And finally, natural gas prices have risen to a six month high thanks to record heat across the country and inventory levels are falling a bit. Overall, a mediocre picture, yet the stock market is holding firm near 13,000. Go figure.
As the market opened for trading yesterday, the Dow Jones Industrial Average stood at 12,727, down 165 points from a month ago. For all the daily volatility recently, the reality is that since early June the DJIA has traded in a relatively tight range between 12,500 and 12,950. It has also bumped up against, but failed to pierce, an important resistance level around 12,850-12,900. I view the market holding steady at these levels as a major positive given all of the negatives and uncertainly swirling around. Should we get through the summer, and head into the election, with the Dow remaining in the 12,000s, we could set things up for an end of the year rally.
It’s hard to look at the current market and call it either a Bull or a Bear. Maybe I’ll call it a Sheep, as the overall market seems to be simply following the dollar up and down, rather than moving according to any fundamentals. Correlation remains too high, with most asset classes moving up and down together rather than according to their relative merits. This continues a trend that began last year. That being said, until the market gives a clear signal one way or another, I intend to hold steady with my general investment strategy, making small changes here and there as general market conditions dictate.
Yesterday Ben Bernanke, Chairman of the Federal Reserve, is testified before Congress regarding the LIBOR scandal and available Fed policy tools that could be used to help prop up our flagging economy. As is usually the case when he speaks publicly, the market moved south. (Interestingly, the market moved higher later in the testimony and ultimately finished the day higher.) What traders want to hear are concrete plans for a new stimulus plan, or a QE3. The absence of such an announcement is viewed as a negative. To me, that’s a positive. There’s little, if any, true long term value ascribed to further monetary expansion policies. In fact, it will only further debase our currency end set the stage for even more punitive problems, like rampant inflation, down the road. As a nation, we need to accept our medicine and deal with our problems rather than try to put our thumbs in the dike that is our growing budgetary problem. But there is little collective will in this country, either among the population or our elected leaders, to accept hard times in the short run in order to put our country on a better footing for future generations. As a father of three teenagers, I worry about what life will be like for them and for my future grandchildren. It infuriates me to see how gutless our leaders truly are, and how they invariably pander to the monied special interests at the expense of the people who asked them to look out for their best interests. And I fear that this election will only bring us more of the same, now that the Supreme Court voted to allow unlimited donations to PACs. So the super wealthy like Sheldon Adelson can almost literally buy himself a president. It makes me want to puke.
My name is Greg Werlinich. I’m an independent, fee-only Registered Investment Advisor. Welcome to my blog. I hope to use this as a venue through which I can have a conversation with my readers about the stock market, the economy and occasionally politics. I look forward to having an engaging dialog with all of you. Thanks for reading.