Asian equities were mixed with sharp falls seen on the Hang Seng but the Nikkei recovered to only finish down 1.7% and the Chinese and Australian stock markets actually managed to rise on the day.
The FTSE, DAX and CAC are down 0.7%, 1.9% and 0.2% respectively but US futures are showing tentative gains.
There were further signs of stagflation in the UK as manufacturing unexpectedly fell in June and the trade gap widened. This is further evidence that the economic recovery is faltering in the UK and QE has not worked.
US Major Debt Holders
U.S. Treasuries dropped, pushing 10-year note yields up from the lowest level since January 2009, on speculation the Federal Reserve may introduce new stimulus measures today to boost financial confidence.
More ‘stimulus’, QE3 or whatever new-fangled acronym is dreamed up by desperate policymakers will of course be bullish for gold and silver.
J.P. Morgan Chase & Co. (JPM) and Goldman Sachs Group (GS), raised their gold price late yesterday.
J.P. Morgan now sees gold prices at $2,500 a troy ounce by year-end, while Goldman expects gold at $1,730 in six months and $1,900 in 12 months.
This may be a sign that the current sharp rally may have reached its zenith as neither bank has a great track record regarding short term trading calls on commodity markets.
In the short term there is the risk of a correction as gold’s rise is now becoming front page (on front page of FT today) and headline news.
The fact that silver has fallen in recent days and remains below $40/oz and the fact that gold mining equities have also not risen may also be a warning signal.
Gold has risen from below $1,500/oz to nearly $1,800/oz in 5 weeks (since the start of July) and is up nearly 18% in dollar terms.
Therefore, in conventional terms gold is most certainly overbought.
However, we are not living in conventional or normal times and the ongoing global market crash and global currency debasement means that there is a chance that gold will go parabolic as it did in the 1970’s.
Investors would be prudent to continue to make the trend their friend and any pullback should be used to buy the dip.
Those wishing to take profits might do so after two days of lower prices or a weekly lower close. However, given the level or market, systemic and monetary risk, all investors are advised to maintain a core financial insurance precious metals holding.
Gold’s bull market looks very secure for the foreseeable future due to strong institutional demand (from astute hedge funds and central banks) and store of wealth demand from Asia.
As does silver’s due to increasing investment and safe haven demand and the continuing growth in industrial demand for the versatile precious metal.