What Are Gold & Oil Telling Us...

...if anything?

Well yeah, it's partly to do with the dollar doomage, but I think there is more to it than that. Both gold and oil are threatening, or threatening to threaten multi year highs. In the case of oil, all time highs.

First gold: There is the gold is money argument, so it's natural that gold will rise as the dollar tanks. I don't go along with that 100% but what I think matters nought. If enough folks with enough capital think so, it is so. Perception is reality. Add to that the speculative froth once the public gets onto the bandwagon and in the current environment we could see some real boomage here. To a certain extent, I think this could be starting to happen. The gold bugs are certainly starting to froth at the mouth on all the trading forums.

weekly continuous gold

In recent months it's been grinding sideways frustrating the crap out of all but option writers, but this move is starting to look fair dinkum.

On the the other hand, oil is threatening to take out its all time high. There are probably plenty of bullshit fundamentals to justify this, and if of an apocalyptic bent, one simply must be a crude oil bull.

weekly continuous west texas sweet crude

The $64,000,000 question is the future of the price of oil in the medium term, presuming the world economy goes into recession. It would be expected that a recession would lessen oil consumption and result in declining prices, sans any killer 'canes obliterating the Gulf of Mexico or similar.

Long term, you just have to be a bull.

I'm glad I have some rudimentary charting skills because the fundamentals are often too full of biases, bullshit, short term considerations and rigs getting blown over.

An all time high in pretty short shrift seems like a high probability in the near term.

Back to the question posed at the beginning. Is this trying to tell us something? Something other than the purely native fundamentals of these two commodities? If it is, I suppose it will be loud and clear in a relatively short space of time.

Gold Heads Up

Good old gold! It never ceases to raise the pulses of those enamoured with the yellow metal and trading forums across the globe are abuzz with gold's move today.

One would think that I would be a gold bug, what being of an apocalyptic bent; and sure I have a few obligatory Krugerands etc. It's one of the futures contracts I trade too... why not?

To me it's just another commodity and it's loose inverse relationship to the dollar can be seen in several commodities, but a hedge against a financial apocalypse? Maybe. For sure gold will soar (in dollar terms) if the grenade the financial system has in its hand blows up in its face, but so will other commodities such as silver, copper, oil... maybe even ags and softs. And you can bet your arse I'll being buying with ears pinned back if that happens.

In the above chart, which has the US dollar index plotted also, you can see the loose inverse correlation. But it is very loose. To me it's not a good hedge for the dollar, really. So I trade it purely on chart action, with a lazy ear on the bullshit fundamentals.

Chart wise, today's move is interesting in that it takes us up to supply line and so waiting to see if it breaks out, but hell's bells, nothing to really have an orgasm over. Certainly if this was a stock chart, it would be mildly of technical interest and in this context it is hardly worth going agog over.

But the thing with gold is that by the time it is really interesting, it good be too late, so building a bit of a position in here makes some sense.

But I'll leave all the salivating to later... possibly

Leads From Japan

Japan is the worlds second largest economy on earth by far and now looks to be leading the world in the race to recession, as reported in The Telegraph.

As the latest weak data hits, optimists are now few and far between, writes Ambrose Evans-Pritchard

Japan's economy has slowed sharply over the summer and may now be on the brink of recession, dampening hopes that Asia will buttress world growth as America battles the sub-prime housing crisis.

In the latest grim data, Tokyo said wages had fallen for the past eight months in a row. The cumulative fall over the past year to July has been 1.9pc, evidence of how intractable deflation can become once lodged in an economy. Business investment fell 4.9pc, with the pace of decline gathering speed in recent months.

The seemingly endless string of weak data from Japan comes amid mounting concern in Washington that the US economy is starting to buckle, and possibly tipping into a severe slump.

And a couple of other snippets:

*According to Bloomberg reports, the mood at the gathering turned ever blacker as speaker after speaker warned that the economy may be on the cusp of a sudden downward dive.

*While Fed chairman Ben Bernanke said the bank would "act as needed", he cautioned the market not to expect an instant bail-out. "It is not the responsibility of the Federal Reserve to protect lenders and investors from the consequences of their financial decisions."

*Japanese investors have taken a beating on the yen "carry trade", where they borrow in Tokyo to chase higher yields around the world. The Bank for International Settlements said in its quarterly report yesterday that the overall yen carry trade has reached $1,050bn and the Swiss franc sister trade is $678bn.

Lots more in the full article.

The last point brings me to the inevitable chart. The Yen has been a useful leading/confirming indicator for movements in the US stock market. The chart below shows the recent action of The JPY/USD futures in candles with the S&P500 in bars and show the clear inverse correlation between the two.

This begs the question: Does the unwinding of the carry trade have implications for the fortunes of the US stock market, because the is cause the liquidation of stock positions? Or is it the other way 'round: Does the liquidation of stock position cause the repatriation of Yen, resulting in the unwind?

I don't know and would be interested in the answer if anyone has data on this.

In any case, the technical picture in the Yen looks bullish above the trendline. My best technicians guess is that it remains support. (50/50 proposition of course) That would not be good for the indexes.

In any case, Uncle Ben seems reticent about bailing institutions out of malinvested trouble. Could this mean he will hold rates in September? That could well spark off another savage sell-off.

According to Austrian economic theory (as per the videos I posted a couple of days ago), that would be the best course of action, just let it tank, have a speedy liquidation of malinvestment, let the flaky institutions/businesses go to the wall and get on with life after that. I've always thought that too.

Then we could all have the prospect of a "healthy" growing economy again. It is just a shame political imperitives and demands for institutional welfare intervene.

Bond Apocalypse Averted - For Now

Well my picture perfect 10yr t-note trade with all its bearish connotations has been scuppered over the last to sessions by none other than, err... the bears.

NEW YORK, July 10 (Reuters) - U.S. Treasuries rallied on Tuesday as investors poured out of stocks and speculative bonds for the relative safety of U.S. government securities.

The drive to Treasuries was fed by mounting concern over subprime mortgage debt and the deteriorating housing market that could also hurt U.S stocks, analysts and trader said.

Earnings warnings from retailers and home builders and also credit rating agency Standard & Poor's statement that it may cut ratings of some subprime loans and is reviewing its ratings of collateralized debt obligations were all factors hurting equities and nongovernment bonds.

"It has to do with the S&P headline on subprime. Credit spreads are blowing out. The fear is that they will force selling by those investors who can't hold on to these low investment-grade bonds," said Carl Lantz, U.S. interest rate strategist at Credit Suisse in New York. >>MORE<<

Interestingly, the technically sloppy short setup on the EuroBund has turned up a better looking long trade from a nice double bottom. A long case good certainly be made for the US contract as well, perhaps more so... but I was short. :-P

What has actually happened is that my bond apocalypse has turned into a USD apocalypse, with basically the same reasons quoted; sub-prime/housing slowdown blah blah. This has caused quite some technical damage to the USD index with new lows printed.

For the bulls it really is head in the sand time (if they want to stay bulls). In my humble and ill-educated opinion, the anglo economies are fucked, and are living on borrowed time (and whacking great piles of borrowed money). It will just take a bit of time for muppets to realize this fact.

The precise route by which this financial apocalypse plays out though, is anyones guess.