A further tempering of investment demand brought gold prices closer to the lower end of their overnight trading range and the metal appeared poised to test $900 once again, as a result. At least for today, such a test may have to wait. A global rally in equity markets turned would-be gold buyers into actual stock buyers following China's unveiling of another Great Wall (of Money) intended to stem the slippage in its economy.
Certainly, copper and aluminium showed faith in the Chinese plan's eventual outcome, and the two metals rallied substantially on the news. The bigger question remains not whether the country will build more shiny office towers, but how it will fill the already-vacant 100 million square feet of space it is sitting on - nearly enough for a 15-year supply of same.
The midweek session in New York opened on a slightly indecisive note for the precious metals complex. Framed by a US dollar stalled near 89 on the index, and a $1.15 rise in crude oil, gold started the day slightly lower, at $914 - down $2.00 per ounce, while silver rose a dime to $12.93 an ounce. Noble metals recovered a bit as well, with platinum climbing $10 and palladium rising $2, to $1041 and $194 respectively. A full-on depression is clenching the automotive sector and will not let go.
The morning's focus turns towards the upcoming ECB rate policy announcement and to the private-sector payroll numbers in the US. Seven declining sessions in gold could/should augur a day of recovery, but much depends on how the dollar reacts to today's news items and to what degree the appetite to purchase equities (following their own string of daily declines) manifests itself among investors. Thus far, the greenback did not digest the unemployment data all too well (slipping 0.10 to 89.10 on the index).
For the moment, the precious metal appears confined to the broader $900-$950 range, but could still move swiftly within in, pending news flows. The apparent February frenzy is starting to fizzle, hampered in part by a cooling of investment demand, and in part by the continuing rise of scrap flows. Turkey can now be added to the list of important demand agents who imported no gold in January or February. The country melted unwanted metal and sent it out for export. Over in India, buyers were seen sporting crossed arms once again, awaiting lower prices with a knowing smile.
A catharsis of sorts appears to be emerging among those most visible in this global maelstrom. Yesterday's performance by Fed Chairman Bernanke was praiseworthy in terms of the anger and frustration it contained when the subject matter turned to AIG. That the firm essentially ran a hedge fund that made wild bets while sucking the lifeblood out of what appeared to be a solid insurer, is about as certain as Mrs. Madoff not acquiring her penthouse and cash in ways 'unrelated' to her clever husband's ways.
In other news of interest, 20% of US mortgagees own more than their McMansion is now worth, and the Chairman of UBS said 'farewell' - one more victim of the rolling debacle. Somehow, the two news items are closely related - even if seemingly not. We suspect the overriding reason for the replacement of the Chairman with the former Swiss finance minister is to put Braveheart in front of the US Tax Man for when the epic battle begins. Nothing short of the survival of the Swiss model is at stake.
Meanwhile, over in market theory and chartland, the gnomes are working hard to figure out what the heck is going on with the numbers and are trying to gauge which way the market compass will point next. Not an enviable job, for your subscription base may well hang in the balance. Peter Brimelow over at Marketwatch lifts the veil on the Bob Prechter workshop and finds...surprise - bearishness galore:
A bearish stopped clock has started again at last. Well, it's twitched. And that's something, in today's market.
Memory Lane: My first-ever column for MarketWatch was on Robert Prechter and his Elliott Wave empire -- his Elliott Wave Theorist, and its sister letter, the Elliott Wave Financial Forecast, edited by Steve Hochberg and Pete Kendall. They were bearish. As usual.
But, as I noted way back then, Prechter had not always been bearish. In the 1980s, he had dramatic success because he interpreted the esoteric Elliott cycle system bullishly on both stocks and gold. He also won a popular option trading competition, quadrupling his money in four months. Still, after the Crash of 1987, which he had a good claim to have anticipated, Prechter went bearish. And he stayed that way, consistently calling for a Dow bottom at 4,000 or even, as currently, 400. (Elliott Wave theory often looks like numerology).
As the market mounted, reader reaction became vitriolic. That was then. This is now. It's a measure of the Crash of 2008 market massacre that the Elliott Wave Financial Forecaster, to which Prechter seems to have delegated portfolio recommendations, is currently actually ahead over the past 10 years by Hulbert Financial Digest count, up 1.49% annualized, vs. negative 1.84% annualized for the dividend-reinvested Dow Jones Wilshire 5000.
Over the past 12 months through February, EWFF is up some 24% by Hulbert Financial Digest count, vs. negative 46% for the dividend-reinvested Dow Jones Wilshire 5000. Over the year to date, EWFF is up 4.6% vs. negative 21.71% for the total-return DJW.
Here's the good news: Prechter recently congratulated himself on recommending on what he says was a fully leveraged short position on July 17 2007, very near the top. (HFD reads the record slightly differently, but it's arguable). He writes: Futures contracts convey profits and losses by points, not percent. We have now earned nearly 800 points worth of gains. This is surely the largest number of points that anyone has ever made, or will ever make ... the S&P is already down more than 50% and, bearish as I am, I do not think it will go below zero.
But on Feb. 23, Prechter recommended covering the short. Not all his reasons were comforting (this is an environment of escalating financial chaos. Currently, banks and brokers can still pay us. We need to be smart bears, not pigs.). But one reason was the possibility of a short and scary bear market rally.
So the stopped clock has twitched. That's something, isn't it?
Elliott Wave is a purely technical theory. In other words, prices move because they feel like moving, not in accordance with any grand economic theory. Overall, though, it looks like Prechter and his fellow Wavers expect a deflationary depression.
EWFF's recent terse summary:
The five-wave decline that started in October 2007 has now drawn the DJIA beneath its October 2000 low, down 50% in just 16 months. Some measures of investor pessimism have reached extreme levels, suggesting the decline has reached its latter stages. But it's not over yet. The bond market's verdict on the US bailout effort is resoundingly negative. Five year credit default swaps on U.S. Treasury debt reveal rapid deterioration in the perceived quality of U.S. credit.
Gold and silver ended their respective countertrend rallies and are starting significant declines. Gold should come under $680 while silver should work its way below $8.39. The U.S. Dollar Index remains in an uptrend that is far from over.
Before jumping to discredit Bob and the EW, do recall that was has carried upon laurel leaves when his bullish gold forecasts coincided with the visions of the perma-bull bullion crowd. We could give you dates, and locations. It was not that long ago in market terms.