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Tuesday June 13, 2006
Morning Notes
Following yesterday’s sell off all three major US indices are now trading below their 200-day moving averages (DMAs). The last holdout was the Dow. Some important Dow components that are close to joining Dupont and Honeywell below their 200-dmas include Alcoa, Caterpillar, and American Express. Not surprisingly, one of the few Dow components recently breaking above its 200-DMA was the ‘recession resistant’ Johnson and Johnson.
Overnight selling pressures intensified in Japan, with the Nikkei falling 4.14%. The Nikkei has now fallen 19.0% since April 7 - or extremely close to the percentage correction that usually marks a bear market. India’s Sensex declined by another 4+% today, bringing its correction since May 9 to -28%. Obviously there comes a point when stock market weakness will negatively impact the Japanese turnaround story and the Indian boom.
-- The steep correction in the price of gold is bringing the manipulation crowd out in force again. I am 100% in agreement that precious metals prices are manipulated. However, I am 100% against owning gold because of this knowledge. Some would argue that this doesn’t make sense. Well, it makes perfect sense if you don’t think the manipulation is about to end.
Gold continues to drift lower not only because its price is (probably) being manipulated, but also because the inflation story is on the decline and no crisis story has risen to the surface. Until, and if, a financial crisis arrives that sends people rushing into gold, the majority of investors are happy parking their money in USD. The Fed can print as many dollars as they want under these conditions, or when USD is attracting ‘safe haven’ flows. That central banks are willing and able buyers of USD would be bad enough news for gold, but that the Fed is also suggesting that it wants to slow the presses down is down right frightening.
Gold needs a financial crisis, USD weakness, or some major Asian central bank to come to its rescue. If not, prices could continue to fall deeper than most think possible. Spot gold is off by more than $20 an ounce this morning and the $600 an ounce level has fallen with out a fight...
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