Bill Cara: Gold taking a beating from USD, Thurs., Aug. 10, 2006, 1:28 PM

« Target right on the mark, Thurs., Aug. 10, 2006, 12:58 PM | Main | Gold recovering in Asia-Pacific markets, Thurs., Aug. 10, 2006, 10:43 PM »

August 10, 2006

Gold taking a beating from USD, Thurs., Aug. 10, 2006, 1:28 PM

Just when I thought that gold would separate from oil, with today's events in London, where police thwarted a terror attempt on the airlines, there we go again.

The fragility of airline passenger's nerves during this War on Terror is never far removed from markets. Today, the news was truly frightening. Ergo, the travel industry is likely to be hurt, which in turn may hurt the airlines and the purchase of oil-related products.

So oil is down a couple bucks today. And gold has tagged along. But, with the strength of the USD, which is a traditional safe haven, particularly when the terror was directed at Europe, the price of gold has fallen even more. It's off about $14 at this point.

The problem here is that trading in the gold ETF's (GLD, IAU and others in other countries) can be easily played by the Big Money gnomes. So it's hard to see if there is going to be a follow-through.

But isn't this really about the $USD?

Until today, the gold price had been in a bullish trend. Is this terror plot enough to reverse that trend or just enough to cause a sell-off by nervous traders today? That's the 64 million USD question.

I suppose the travel agents would have a fair handle on this issue of flying versus stay-at-home. But I don't.

I surmise that in a day or two, life will return to normal. Normal? We'd have to go back to pre-9/11 to make that statement.

But therein may lie the answer to the question about travel and gold. Travel was off right after 9/11, but oil and gold moved steadily higher.

I think gold is going higher here right after the wind comes out of the $USD sails. I don't know for sure of course, but I do know we'll have to watch the trends and cycles to see if the former support levels hold up.

There is no doubt that the $USD is over-bought right here, and gold is over-sold.

You know, on days like today, you'd like to be working in the upstairs trading rooms of Humungous Bank & Broker just watching the customers' order flow. I envy the unfair advantage those traders have.

Posted by Posted by Bill Cara on August 10, 2006 01:28:20 PM | Category: Forex , Gold

Discourse

Seems like we may be coming into a good accumulate time for bullion and gold miners. The big drop today appears to violate logic unless CBs are dumping, a market effect that ought to be short-lived.

Posted by: jcf at August 10, 2006 1:55 PM [link]

Hello again,
I'm a beginner, can someone explain me why CBs can't continue to dump gold or sell gold contracts just by printing money ?
I know it's a fool's question but please explain me ;-)
How deep can the dive go ? i'm a little bit worried for i've bet on a bull gold market :D

Posted by: grasshopper at August 10, 2006 2:18 PM [link]

if i were bullishly inclined, i would not want to lose this rally today. we are +30 right now. my guess is that they bring this back up into the close.

however, if it does fail, it'll be one more ominous distribution day.

Posted by: mtzion at August 10, 2006 2:54 PM [link]

i'm sorry. i'm talking in terms of the DJI.

Posted by: mtzion at August 10, 2006 2:55 PM [link]

OMINOUS DISTRIBUTION DAY = THOSE FUNNY TAILS UP THINGIES ON THE CHARTS

Need the 3pm Buy Program (cousin to the 11am Buy Program) to kick in.

Tomorrow we get:

Import and Export Prices
8:30 ET

Retail Sales
8:30 ET

Business Inventories
10:00 ET

More numbers for MarkM to pore over! What a great end to the week. Who wants to go long in front of those numbers?

Posted by: MarkM at August 10, 2006 3:04 PM [link]

who knows? if the price mumbo jumbo goes up and the sales number doo-hickies go down, then maybe tomorrow we'll see one of those long dark chopstick days down that erases all the gains between here and the july lows.

on a more serious note, a real bull market would have shaken out all the longs by now with some really violent sell-offs. this up and down deterioration is more characteristic of a bear.

Posted by: mtzion at August 10, 2006 3:18 PM [link]

Whatya think of gold? It's been treading water in circles all afternoon -- like a tired swimmer looking for a dock.

Posted by: number2son at August 10, 2006 3:24 PM [link]

I think that if NY Aftermarket keeps it tucked under 636 spot then Sydney and Hong Kong are gonna have some real interesting decisions to make.....

Posted by: MarkM at August 10, 2006 3:27 PM [link]

IMX, Hong Kong tends to be quite volatile esp. late in the session, so if 'they' want to take it lower, that's where we'll see it.

I'm with MarkM here, looking for a quick washout. Then I'll be on a major buying spree.

Posted by: omphalos at August 10, 2006 4:02 PM [link]

Central Bankers Operating behind "Smoke and Mirrors".

http://www.321gold.com/editorials/sirchartsalot/dorsch080906.html

Posted by: JogyP at August 10, 2006 4:21 PM [link]

MarkM-

Do you know where in the cycle home prices usually trough (see time frame below)?

Doug Kass-

"As I mentioned previously, the statistical peak in housing (measured by new-home sales) was October 2005, only nine months ago (and with a unit drop in new-home sales since the peak of less than 20%). By contrast, the average postwar cyclical downturn for housing has been between 26 to 52 months, and in units, has averaged a 51% drop."

Posted by: stockman at August 10, 2006 4:21 PM [link]

Because of the illiquidity, prices are "sticky". They lag. Prices are only starting to roll over now and they will do the same (lag) on the turn up. It takes a while to make new comps and the inventory overhang has to be worked off.

Posted by: MarkM at August 10, 2006 4:38 PM [link]

For those interested, the TOLL conference call yesterday includes a pretty good discussion of these issues. At approx. 10 minutes into the call, analyst Ivy Zelman presents a particularly pointed line of questioning that reveals the demand pressures facing builders.

http://biz.yahoo.com/cc/5/72175.html

Posted by: number2son at August 10, 2006 4:54 PM [link]

How did the 30 yr. bond auction go today?

Posted by: JB at August 10, 2006 5:07 PM [link]

Home prices are also "sticky" because of the sizable "incentives" builders offer buyers in mkt. declines vs. hated price reductions, which endanger sales in escrow at earlier prices.

Posted by: jcf at August 10, 2006 5:32 PM [link]

Sector rotation coming (happening?)

12 months following the LAST fed hike (9 cycles back to 1969) the best sectors (top 2) staples and health care; perhaps most important... those that underperform the SPX- Tech, Cons Cyclical, Materials, Energy.

Boring is better for now.

Posted by: stockman at August 10, 2006 8:11 PM [link]