Gold Trades Up, While The Dollar,
Stocks And Oil Trade Lower
by Richard Gorton, The Resourceful Bear Blog | August 1, 2008
PrintInvestment report for July 31, 2008
Gold traded higher today
The chart of the gold ETF, GLD, closed up 0.63% and closed above 50 day moving average.
Gold, $gold, traded up to $913.
The US Dollar traded lower
The US Dollar, $USD, traded down to 73.23.
The USD/JPY is down from recent high above 108 to close at 107.81.
The ascending wedge pattern, which began when the Federal Reserve announced the facilities of TAF, TSLF, and PDCF, shown in this 3 month Yahoo Finance chart of USD/JPY, is about to be broken sharply lower.
World currencies traded mixed
The Australian Dollar, FXA manifested bearish engulfing ... -.15%
Stocks traded lower
Russell 2000, IWM, ... -.17%
Dow, DIA, ... -1.83
Investment bankers, KCE, ... -.69%
Banks, KBE, ... -.18%
The Brics, EEB, where many yen carry trade dollars still remain ... -2.28%
Sohu.com, SOHU, a leading edge, yen carry trade stock, as well as a leading edge, Chinese, that is FXI stock, ... -1.90%
Nasdaq leader, and 'best of breed' software provider to the banking industry, FISV, ... -3.65%
Oil traded lower
USO, traded -2.1%, to close down just under 100.
US Treasury Bonds traded up
TLT, popped up, but the pressure is still down from 92.94 on 7-15-2008, when the market sold off in response to the Federal Reserve moving to liquify and capitalize Freddie Mac and Fannie Mae ... +.99% to close up at 91.67.
The bond market place declared an interest rate hike on the 30 Year US Government Bonds, $TYX, in response to the Federal Reserve providing TAF, TSLF and PDCF assistance on March 18, 2008, and then again on July 16, in response to the Feds assistance to the GSEs. Bond market interest rates are headed higher and Treasury values and portfolios lower.
The EUR/JPY manifested bearish with a lollipop hanging man candlestick and closed lower.
EUR/JPY, the barometer of the yen carry trade, FXE:FXY, fell lower ... -.02%
Commentary
The world has passed through both 'Peak Currencies' and through 'Peak Dollar'.
Gold is rising as the world currency and means of preserving wealth.
The weekly chart of EUR/JPY, FXE:FXY weekly, shows a dramatic 0.57% fall lower, from an all time, which came in a long running ascending wedge pattern, with four weeks of rising price on falling volume.
An unwinding of the yen carry trade has commenced with interest rate differential rate investing reversing.
Investors will be buying the yen and paying back their 0.5% loans; the Bank of Japan will be foreclosing on loans not paid back, and taking whatever property was given in collateral.
Disinvestment has come out of yen carry trade favorite stocks such as the Brics, EEB, on May 19, as the TAF, TSLF, PDCF, rally ended and the EEB fell from 57.07; and then more recently on June 19 as EEB fell from 51.20, as news sources such as CEP News related the May Bank of Japan meeting minutes, which announced that inflation is an investment risk concern.
And disinvestment has also come out of world currencies, especially the commodity currencies.
The Euro, FXE, has fallen from 158.
The Australian Dollar, FXA, has fallen from an island reversal of 98 and then again fallen from 97.
The Canadian Dollar, FXC, has fallen from an island reversal and dark cloud cover of 101.5 and then again from 100.
One thing that is common to the fall of all these currencies is 'the date July 14, 2008' -- that was when the US Dollar, $USD, started to rise, as the yen carry traders and sold oil, USO, to take profit, and went long the financial sector, IYF.
Note on the chart of IFY, that "the rally is now done and over"; yesterday was a weak rise with a dragonfly candlestick; and today was a slight sell off with a gravestone doji candlestick; the chart shows bearish consolidation on falling volume. A dramatic sell off is coming within days; the yen carry traders who went long the financials will be selling; the last thing they want is to own level two asset laden, and level three asset laden stocks, that are marked to fantasy. Some type of dramatic sell off event is coming tomorrow August 1, or after the bell on August 1, or during the weekend, or next Monday August 4. The causative factor being an economic report, an announcement by the rating agencies calling debt and/or mortgage backed securities lower, or military confrontation taken by the EU US world government in response to the threat posed to global security by Iran's nuclear ambitions. One does not want to be short the oil ETF, USO, over the weekend, as it could easily gap higher on opening on Monday March 4, 2008.
Yesterday, July 30, 2007, was 'Peak Dollar'.
Now, today, July 31, 2008, gold is rising and the the dollar is falling.
The yen carry trade, EUR/JPY, FXE:FXY, will continue to unwind, causing disinvestment in both stocks and currencies. And the US dollar will be leading currencies ever downward.
The author in Calendar Yen Trading Patterns provides historical record that EUR/JPY and USD/JPY is frequently down in the month of August; this will awesomely exasperate the unwinding that is just now occurring.
US Treasury Bonds, TLT, failed on March 18, 2008 with the announcement of TAF, TSLF, and PDCF, and then again on Juiy 16 when the Federal Reserve moved to liquefy the mortgages GSEs, Freddie Mac and Fannie Mae.
In a world of increasing political tension, economic disinvestment and rising product inflation, investors are buying gold; the Resourceful Bear says: "Inflation is a stock, bond, and currency killer and a gold thriller". That is my quote, if you use it, please reference me.
The investment demand for gold is seen in the following ratios
gold relative to stocks, GLD:VTI,
gold relative to oil, GLD:USO.
gold relative to world currencies, GLD:DBV.
Gold is becoming "more dear" in terms of the important world currencies. Fresh, cup and handle patterns are starting that is going to take gold forever higher in relation to currencies. The date of May 1, 2008, was not only a World Revolution Day, but it was the day that institutional investors traded out of the high yield dividend paying stock, PEY, to go long gold with the yen carry traders, in CRB commodity futures and commodity indexed funds such as RJI, USO, and USO.
Gold in terms of the Australian Dollar: GLD:FXA
Gold in terms of the Euro: GLD:FXE
Gold in terms of the Canadian Dollar: GLD:FXC
Gold in terms of the Yen: GLD:FXY
Corey Rosenbloom provides helpful chart of gold in his article Gold’s Make or Break Zone Coming Up; it shows gold in outbreak since June 23, 2008 when the yen carry traders took heed to the May Bank of Japan meeting notes and sold out of the BRICS, EEB, and went long gold.
Geo-political analysis
Elaine Meinel Supkis relates in article Bank of Japan's 2007 Statistics relates: "The yen, representing an economy that is enjoying RECORD SURPLUSES and RECORD GROWTH, is weaker than the dollar and the euro."
However, this is just now reversing; an investment sea change is getting underway.
First, EUR/JPY is headed down; the yen is going to be getting stronger relative to the euro.
Second, USD/JPY is headed down; the US Dollar is going to win the race to the bottom, taking all currencies "right off the cliff" so as to speak.
Regional currencies may arise in South America, the Gulf oil exporting region, and in West Africa.
Copyright © 2008 Richard Gorton, The
Resourceful Bear Blog
Editorial Archive
Short Bio My investment statement is simple: in a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength. Research indicates that the stock market has transitioned from bull to bear; and that one's wealth is now best garnered and protected by investing in gold.
contact information
Richard Gorton 360-756-5431 | Bellingham, WA USA | Email | Website
The opinions of FSU contributors do not necessarily reflect those of Financial Sense.
