Some people prefer to use logarithic charts to cover long periods of time. So here is a log chart of gold. I drew a parallel line connecting the tops which looks like this may be the trend channel. I read this as more downside than upside, but I do not expect a test to the lower line. More likely is a sideways trade allowing the lower line to catch up with the price.
I guess I should throw in some clarification. While I think the charts that I and cohodk have provided, I think the channel formation is going to become irrelevant for gold. I say this because I do believe that gold is in the later stages of a parabolic move, and the trend is about to get very steep. The December pullback looks perilous when you are in the middle of it, but if you look at other parabolic moves, there is so much volatility that it is not uncommon to have very tall doji's and large white candles followed by red candles of almost the same size (on the monthly time frame).
Gold recovered a bit today, I'm not sure how much more upside there is, but I closed out my position that I opened at 1092 for a very tiny profit. I am going to wait for more weakness - although I am not 100% convinced there will be much more of a decline to come. 1075 yesterday could have been it... The USD appears to be taking a little breather today.
At the moment my target re-entry point is ~1060, although I may try to scalp some small $2-3 moves here.
Support at 1073.9, 1085.9, and resistance at 1096.7.
The seasonality in gold is that there is typically a weak spot to buy in November-December......and then hold until Feb-March. If one looks at the 2 month winter season from the last week in Dec to the 1st of March, that has produced a gain in gold in the last 4 years and in silver the last 6 years. Those are odds I'm willing to work with. December by itself is not a season but merely an opportunity to re-enter. The August-March seasonal has an even better Au/Ag track record over the past 6 years. The current setback in gold and silver appears to be in the mid-section of the alleged Aug-March seasonal run.
I look at the log gold chart showing that gold has shifted to the upper half of the trading channel. At some point in time it will meander beyond the upper trend line and form a new half channel. Eventually the current channel will give way to another one.
Nibbles from AUY, AZK, BVN, GSS, UXG, RBY making some good moves today. GDXJ doing much better than GDX. Novagold went up 16% today (34% in 3 days) not sure what the news is on that one. Copper was very strong today and gold has actually been lagging it somewhat. Note that copper miner Taseko (TGB) has basically not corrected over the past few weeks.
Jim Sinclair's Dec. 19 interview on King World News was interesting. He states that the gold market is not being moved by exchange trading and that it's no longer a safe market to be trading in.
He is saying that the reason that Wall Street Bonuses were so high is that this will be "the last dip in the well" for the highly-paid bankers, and they know it.
His target dates are Jan. 14th or mid to late June - when he thinks that an event or a delivery breakdown will occur that will cause gold's rise to continue higher.
His contention is that the dollar's problems are not being addressed on a fundamental level, and there is nothing on the horizon that will impede the dollar's fall until policy changes occur.
Sounds simple enough for me. The 34 minute interview is worth the time.
Q: Are You Printing Money? Bernanke: Not Literally
I think the seasonality you see is just a function of a bull trend. Im not saying gold is not still in an upward bias, but personally I would not blindly buy.
About log charts...It is usually quite difficult for upper trendlines to be broken without a massive parabolic move that always marks THE END of the move. Since I do not see the end of the move in gold for at least 5 more years, I do not see a break of the upper trend in the forseeable future. Gold will trade within this band, IMO most likely 900 to 1200, for the next 2 years, barring a global war, or the collapse of the EURO.
This will be a better time for traders rather than buy and hold. Yippee.
Premiums on "investment" gold will compress substantially.
I think the seasonality you see is just a function of a bull trend. Im not saying gold is not still in an upward bias, but personally I would not blindly buy.
Whatever the actual reason if one is going to buy, then the late summer and late fall are the best times over the past few years. I wouldn't call my buying blind. I'm buying on the steep deeps the best I can and watching all 3 rear view mirrors for anything approaching from behind. The recent rise in both ends of the yield curve as well as the dollar running into resistance at 78+ are the newest revelations to ponder.
Cohodk, Sinclair's call of $1650 by January 14th, 2011 is at odds with your call of $900-$1200 over the next 2 years. JS has put so much publicity behind that call that to be wrong will be a big blow to his reputation. That's the same bet he offered up $1,000,000 for that no one would take. I'm not ready to bet against him.
I agree that if we stay in the $900-$1200 range for the next 2 years that numismatic gold coin premiums will shrivel away. But I'm not in agreement with $900-$1200 for the next 2 years because I don't feel the most recent topping action was a multi-year top...more likely an intermediate or short term top. With a $2 TRILL deficit to fund next year along with $2 TRILL in treasuries needing to be rolled over it's hard to see longer term strength in dollars/treasuries with $4 TRILL in funding needed.
Took advantage of the recent strength in miners and pared down a bit from the buying done the past 2 weeks at a very slight profit. RBY moving up 20% during the teeth of this correction was beneficial. Let go all of BVN, AUY, RBY, and a portion of AZK, UXG, GSS, GDXJ. I just have a feeling that gold will likely follow it's previous price patterns and perform a 5th leg downward in the next week or so. Why not one more PPT beat down next week to end the year in style along with gold options and futures expiration on Monday and Tuesday. As much as gold felt beat up this week, esp. the miners, it didn't feel bad enough. The past few days gave me an opportunity to move back to 60% cash in my PM equity pie. At 25% cash left I didn't feel I had enough reserve left to keep buying should opportunities present themselves if gold double bottoms or goes lower. Gold has intially busted above the 2-3 week down trend line but a re-test of that line at a lower point seems fairly realistic.
With copper and oil moving up very strongly I would have thought gold would have responded better than just $1106. Even the SM, TBond yields, and euro were moving which should have helped gold more. At least it did break and hold> $1100 which is a 1st step.
Have been short-term trading SLV through my 401(k) plan which offers a PCRA trading feature. Bought in at $17.09 and sold today at $17.18... booked a gain of a couple hundred dollars. Did the same last week. Nothing spectacular, just some small gains here and there. It adds up. I don't like holding SLV long term but it's fine as a short-term trading vehicle.
I'm interested to see the action when the Palladium ETF gets off the ground. It's interesting that Pd jumped so much today on news its ETF was getting off the ground. Both gold and silver have also done well since GLD and SLV were introduced.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
Today and yesterday were good for PMs and the stock market. I think the up trend will continue for a few more days next week, but it probably won't be anything big. After all of my reading, I am fairly convinced that we will see 1050 or 1060 fairly soon. 1020-1030 may be a possibility but I'm not feeling it.
I subscribe to the weekly at McClellan newsletter, which I really haven't put much trust in, but some of their observations are dead on. This newsletter finds chart patterns and correlations and makes correlations... such as using lumber futures to predict stock market trends and the like. One of their observations was that there is a 13.5 month sine-wave cycle in gold, and it was predicting a bottom in December. It was really hard to believe this end of Nov & Dec 1 as gold was soaring to highs, but it did apparently come true. Of course, there can be a margin of error of a couple of weeks, but the low should come in December if this is true.
Another thing in the last newsletter is that the steep yield curve is usually VERY bullish for the stock market.
Anyway, I think we either saw the low this week at 1075 or the low will come very soon. More likely I think is the case that we might see a sudden intra-day drop and rebound to the 1050-1060 area. So I remain in cash waiting to buy at lower levels. It might make more sense to play the SM as its direction seems much more clear at the moment. This consolidation hasn't seen much upside so I'm thinking that there is some lurking, but the situation is too tough to call. I see that the consolidation will be done either the first week of Jan or the first week of March. At the moment, March is looking more likely.
There's some discussion/speculation about comex physical delivery problems again, and if anything comes of that news then those will probably surface in the first have of January.
In the bigger picture, I don't see any way that gold is stuck in a 900-1200 band. Things are deteriorating rapidly. CB's are buying gold, not selling it. The US has to finance an AMAZING amount of debt in 2010. Federal Tax receipts in 2010 will be disappointing. Many states are broke and will reach a breaking point in 2010. I'm in Arizona and the deficit is HUGE. The legislature has no solution and even spending cuts wouldn't be enough. CA is in trouble, and many other states are right behind us. There's got to be another stimulus coming - this time to save the states. We'll see $1500 gold before the end of 2010.
Roadrunner, nice trades!!! I hope JS is right. Has he ever stated why Jan 14 is THE DATE? Has he ever mentioned what happens after then?
PC, all the reasons you mention could be the very reason gold goes stagnant. Without economic growth, interest rates and hence gold will have a difficult time moving higher. I believe the recent run in gold reflects the possible problems you mentioned.
<< <i>PC, all the reasons you mention could be the very reason gold goes stagnant. Without economic growth, interest rates and hence gold will have a difficult time moving higher. I believe the recent run in gold reflects the possible problems you mentioned. >>
Are you referring to the fed's rate or real interest rates? The high yield curve shows that REAL interest rates are rising. With over $2.5T in debt being financed by the US next year, it's a strong possibility that rates are going to have to increase.
Either the Fed will adjust its "official" rate policy higher, or market rates will drop. In either case, rates will probably be within 100-200 basis points (higher or lower) of where they are today. Market rates have only backed up to where they were at the beginning of 2008. There wont be any sustantial rate increases until the economy improves dramatically. I dont think anyone expects that--nor do I--and thats partially behind my assertion of stagnant gold pricing for the next 18-24 months.
<< <i>Either the Fed will adjust its "official" rate policy higher, or market rates will drop. In either case, rates will probably be within 100-200 basis points (higher or lower) of where they are today. Market rates have only backed up to where they were at the beginning of 2008. There wont be any sustantial rate increases until the economy improves dramatically. I dont think anyone expects that--nor do I--and thats partially behind my assertion of stagnant gold pricing for the next 18-24 months. >>
Your comments assume that the fed will be able to retain control of rates. With $2.5T in debt offerings next year (if not more), and deteriorating economic conditions across the globe, it's a BIG ASSUMPTION that other countries will still buy our debt in return for the paltry interest rates we are offering. It's either raise rates or monetize it, both of which will be good for PMs.
Making a short term play today at 1105.8. Stop at 1105 for $.80 loss or sell at 1111 for $5.20 profit.
IMO, the big assumption is that other countries will NOT want to own US debt. There was a story on Bloomberg last night where Vietnam was ordering companies to distribute their holdings of dollars because there is a massive shortage of greenbacks in that country. The USA is THE global economic engine and the rest of the world will make sure it stays that way, for what other country can they turn to to protect their a$$e$?
US debt will be in demand until the USA can no longer protect the world from tyranny.
<< <i>There was a story on Bloomberg last night where Vietnam was ordering companies to distribute their holdings of dollars because there is a massive shortage of greenbacks in that country. The USA is THE global economic engine and the rest of the world will make sure it stays that way, for what other country can they turn to to protect their a$$e$?
US debt will be in demand until the USA can no longer protect the world from tyranny. >>
Your statement might apply in the context of Japan or the Western European countries, but it makes no sense with respect to China, now the biggest buyer of our debt. China is a tyranny -- and we're not protecting them from anything. In fact, we're the biggest roadblock to their aspirations of power with respect to Taiwan, etc.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
<< <i>IMO, the big assumption is that other countries will NOT want to own US debt. There was a story on Bloomberg last night where Vietnam was ordering companies to distribute their holdings of dollars because there is a massive shortage of greenbacks in that country. The USA is THE global economic engine and the rest of the world will make sure it stays that way, for what other country can they turn to to protect their a$$e$?
US debt will be in demand until the USA can no longer protect the world from tyranny. >>
Your assumption also makes the assumption that there is an infinite demand for US debt, and if anything the total worldwide demand for US debt (or any other nation's) is shrinking. As things get worse around the globe, I think it's reasonable to assume that we'll see countries pull money from investments (in US debt or anything else) for domestic use. We already saw some of this in 2009, I expect the non-renewal or non-reinvestment in US debt to increase in 2010.
<< <i>I think it's reasonable to assume that we'll see countries pull money from investments (in US debt or anything else) for domestic use. We already saw some of this in 2009, I expect the non-renewal or non-reinvestment in US debt to increase in 2010. >>
The NY Times had a recent article about this -- it's very concerning:
Payback Time--Wave of Debt Payments Facing U.S. Government
WASHINGTON - The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.
But that happy situation, aided by ultralow interest rates, may not last much longer. Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed. Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”
The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead. Link.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
<< <i>There was a story on Bloomberg last night where Vietnam was ordering companies to distribute their holdings of dollars because there is a massive shortage of greenbacks in that country. The USA is THE global economic engine and the rest of the world will make sure it stays that way, for what other country can they turn to to protect their a$$e$?
US debt will be in demand until the USA can no longer protect the world from tyranny. >>
Your statement might apply in the context of Japan or the Western European countries, but it makes no sense with respect to China, now the biggest buyer of our debt. China is a tyranny -- and we're not protecting them from anything. In fact, we're the biggest roadblock to their aspirations of power with respect to Taiwan, etc. >>
Really? Without the USA (and Europe), employing 500 million Chinese, there is no economy in China. Do you think the Chinese populace would just sit by when 300 million are out of work? That Govt would be toppled faster than my kids ripping open their presents on Christmas morning. The economies of the USA and Europe provide stabilty to the Chinese economy. They are spending OUR dollars to finance infrastructures--many of which are not needed--to keep peace in their country. China knows its place on the foodchain and will be content, for at least another generation or so.
<< <i> Really? Without the USA (and Europe), employing 500 million Chinese, there is no economy in China. Do you think the Chinese populace would just sit by when 300 million are out of work? That Govt would be toppled faster than my kids ripping open their presents on Christmas morning. The economies of the USA and Europe provide stabilty to the Chinese economy. They are spending OUR dollars to finance infrastructures--many of which are not needed--to keep peace in their country. China knows its place on the foodchain and will be content, for at least another generation or so. >>
Let me get this straight. The Chinese are going to keep lending us even greater sums of money, just so we can buy their products. Even though it's obvious they will never be paid back -- or will only be paid back in inflated-away dollars.
As my mother would say, "they're not as dumb as you think you're smart." (I don't mean you, personally -- just people in the West who think the Chinese are somehow going to be suckered here).
Chinese exports to the U.S. in 2008 were $337 billion. Link. The figure will be lower in 2009. China's GDP is well over $4 trillion. Link. Their exports to the U.S. are only about 8% of GDP. Important, but let's not exaggerate with the 300 million workers losing their jobs.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
My comment is no more an exaggeration than this....
though it's obvious they will never be paid back
And yes, the Chinese will continue to lend to us. If you think the US financial system/economy is a ponzi scheme, then you should look very closely at China. Look into their demographics, their religion, their history. I think you will find a building much taller and bigger than the Leaning Tower of Pisa. When it falls, the earth will shake.
I dont think the Chinese will be suckered. Thats why they continue to hoard US dollars. They know they will need them someday.
I don't dispute that the Chinese economy has elements of a Ponzi scheme with fake growth numbers, bad debt, etc. etc.
But that doesn't mean our economy isn't a Ponzi scheme.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
Perhaps all economies are ponzi schemes. But the USA is probably the most stable. So lets deal with what we've got.
The links you post are fair and accurate. The USA is a direct 10% of their economy. What percent is ancillary business such as moving those products from the mines to the factories and from the factories to the ships? And how much to those workers spend locally buying food and clothing, ect. I dont believe 100's of millions is really much of an exaggeration.
But in looking deeper at the links you posted, notice how much business China does with Japan. Do you think China wants to hold YEN?
It's unlikely the Chinese will hold a lot of Japanese Yen... both for cultural/historical reasons and because Japan has a big trade surplus with China. The first link I posted shows that Japan exports $150.7 billion a year to China but only imports $116 billion worth from China. So China won't be accumulating Yen like they accumulate dollars from the U.S.
I wouldn't want to hold a lot of Yen... bad demographics and a lot of government debt make it unappealing.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
Gold shifted gears by the commercials selling off 13K shorts and adding 5K longs....dropping the ratio significantly to 4.08, about what it was back in late November. OI dropped to 499,000. Looks like the bankers are thinking gold is going up again at least short term.
The dollar commericals continued to pile in mass to the short side by adding 9,000 shorts to bring short to long ratio from 6.02 to 7.26. OI increased 8500 to a hefty 60,000...that's 50% higher than anytime this year.
Salute the automobile: The greatest anti-pollution device in human history! (Just think of city streets clogged with a hundred thousand horses each generating 15 lbs of manure every day...)
Dropping like a rock? Looks somewhat orderly to me.
It does look like we'll have a 5th leg in gold as I suggested late last week. Right now it looks like it's in the 5th leg down from a starting point around $1115. Then probably a bounce followed by another set of 3 or 5 legs down. $1050 would seem to be the worst case bottom on this run as the higher order 3rd leg down ate up around -$60 ($1135 to $1075). That would mean a max low on this leg to around $1050. With the ferocity of the intial move down I'd be surprised if gold dropped any lower than $1071-$1080 this week. I was figuring the end of this week would be the end of the correction for a while....YY's agree. If gold does end at $1050-$1075 that might be just the A leg down with a B-C still to come with an ending point at least in the $1020-$1035 range. One 7 yr. bond auction to go with the 2 yr and 5 yr getting grades of C and B these past 2 days.
The miners weren't much affected by the $15-20 down move in gold the past day or so almost as if they had already taken their lumps and moved on. I wouldn't expect this 5th leg to seriously hurt very many of them but I will be waiting with open arms to buy them should that happen.
The gold to silver ratio looked to be breaking lower trend line support yesterday at the 50 dma but today it rebounded dramatically at the lower band with silver taking a good hit. It doesn't look like this is the start of another strong move into the upper 60's. There are negative divergences all over the chart suggested momentum has turned on GSR. Maybe one more multi-day bounce back to the 200 dma or upper BB area (ie partial retrace of the past 2 weeks) before continuing down towards the 50's. This could correlate to the start of a multi-week B leg in gold. The 20 day BB's have been tightening for weeks with ever smaller peaks. A major trend change is near.
<< <i>Really? Without the USA (and Europe), employing 500 million Chinese, there is no economy in China. Do you think the Chinese populace would just sit by when 300 million are out of work? That Govt would be toppled faster than my kids ripping open their presents on Christmas morning. The economies of the USA and Europe provide stabilty to the Chinese economy. They are spending OUR dollars to finance infrastructures--many of which are not needed--to keep peace in their country. China knows its place on the foodchain and will be content, for at least another generation or so. >>
That's quite an exageration, and not quite the way it really is. The US needs China more than China needs the US.
All of the major US corporations have moved their production to China. Without China, American companies go broke and our shelves become empty. However, without the US, China still makes and exports its goods to the rest of the world. And even then, in a lot of cases the US would still HAVE TO buy goods from China under any circumstances because of lack of alternatives.
China is very much aware of their rising world status. Look at what they did and the influence they had at the environmental convention in Copenhagen... thank God they were one of the lone voices of reason. And they are looking to decrease - not increase - their US debt holdings, and they started to do that here in 2009. A trend that I expect to continue.
<< <i>Dropping like a rock? Looks somewhat orderly to me. >>
I agree, the "dropping rock" phase is over. The key resistance level appears to be 1110. We're probably not going to get over that this week. I'm still looking for one more test of the lows, either 1075 or 1050. Ackerman has a pivot point identified at 1046.8. I see a solid support level at 1065.
<< <i>The movements in platinum, oil, copper, etc. are telling gold it's time to get going again even if only a counter-move. >>
I sort-of agree. I've mentioned before that commodities follow gold with about a 4 month delay. Gold started up about 4 months ago, so now it's time for silver and other commodities to take off. It's at the bottom of its channel, so I think it's bottomed out. A great time to buy.
This article reinforces my previous comments and might be an eye opener for cohodk. Who is buying all of the US treasuries? According to the article:
US households purchased $529 billion of US Treasuries in the first nine months of 2009, accounting for 45% of total new Treasury issuance.
So far this year the Fed has purchased $293.3 Billion of Treasury Debt, and is by far the largest purchaser of Agency Debt at $803.8 Billion.
Foreign entities bought $373.3 billion of Treasury debt, and were net sellers again of $110.3 billion of Agency debt and $73.1 of US corporate debt.
Now you must ask yourself, if the US household was one of the biggest purchasers of US treasuries in 2009, will they continue in 2010? And what might cause or trigger US households to sell their treasuries?
The bottom line is that the data seems to indicate that the foreign sector traditional buyers (at least for the past 20 years or so) of US sovereign debt are walking away from the market as they had said they would do, and are moving their reserves into other instruments.
Who thinks foreign entities are going to reverse this trend in 2010? Who thinks US households are going to continue to buy US treasuries at the rate they did in 2009? I don't...
The numbers add up to ~$1.2T of US treasuries purchased by foreign entities, the fed, and J6P. Next year, the US will finance $2.5T.
Now, if the stock market takes off next year, like I think it will, how long do you think J6P will leave their money in US treasuries? And if commodities and PM's take off next year, like I think they will, how much of J6P's money will make it into PM's? $1T dumped into gold would send the POG soaring.
Would love to hear/see comments.
Edited to add: The article also makes a comment that seeing a few states go BK could trigger something big. I think this is the most realistic and dangerous threat to the economy. I'm in AZ, and our state is looking at a $1.5B deficit next year. To my knowledge, there are no plans to even come close to dealing with this issue. There are cuts and tax hikes coming, but it will NOT address the whole problem. AZ will be BROKE next year. I'm very confident that CA and many other significant states will be in the same situation. It seems to me like state officials are hoping for some kind of miracle that's not going to come.
PC, the article you link to has a discussion of the Fed's apparent undisclosed buying of lots of Treasuries... seems to me the biggest news story I've read all year, if it's true.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
I vehemently disagree, so we'll probably never be able to come to a compromise. If the Unions in this country did not push wages so damn high Americans might actually be able to afford goods made in the USA. Americans companies moved operations overseas because the Unions priced American labor out of the marketplace. There is absolutely nothing made in China that cant be made here, except products that will kill our kids.
I am still waiting for someone to show me where China's actual holdings of US debt decreased. They may have reduced the amount they buy every year, but they have not decreased holdings. And, IMO, the only reason they decreased purchases is because they ran a smaller trade surplus than in 2008. China took an income hit in 2009 and spent any excess monies on their own "stimulus package". They didnt buy as much because they couldnt afford to.
China may be the most polluted country in the world. It will come to bite them just as it bit us. Now im not advocating CO2 credits and absolutely disagree with man-made global warming, but vast areas of China are becoming uninhabitable. You make the bed you sleep in.
Yes, US households will continue to buy US debt. Domestic demand for US debt will continue to grow. If interest rates increase in the USA, our debt will be much more attractive and foreign borrows will not only rush in to buy it but will reverse the dollar carry trade in lightning fashion.
I think what you need to do is see how huch J6P held in treasuries in 1995 and in 2000--the best years of the market and see if holdings actually decreased. Do the same from 2003 to 2007. You will find holdings have increased. Just because the market goes up alittle does not mean IBM and grandma are going to cash in their T-bills.
I dont think commodities will "take off". Copper and oil already reflect the "promise" of improved economic conditions. And we've seen how the world reacts to $4 copper and $125 oil--not very well. I believe most commodities will, like gold, trade sideways in 2010.
$1 trillion buying physical gold would surely make it move. But why would there be such demand and further, dont you think a player who wanted to put $100 billion into gold knows he would push the price higher? Of course, so he wouldnt buy physical. He would buy some crap product issued by the banks. I dont see $1 trill coming into the gold market.
The above article shows a graph of Chinese bond purchases over the past year. Every offering is dropping with the exception of shorter term TBonds. According to JW China's total bond portfolio has been flat at $790 BILL since May 2009. In looking at the RBS provided chart I don't see how they come to that conclusion. But even China staying flat on total bonds is not going to get it done. Standing still on US bond purchases only means someone else has to buy or the US monetizes what's left.
One important point about "households" buying bonds. That is just a category that the Treasury lumps everything else into that doesn't fit any other defined category. I have no clue if J6P, the Cayman Islands, a govt entity, or "Extreme Makeover, Home Edition" are buying those "household" bonds.
After watching today's action have to wonder if we just saw the last correction (a short legged 5th leg) to $1085 as gold heads up for a while. It's just as likely as heading for $1050. I didn't buy anything today but was tempted to pick up some GSS, BVN, AZK, AUY once again.
The gold market may not need anything close to $1 TRILL to continue to push it higher. All it would take is a breakdown in the paper schemes reflecting way too many shorts with no physical behind it. Just the actions of these guys trying to cover would send it up. $1 TRILL is roughly 30,000 tons (100% of what the CB's claim to still possess). The market is much tighter right now where even a change in supply of 1,000-3,000 tons ($30-$100 BILL) could shake it up. That's not a lot of money. Heck, the Comex only lists 250-300 tons of gold as its total inventory. GLD only claims to possess $1100+ tons. Just a few hundred tons at the wrong time can shake things up.
<< <i>The US needs China more than China needs the US.
I vehemently disagree, so we'll probably never be able to come to a compromise. If the Unions in this country did not push wages so damn high Americans might actually be able to afford goods made in the USA. Americans companies moved operations overseas because the Unions priced American labor out of the marketplace. There is absolutely nothing made in China that cant be made here, except products that will kill our kids. >>
I wouldn't blame it all on the unions. Government taxes, laws, and regulations, as well as our litigousness make it difficult to do business here. Even if the union wages weren't what they are, the problem is that the wages in BRIC and other countries are so incredibly low that the leverage is huge whether you pay someone in the US $8 or $40/hr. I believe Chinese workers might go for $2/day, vs. $64/day or more in the US.
<< <i>I am still waiting for someone to show me where China's actual holdings of US debt decreased. They may have reduced the amount they buy every year, but they have not decreased holdings. And, IMO, the only reason they decreased purchases is because they ran a smaller trade surplus than in 2008. China took an income hit in 2009 and spent any excess monies on their own "stimulus package". They didnt buy as much because they couldnt afford to. >>
I posted the link a while ago but I realized that it was saying something different that I had remembered. I think you are correct but I think it may change in 2010. I also have read that China (and others) have switched their long term holdings with short term holdings.
<< <i>Yes, US households will continue to buy US debt. Domestic demand for US debt will continue to grow. If interest rates increase in the USA, our debt will be much more attractive and foreign borrows will not only rush in to buy it but will reverse the dollar carry trade in lightning fashion. >>
Yes, but higher interest rates will also kill the US economy and majorly stifle the real estate industry. Not sure who will have any money to buy treasuries once you stifle the economy further. You can't have your cake and eat it too.
<< <i>I think what you need to do is see how huch J6P held in treasuries in 1995 and in 2000--the best years of the market and see if holdings actually decreased. Do the same from 2003 to 2007. You will find holdings have increased. Just because the market goes up alittle does not mean IBM and grandma are going to cash in their T-bills. >>
I'd like to see that info, but it won't be easy to interpret. During the last 2 decades retirement savings through 401ks has grown immensely, and I believe that a lot of 401k money that's invested in safer funds ends up in treasuries, so by virtue of the overall increase in size of retirement fund investing, you're probably right. And this does continue as workers continue to automatically contribute to their 401ks. But the chart in the article I linked reflects a different trend. After 2007's big crash, many moved into safer investment options, and most are probably still there. As consumer confidence grows, J6P will transition out of the safer options again.
<< <i>I dont think commodities will "take off". Copper and oil already reflect the "promise" of improved economic conditions. And we've seen how the world reacts to $4 copper and $125 oil--not very well. I believe most commodities will, like gold, trade sideways in 2010. >>
Commodities are off to a great start so far, but a day or two doesn't make a trend. The world will get used to the new commodity prices just like they've always done. Just like we've gotten used to $70-80 oil. And it won't necessarily be going up because because of supply and demand, it could very well be because of currency devaluation.
<< <i>$1 trillion buying physical gold would surely make it move. But why would there be such demand and further, dont you think a player who wanted to put $100 billion into gold knows he would push the price higher? Of course, so he wouldnt buy physical. He would buy some crap product issued by the banks. I dont see $1 trill coming into the gold market. >>
You wouldn't have expected real estate prices to reach the highs that they reached either but it happened. Trillions flowed into real estate, MBS, and the like. $1T may have been an overstatement, but as RR said $30-100B would shake things up considerably. I think you underestimate the "bandwagon" effect that the gold train will have as it marches upward. Just as the recent RE market made RE investors out of millions who you'd never expected to be RE investors (and had no business in RE), the same will happen with gold.
But obviously if you think gold is range bound, then obviously this won't happen, so we'll just have to see how 2010 plays out.
Comments
Knowledge is the enemy of fear
Gold recovered a bit today, I'm not sure how much more upside there is, but I closed out my position that I opened at 1092 for a very tiny profit. I am going to wait for more weakness - although I am not 100% convinced there will be much more of a decline to come. 1075 yesterday could have been it... The USD appears to be taking a little breather today.
At the moment my target re-entry point is ~1060, although I may try to scalp some small $2-3 moves here.
Support at 1073.9, 1085.9, and resistance at 1096.7.
Hey! Those are nice looking charts. I don't study them like you guys do but they sure make great Christmas decorations.
I look at the log gold chart showing that gold has shifted to the upper half of the trading channel. At some point in time it will meander beyond the upper trend line and form a new half channel. Eventually the current channel will give way to another one.
Nibbles from AUY, AZK, BVN, GSS, UXG, RBY making some good moves today. GDXJ doing much better than GDX. Novagold went up 16% today (34% in 3 days) not sure what the news is on that one. Copper was very strong today and gold has actually been lagging it somewhat. Note that copper miner Taseko (TGB) has basically not corrected over the past few weeks.
roadrunner
He is saying that the reason that Wall Street Bonuses were so high is that this will be "the last dip in the well" for the highly-paid bankers, and they know it.
His target dates are Jan. 14th or mid to late June - when he thinks that an event or a delivery breakdown will occur that will cause gold's rise to continue higher.
His contention is that the dollar's problems are not being addressed on a fundamental level, and there is nothing on the horizon that will impede the dollar's fall until policy changes occur.
Sounds simple enough for me. The 34 minute interview is worth the time.
I knew it would happen.
I think the seasonality you see is just a function of a bull trend. Im not saying gold is not still in an upward bias, but personally I would not blindly buy.
About log charts...It is usually quite difficult for upper trendlines to be broken without a massive parabolic move that always marks THE END of the move. Since I do not see the end of the move in gold for at least 5 more years, I do not see a break of the upper trend in the forseeable future. Gold will trade within this band, IMO most likely 900 to 1200, for the next 2 years, barring a global war, or the collapse of the EURO.
This will be a better time for traders rather than buy and hold. Yippee.
Premiums on "investment" gold will compress substantially.
Knowledge is the enemy of fear
Whatever the actual reason if one is going to buy, then the late summer and late fall are the best times over the past few years. I wouldn't call my buying blind. I'm buying on the steep deeps the best I can and watching all 3 rear view mirrors for anything approaching from behind. The recent rise in both ends of the yield curve as well as the dollar running into resistance at 78+ are the newest revelations to ponder.
Cohodk, Sinclair's call of $1650 by January 14th, 2011 is at odds with your call of $900-$1200 over the next 2 years. JS has put so much publicity behind that call that to be wrong will be a big blow to his reputation. That's the same bet he offered up $1,000,000 for that no one would take. I'm not ready to bet against him.
I agree that if we stay in the $900-$1200 range for the next 2 years that numismatic gold coin premiums will shrivel away. But I'm not in agreement with $900-$1200 for the next 2 years because I don't feel the most recent topping action was a multi-year top...more likely an intermediate or short term top. With a $2 TRILL deficit to fund next year along with $2 TRILL in treasuries needing to be rolled over it's hard to see longer term strength in dollars/treasuries with $4 TRILL in funding needed.
roadrunner
With copper and oil moving up very strongly I would have thought gold would have responded better than just $1106. Even the SM, TBond yields, and euro were moving which should have helped gold more. At least it did break and hold> $1100 which is a 1st step.
roadrunner
I'm interested to see the action when the Palladium ETF gets off the ground. It's interesting that Pd jumped so much today on news its ETF was getting off the ground. Both gold and silver have also done well since GLD and SLV were introduced.
I subscribe to the weekly at McClellan newsletter, which I really haven't put much trust in, but some of their observations are dead on. This newsletter finds chart patterns and correlations and makes correlations... such as using lumber futures to predict stock market trends and the like. One of their observations was that there is a 13.5 month sine-wave cycle in gold, and it was predicting a bottom in December. It was really hard to believe this end of Nov & Dec 1 as gold was soaring to highs, but it did apparently come true. Of course, there can be a margin of error of a couple of weeks, but the low should come in December if this is true.
Another thing in the last newsletter is that the steep yield curve is usually VERY bullish for the stock market.
Anyway, I think we either saw the low this week at 1075 or the low will come very soon. More likely I think is the case that we might see a sudden intra-day drop and rebound to the 1050-1060 area. So I remain in cash waiting to buy at lower levels. It might make more sense to play the SM as its direction seems much more clear at the moment. This consolidation hasn't seen much upside so I'm thinking that there is some lurking, but the situation is too tough to call. I see that the consolidation will be done either the first week of Jan or the first week of March. At the moment, March is looking more likely.
There's some discussion/speculation about comex physical delivery problems again, and if anything comes of that news then those will probably surface in the first have of January.
In the bigger picture, I don't see any way that gold is stuck in a 900-1200 band. Things are deteriorating rapidly. CB's are buying gold, not selling it. The US has to finance an AMAZING amount of debt in 2010. Federal Tax receipts in 2010 will be disappointing. Many states are broke and will reach a breaking point in 2010. I'm in Arizona and the deficit is HUGE. The legislature has no solution and even spending cuts wouldn't be enough. CA is in trouble, and many other states are right behind us. There's got to be another stimulus coming - this time to save the states. We'll see $1500 gold before the end of 2010.
PC, all the reasons you mention could be the very reason gold goes stagnant. Without economic growth, interest rates and hence gold will have a difficult time moving higher. I believe the recent run in gold reflects the possible problems you mentioned.
Knowledge is the enemy of fear
<< <i>PC, all the reasons you mention could be the very reason gold goes stagnant. Without economic growth, interest rates and hence gold will have a difficult time moving higher. I believe the recent run in gold reflects the possible problems you mentioned. >>
Are you referring to the fed's rate or real interest rates? The high yield curve shows that REAL interest rates are rising. With over $2.5T in debt being financed by the US next year, it's a strong possibility that rates are going to have to increase.
Knowledge is the enemy of fear
Overall trading resllted in loss of ~15c. Was $2 at one point.
Playing oil now. Bot DTO at 67.86.
Popular large cap NAZ stocks are getting a bit "insane".
Knowledge is the enemy of fear
<< <i>Either the Fed will adjust its "official" rate policy higher, or market rates will drop. In either case, rates will probably be within 100-200 basis points (higher or lower) of where they are today. Market rates have only backed up to where they were at the beginning of 2008. There wont be any sustantial rate increases until the economy improves dramatically. I dont think anyone expects that--nor do I--and thats partially behind my assertion of stagnant gold pricing for the next 18-24 months. >>
Your comments assume that the fed will be able to retain control of rates. With $2.5T in debt offerings next year (if not more), and deteriorating economic conditions across the globe, it's a BIG ASSUMPTION that other countries will still buy our debt in return for the paltry interest rates we are offering. It's either raise rates or monetize it, both of which will be good for PMs.
Making a short term play today at 1105.8. Stop at 1105 for $.80 loss or sell at 1111 for $5.20 profit.
US debt will be in demand until the USA can no longer protect the world from tyranny.
Knowledge is the enemy of fear
<< <i>There was a story on Bloomberg last night where Vietnam was ordering companies to distribute their holdings of dollars because there is a massive shortage of greenbacks in that country. The USA is THE global economic engine and the rest of the world will make sure it stays that way, for what other country can they turn to to protect their a$$e$?
US debt will be in demand until the USA can no longer protect the world from tyranny. >>
Your statement might apply in the context of Japan or the Western European countries, but it makes no sense with respect to China, now the biggest buyer of our debt. China is a tyranny -- and we're not protecting them from anything. In fact, we're the biggest roadblock to their aspirations of power with respect to Taiwan, etc.
<< <i>IMO, the big assumption is that other countries will NOT want to own US debt. There was a story on Bloomberg last night where Vietnam was ordering companies to distribute their holdings of dollars because there is a massive shortage of greenbacks in that country. The USA is THE global economic engine and the rest of the world will make sure it stays that way, for what other country can they turn to to protect their a$$e$?
US debt will be in demand until the USA can no longer protect the world from tyranny. >>
Your assumption also makes the assumption that there is an infinite demand for US debt, and if anything the total worldwide demand for US debt (or any other nation's) is shrinking. As things get worse around the globe, I think it's reasonable to assume that we'll see countries pull money from investments (in US debt or anything else) for domestic use. We already saw some of this in 2009, I expect the non-renewal or non-reinvestment in US debt to increase in 2010.
Stopped out on my previous trade for a tiny loss.
<< <i>I think it's reasonable to assume that we'll see countries pull money from investments (in US debt or anything else) for domestic use. We already saw some of this in 2009, I expect the non-renewal or non-reinvestment in US debt to increase in 2010. >>
The NY Times had a recent article about this -- it's very concerning:
Payback Time--Wave of Debt Payments Facing U.S. Government
WASHINGTON - The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.
But that happy situation, aided by ultralow interest rates, may not last much longer. Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed. Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”
The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.
Link.
<< <i>
<< <i>There was a story on Bloomberg last night where Vietnam was ordering companies to distribute their holdings of dollars because there is a massive shortage of greenbacks in that country. The USA is THE global economic engine and the rest of the world will make sure it stays that way, for what other country can they turn to to protect their a$$e$?
US debt will be in demand until the USA can no longer protect the world from tyranny. >>
Your statement might apply in the context of Japan or the Western European countries, but it makes no sense with respect to China, now the biggest buyer of our debt. China is a tyranny -- and we're not protecting them from anything. In fact, we're the biggest roadblock to their aspirations of power with respect to Taiwan, etc. >>
Really? Without the USA (and Europe), employing 500 million Chinese, there is no economy in China. Do you think the Chinese populace would just sit by when 300 million are out of work? That Govt would be toppled faster than my kids ripping open their presents on Christmas morning. The economies of the USA and Europe provide stabilty to the Chinese economy. They are spending OUR dollars to finance infrastructures--many of which are not needed--to keep peace in their country. China knows its place on the foodchain and will be content, for at least another generation or so.
Knowledge is the enemy of fear
<< <i> Really? Without the USA (and Europe), employing 500 million Chinese, there is no economy in China. Do you think the Chinese populace would just sit by when 300 million are out of work? That Govt would be toppled faster than my kids ripping open their presents on Christmas morning. The economies of the USA and Europe provide stabilty to the Chinese economy. They are spending OUR dollars to finance infrastructures--many of which are not needed--to keep peace in their country. China knows its place on the foodchain and will be content, for at least another generation or so. >>
Let me get this straight. The Chinese are going to keep lending us even greater sums of money, just so we can buy their products. Even though it's obvious they will never be paid back -- or will only be paid back in inflated-away dollars.
As my mother would say, "they're not as dumb as you think you're smart." (I don't mean you, personally -- just people in the West who think the Chinese are somehow going to be suckered here).
Chinese exports to the U.S. in 2008 were $337 billion. Link. The figure will be lower in 2009. China's GDP is well over $4 trillion. Link. Their exports to the U.S. are only about 8% of GDP. Important, but let's not exaggerate with the 300 million workers losing their jobs.
though it's obvious they will never be paid back
And yes, the Chinese will continue to lend to us. If you think the US financial system/economy is a ponzi scheme, then you should look very closely at China. Look into their demographics, their religion, their history. I think you will find a building much taller and bigger than the Leaning Tower of Pisa. When it falls, the earth will shake.
I dont think the Chinese will be suckered. Thats why they continue to hoard US dollars. They know they will need them someday.
Knowledge is the enemy of fear
But that doesn't mean our economy isn't a Ponzi scheme.
The links you post are fair and accurate. The USA is a direct 10% of their economy. What percent is ancillary business such as moving those products from the mines to the factories and from the factories to the ships? And how much to those workers spend locally buying food and clothing, ect. I dont believe 100's of millions is really much of an exaggeration.
But in looking deeper at the links you posted, notice how much business China does with Japan. Do you think China wants to hold YEN?
Knowledge is the enemy of fear
I wouldn't want to hold a lot of Yen... bad demographics and a lot of government debt make it unappealing.
Gold shifted gears by the commercials selling off 13K shorts and adding 5K longs....dropping the ratio significantly to 4.08, about what it was back in late November. OI dropped to 499,000. Looks like the bankers are thinking gold is going up again at least short term.
The dollar commericals continued to pile in mass to the short side by adding 9,000 shorts to bring short to long ratio from 6.02 to 7.26. OI increased 8500 to a hefty 60,000...that's 50% higher than anytime this year.
roadrunner
<< <i>Out of original position at 27.14--bot at 27.45.
Overall trading resllted in loss of ~15c. Was $2 at one point.
Playing oil now. Bot DTO at 67.86.
Popular large cap NAZ stocks are getting a bit "insane". >>
Out of DTO at 68.74
Knowledge is the enemy of fear
(Just think of city streets clogged with a hundred thousand horses each generating 15 lbs of manure every day...)
<< <i>Gold dropping like a rock. Target: $1,035. >>
The silver chart looks particularly ominous. I think it wants $15, and like fast.
ZSL may be a nice trade to near $6. 20-25% move. Will reevaluate in the am.
Knowledge is the enemy of fear
It does look like we'll have a 5th leg in gold as I suggested late last week. Right now it looks like it's in the 5th leg down from a starting point around $1115. Then probably a bounce followed by another set of 3 or 5 legs down. $1050 would seem to be the worst case bottom on this run as the higher order 3rd leg down ate up around -$60 ($1135 to $1075). That would mean a max low on this leg to around $1050. With the ferocity of the intial move down I'd be surprised if gold dropped any lower than $1071-$1080 this week. I was figuring the end of this week would be the end of the correction for a while....YY's agree. If gold does end at $1050-$1075 that might be just the A leg down with a B-C still to come with an ending point at least in the $1020-$1035 range. One 7 yr. bond auction to go with the 2 yr and 5 yr getting grades of C and B these past 2 days.
The miners weren't much affected by the $15-20 down move in gold the past day or so almost as if they had already taken their lumps and moved on. I wouldn't expect this 5th leg to seriously hurt very many of them but I will be waiting with open arms to buy them should that happen.
The gold to silver ratio looked to be breaking lower trend line support yesterday at the 50 dma but today it rebounded dramatically at the lower band with silver taking a good hit. It doesn't look like this is the start of another strong move into the upper 60's. There are negative divergences all over the chart suggested momentum has turned on GSR. Maybe one more multi-day bounce back to the 200 dma or upper BB area (ie partial retrace of the past 2 weeks) before continuing down towards the 50's. This could correlate to the start of a multi-week B leg in gold. The 20 day BB's have been tightening for weeks with ever smaller peaks. A major trend change is near.
Gold to Silver ratio chart
The movements in platinum, oil, copper, etc. are telling gold it's time to get going again even if only a counter-move.
roadrunner
<< <i>Really? Without the USA (and Europe), employing 500 million Chinese, there is no economy in China. Do you think the Chinese populace would just sit by when 300 million are out of work? That Govt would be toppled faster than my kids ripping open their presents on Christmas morning. The economies of the USA and Europe provide stabilty to the Chinese economy. They are spending OUR dollars to finance infrastructures--many of which are not needed--to keep peace in their country. China knows its place on the foodchain and will be content, for at least another generation or so. >>
That's quite an exageration, and not quite the way it really is. The US needs China more than China needs the US.
All of the major US corporations have moved their production to China. Without China, American companies go broke and our shelves become empty. However, without the US, China still makes and exports its goods to the rest of the world. And even then, in a lot of cases the US would still HAVE TO buy goods from China under any circumstances because of lack of alternatives.
China is very much aware of their rising world status. Look at what they did and the influence they had at the environmental convention in Copenhagen... thank God they were one of the lone voices of reason. And they are looking to decrease - not increase - their US debt holdings, and they started to do that here in 2009. A trend that I expect to continue.
<< <i>Dropping like a rock? Looks somewhat orderly to me. >>
I agree, the "dropping rock" phase is over. The key resistance level appears to be 1110. We're probably not going to get over that this week. I'm still looking for one more test of the lows, either 1075 or 1050. Ackerman has a pivot point identified at 1046.8. I see a solid support level at 1065.
<< <i>The movements in platinum, oil, copper, etc. are telling gold it's time to get going again even if only a counter-move. >>
I sort-of agree. I've mentioned before that commodities follow gold with about a 4 month delay. Gold started up about 4 months ago, so now it's time for silver and other commodities to take off. It's at the bottom of its channel, so I think it's bottomed out. A great time to buy.
US households purchased $529 billion of US Treasuries in the first nine months of 2009, accounting for 45% of total new Treasury issuance.
So far this year the Fed has purchased $293.3 Billion of Treasury Debt, and is by far the largest purchaser of Agency Debt at $803.8 Billion.
Foreign entities bought $373.3 billion of Treasury debt, and were net sellers again of $110.3 billion of Agency debt and $73.1 of US corporate debt.
Now you must ask yourself, if the US household was one of the biggest purchasers of US treasuries in 2009, will they continue in 2010? And what might cause or trigger US households to sell their treasuries?
The bottom line is that the data seems to indicate that the foreign sector traditional buyers (at least for the past 20 years or so) of US sovereign debt are walking away from the market as they had said they would do, and are moving their reserves into other instruments.
Who thinks foreign entities are going to reverse this trend in 2010? Who thinks US households are going to continue to buy US treasuries at the rate they did in 2009? I don't...
The numbers add up to ~$1.2T of US treasuries purchased by foreign entities, the fed, and J6P. Next year, the US will finance $2.5T.
Now, if the stock market takes off next year, like I think it will, how long do you think J6P will leave their money in US treasuries?
And if commodities and PM's take off next year, like I think they will, how much of J6P's money will make it into PM's? $1T dumped into gold would send the POG soaring.
Would love to hear/see comments.
Edited to add:
The article also makes a comment that seeing a few states go BK could trigger something big. I think this is the most realistic and dangerous threat to the economy. I'm in AZ, and our state is looking at a $1.5B deficit next year. To my knowledge, there are no plans to even come close to dealing with this issue. There are cuts and tax hikes coming, but it will NOT address the whole problem. AZ will be BROKE next year. I'm very confident that CA and many other significant states will be in the same situation. It seems to me like state officials are hoping for some kind of miracle that's not going to come.
I vehemently disagree, so we'll probably never be able to come to a compromise. If the Unions in this country did not push wages so damn high Americans might actually be able to afford goods made in the USA. Americans companies moved operations overseas because the Unions priced American labor out of the marketplace. There is absolutely nothing made in China that cant be made here, except products that will kill our kids.
I am still waiting for someone to show me where China's actual holdings of US debt decreased. They may have reduced the amount they buy every year, but they have not decreased holdings. And, IMO, the only reason they decreased purchases is because they ran a smaller trade surplus than in 2008. China took an income hit in 2009 and spent any excess monies on their own "stimulus package". They didnt buy as much because they couldnt afford to.
China may be the most polluted country in the world. It will come to bite them just as it bit us. Now im not advocating CO2 credits and absolutely disagree with man-made global warming, but vast areas of China are becoming uninhabitable. You make the bed you sleep in.
Yes, US households will continue to buy US debt. Domestic demand for US debt will continue to grow. If interest rates increase in the USA, our debt will be much more attractive and foreign borrows will not only rush in to buy it but will reverse the dollar carry trade in lightning fashion.
I think what you need to do is see how huch J6P held in treasuries in 1995 and in 2000--the best years of the market and see if holdings actually decreased. Do the same from 2003 to 2007. You will find holdings have increased. Just because the market goes up alittle does not mean IBM and grandma are going to cash in their T-bills.
I dont think commodities will "take off". Copper and oil already reflect the "promise" of improved economic conditions. And we've seen how the world reacts to $4 copper and $125 oil--not very well. I believe most commodities will, like gold, trade sideways in 2010.
$1 trillion buying physical gold would surely make it move. But why would there be such demand and further, dont you think a player who wanted to put $100 billion into gold knows he would push the price higher? Of course, so he wouldnt buy physical. He would buy some crap product issued by the banks. I dont see $1 trill coming into the gold market.
Knowledge is the enemy of fear
The above article shows a graph of Chinese bond purchases over the past year. Every offering is dropping with the exception of shorter term TBonds. According to JW China's total bond portfolio has been flat at $790 BILL since May 2009. In looking at the RBS provided chart I don't see how they come to that conclusion. But even China staying flat on total bonds is not going to get it done. Standing still on US bond purchases only means someone else has to buy or the US monetizes what's left.
One important point about "households" buying bonds. That is just a category that the Treasury lumps everything else into that doesn't fit any other defined category. I have no clue if J6P, the Cayman Islands, a govt entity, or "Extreme Makeover, Home Edition" are buying those "household" bonds.
After watching today's action have to wonder if we just saw the last correction (a short legged 5th leg) to $1085 as gold heads up for a while. It's just as likely as heading for $1050. I didn't buy anything today but was tempted to pick up some GSS, BVN, AZK, AUY once again.
The gold market may not need anything close to $1 TRILL to continue to push it higher. All it would take is a breakdown in the paper schemes reflecting way too many shorts with no physical behind it. Just the actions of these guys trying to cover would send it up. $1 TRILL is roughly 30,000 tons (100% of what the CB's claim to still possess). The market is much tighter right now where even a change in supply of 1,000-3,000 tons ($30-$100 BILL) could shake it up. That's not a lot of money. Heck, the Comex only lists 250-300 tons of gold as its total inventory. GLD only claims to possess $1100+ tons. Just a few hundred tons at the wrong time can shake things up.
roadrunner
then Chinas Ponzi? Well, at least we
appear to lead in something.
Camelot
<< <i>The US needs China more than China needs the US.
I vehemently disagree, so we'll probably never be able to come to a compromise. If the Unions in this country did not push wages so damn high Americans might actually be able to afford goods made in the USA. Americans companies moved operations overseas because the Unions priced American labor out of the marketplace. There is absolutely nothing made in China that cant be made here, except products that will kill our kids. >>
I wouldn't blame it all on the unions. Government taxes, laws, and regulations, as well as our litigousness make it difficult to do business here. Even if the union wages weren't what they are, the problem is that the wages in BRIC and other countries are so incredibly low that the leverage is huge whether you pay someone in the US $8 or $40/hr. I believe Chinese workers might go for $2/day, vs. $64/day or more in the US.
<< <i>I am still waiting for someone to show me where China's actual holdings of US debt decreased. They may have reduced the amount they buy every year, but they have not decreased holdings. And, IMO, the only reason they decreased purchases is because they ran a smaller trade surplus than in 2008. China took an income hit in 2009 and spent any excess monies on their own "stimulus package". They didnt buy as much because they couldnt afford to. >>
I posted the link a while ago but I realized that it was saying something different that I had remembered. I think you are correct but I think it may change in 2010. I also have read that China (and others) have switched their long term holdings with short term holdings.
<< <i>Yes, US households will continue to buy US debt. Domestic demand for US debt will continue to grow. If interest rates increase in the USA, our debt will be much more attractive and foreign borrows will not only rush in to buy it but will reverse the dollar carry trade in lightning fashion. >>
Yes, but higher interest rates will also kill the US economy and majorly stifle the real estate industry. Not sure who will have any money to buy treasuries once you stifle the economy further. You can't have your cake and eat it too.
<< <i>I think what you need to do is see how huch J6P held in treasuries in 1995 and in 2000--the best years of the market and see if holdings actually decreased. Do the same from 2003 to 2007. You will find holdings have increased. Just because the market goes up alittle does not mean IBM and grandma are going to cash in their T-bills. >>
I'd like to see that info, but it won't be easy to interpret. During the last 2 decades retirement savings through 401ks has grown immensely, and I believe that a lot of 401k money that's invested in safer funds ends up in treasuries, so by virtue of the overall increase in size of retirement fund investing, you're probably right. And this does continue as workers continue to automatically contribute to their 401ks. But the chart in the article I linked reflects a different trend. After 2007's big crash, many moved into safer investment options, and most are probably still there. As consumer confidence grows, J6P will transition out of the safer options again.
<< <i>I dont think commodities will "take off". Copper and oil already reflect the "promise" of improved economic conditions. And we've seen how the world reacts to $4 copper and $125 oil--not very well. I believe most commodities will, like gold, trade sideways in 2010. >>
Commodities are off to a great start so far, but a day or two doesn't make a trend. The world will get used to the new commodity prices just like they've always done. Just like we've gotten used to $70-80 oil. And it won't necessarily be going up because because of supply and demand, it could very well be because of currency devaluation.
<< <i>$1 trillion buying physical gold would surely make it move. But why would there be such demand and further, dont you think a player who wanted to put $100 billion into gold knows he would push the price higher? Of course, so he wouldnt buy physical. He would buy some crap product issued by the banks. I dont see $1 trill coming into the gold market. >>
You wouldn't have expected real estate prices to reach the highs that they reached either but it happened. Trillions flowed into real estate, MBS, and the like. $1T may have been an overstatement, but as RR said $30-100B would shake things up considerably. I think you underestimate the "bandwagon" effect that the gold train will have as it marches upward. Just as the recent RE market made RE investors out of millions who you'd never expected to be RE investors (and had no business in RE), the same will happen with gold.
But obviously if you think gold is range bound, then obviously this won't happen, so we'll just have to see how 2010 plays out.