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They’re they go
again! No sooner had we finished praising the Wall Street Journal
for a blunt assessment of the coming train wreck in muni-bonds than they do a
hit-job on gold. The article, which appeared in Thursday’s
editions, practically exhausted the inventory of clichés employed by
establishmentarians these days to put the knock on the yellow stuff. Here’s their short list:
- Worries that China
will “slam the brakes on its economy”
- Improving U.S.
stats that diminish gold’s safe-haven status
- A too-strong
rally in 2010 that has made “some” fund managers skeptical
- Stepped-up
redemptions in SPDR Gold Shares
- A hike in margin
requirements by the CME
- Markets that are
“increasingly betting” against new Fed stimulus
As if all that
weren’t enough, the authors of this piece, Carolyn Cui and Liam
Poleven, trotted out Dennis Gartman, the Darth Vader of the precious-metals
world, to spout the kind of vague hyperbole that could sound even dumber a
few months down the road, as so many of Gartman’s bearish
pronouncements on bullion have over the years. “Everywhere you
went,” said Gartman, “everyone you knew was aggressive long
[sic]. That’s a bad sign because it means everybody has already
bought.”
We might ask, have
you bought gold yet? How about your relatives? Friends? Neighbors?
That’s what we thought. It’s not exactly as ubiquitous as
beer in the ‘fridge, is it? You can write Gartman c/o Kitco, to set the
record straight. As for the bullet points listed above, even taken together
they have about as much heft as a bullish economic forecast from the Fed
chairman. For starters, although China’s slamming on the brakes could
conceivably send the global economy into a fatal tailspin, that would only
put more pressure on the Fed to monetize Treasury debt. Concerning the
alleged improvement in the U.S. economy, it looks like little more than a
blip in manufacturing to us – one that is vastly overshadowed by a
gathering budget crisis at all levels of government. As for
gold’s “too-strong,” 30% rally in 2010, mightn’t it
prove to be just a warm-up for a push to heights that would actually begin to
discount the intrinsic worthlessness of the world’s sovereign
currencies? And how about those stepped-up SPDR redemptions? In fact,
they’ve amounted to just 29.3 metric tons so far this year – too
small an amount to even interest such sovereign buyers as China, India,
Russia, Brazil and Saudi Arabia. As for the hike in futures margins,
it’s just a banana peel tossed out by the regulators to give their
friends, the bullion bankers, more time to cover. Finally, there are
those bets against new Fed stimulus. That is one wager we’ll be
eager to fade.
From a technical
standpoint, we do see more downside to this shakeout – to at least
1322.20, basis the Comex February futures. That number lies $24.30
below Thursday’s settlement price, and if it is reached, gold will have
corrected a whopping six percent from December’s record highs. Frankly,
because we like to see symmetry in our charts, we’d be more comfortable
with a correction of 15% that matches the one that occurred at the beginning
of last year. That would bring the price of gold down to about $1217.
Whatever happens, and regardless of whether it is inflation or deflation that
is perceived as the bigger threat, we would be inclined to view the selloff
as merely corrective rather than the beginning of a long-term bear market.
Rick Ackerman
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