Today’s AM fix was USD 1,326.75, EUR 970.98 and GBP 772.80 per ounce.
Yesterday’s AM fix was USD 1,325.75, EUR 968.48 and GBP 773.39 per ounce.
Gold fell $1.70 or 0.13% yesterday to $1,326.80 per ounce and silver slipped $0.04 or 0.19% to $21.05 per ounce.
US Equity Markets are Overbought, Gold Looking Solid
Has the U.S. shot itself in the proverbial foot? Well possibly, short sighted U.S. Sanctions against BNP could spur the end of the U.S. Dollar as a reserve currency. As you may be aware the U.S. has agreed a whopping $9 Billion fine against BNP bank over their breaking of rules relating to transactions with Sudan and Iran.
What is not as widely know is that some of BNP's business units are being restricted in their ability to clear USD transactions. This represents a new weapon in the world of financial sanctions and one that could have far reaching consequences. Essentially because U.S. Dollars are used globally in transactions, all dollars are eventually processed by a U.S. based bank, thus giving the U.S. authorities de facto jurisdiction over such transactions.
There can be no question of the ethical benefit to the world of a policeman enforcing sanctions on rogue states who persecute their people, but if over used and without agreement with one’s allies, such sanctions will spur the world of international trade and governments to seek out alternative currencies. China maybe one step closer to usurping the U.S. dollar with the renminbi. A rubicon moment for the Reserve Dollar? Perhaps, we will see.
Gold might be just finding favour once again with investors, as shown by its recent price gains. If only anecdotally, evidence in the form of an increase of assets held in the SPDR gold trust over the past two days shows. Bloomberg reports that this increase (796.39 Tonnes) is the largest two day rise since November 2011. We are seeing it here in GoldCore too. More accounts opening, more general interest and a lot less talk about gold's price correction from clients and prospective clients.
Gold's price will take its cue, no doubt, from Janet Yellen's IMF speech to the International Monetary Fund today where the market is seeking guidance on the the timing of interest rate hikes following the end of QE3. Personally I do not believe QE can ever stop, it is now a part of the capital markets. Every time something bad happens they will reach for the “print money” lever and the future be damned (rant over).
Relative Momentum Index of S&P 500 spells "Buy Protection !!"
If you are fortunate enough to have rode out the economic storm of 2008 and benefited from the stratospheric equity market rally, you will no doubt be sitting on a large pile of equity "unrealised" profit. Your financial advisor may well be grinning to him/herself and congratulating themselves for a job well done. Think twice, the indicators are blinking red. The market looks toppy in the extreme. Not only are the markets rising fast they are attracting leverage at an unprecedented rate. The rally could continue for a time yet, but be prepared should a correction occur the snap back may well be very fast and very violent and very, very damaging to the broader economy.
Technical analysis is quite useful when looking at trading patterns and should be combined with a healthy dose of fundamental research, to be most effective. A useful indicator of a markets relative strength is called Relative Momentum Index (RMI). Simply put it is an examination of the number of up and down weeks relative to a period of time past. It can prove very useful when examining a markets patterns and act as a very loud bullhorn when the market is getting ahead of themselves. In our chart above you can see the RMI is at an ear splitting 90.567! Overbought ranges typically start at 70 and over sold at 30.
So What Should You Do?
Reduce your allocation or perhaps sell everything, hmmm maybe. A more sensible option might be to explore hedging your gains by buying a partial hedge on the market - call it insurance. Or if you are smart you already have a hedge in the form of Allocated Segregated gold sitting in a vault in Zurich or Singapore.
The market may continue its rise for a while to come but the warnings signs are blinking RED and you would be wise to give consideration to what will happen if it loses its steam. As always, seek advice. Always always avoid advisors who are paid commissions (99%), and seek out a "fee only" advisor. Good luck.
Mark O'Byrne is on vacation this week. Stephen Flood is covering.
