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Prieur Perspective: Preparing for the Pullback


Precious metals are consolidating, and the greenback's in retreat.

Signs of stability characterized trading on financial markets during the past week. As investors placed their bets on a global economic recovery, equities, base metals, and crude oil made further headway. Long-term government-bond yields remained at elevated levels, but declined somewhat after a successful US 30-year-bond auction and pro-US Treasury comments from Japan's minister of finance.

Notwithstanding buyers returning to US long-term bonds, the greenback retreated on concerns of the huge issuance of government bonds, whereas commodity-linked and other high-yield currencies improved strongly.

The British pound also advanced as the UK's National Institute for Economics and Social Research said the recession had passed through its trough in March. Also, the Organization for Economic Co-operation and Development (OECD) reported on Monday (via the Financial Times) that most of the world's big economies were close to emerging from recession, and that data pointed to a possible recovery by the end of the year. "Twenty-two out of the 30 OECD countries saw a rise in forward-looking measures of activity," said the report.

The week's performance of the major asset classes is summarized by the chart below. Not shown, platinum (-2.1%) and silver (-2.9%) cooled off in tandem with gold bullion (-1.6%).

As the precious metals consolidate, gold bull Richard Russell (Dow Theory Letters) said in frustration: "Gold, gold, you're making me old."

The surge in oil prices to an 8-month high of more than $72 a barrel (in the case of West Texas Intermediate Crude), raised concerns as this is equivalent to a 2-percentage-point drag on real GDP growth, according to David Rosenberg (Gluskin Sheff & Associates). In order to provide guidance on the direction of crude oil, Adam Hewison of has prepared another of his popular technical analyses, arguing that the long-term trend is bullish, but that a short-term pullback appears likely. Click here to access the short presentation.

The MSCI World Index (+1.2%) and the MSCI Emerging Markets Index (+0.4%) last week again added to the rally's gains to take the year-to-date returns to +8.1% and a massive +39.4%, respectively. Both these indices have only had one down week since the advance commenced in early March.

Although trading was relatively flat, the major US indices (with the exception of the Russell 2000 Index) nevertheless gained for a fourth consecutive week -- and for the twelfth week out of the past 14 -- as seen from the movements of the indices: S&P 500 Index (+0.7%, YTD +4.8%), Dow Jones Industrial Index (+0.4%, YTD +0.3%), NASDAQ Composite Index (+0.5%, YTD +17.9%) and Russell 2000 Index (-0.7%, YTD +5.5%).

The Dow on Friday became the last of the major indices to break into positive territory for the year to date, albeit by a meager 0.3%.

As far as non-US markets are concerned, returns ranged from top performers Namibia (+8.5%), Vietnam (+6.5%), Mauritius (+5.4%), Palestine (+4.5%), and Thailand (+4.0%), to Ghana (-8.7%), Serbia (-5.2%), Sudan (-4.8%), Taiwan (-4.4%), and Bahrain (-2.4%), which experienced headwinds.

Among the major markets, the Japanese Nikkei 225 Average jumped by 3.8% to breach the 10,000 level for the first time since October on the back of recent data releases, indicating that the pace of Japan's recession was moderating. (Click here to access a complete list of global stock market movements, as supplied by Emerginvest.)
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No positions in stocks mentioned.
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