MV Weather Report: Gold Gleams on Gloomy Market
Rain or shine, we reivew the day's biggest stock stories.
The S&P was outshined by Gold today as the yellow metal was up +2.54% to 981.50 and the popular index trading in a tight 10 point range for closing down -0.33% to 994.
The action was in Gold, as it was up for a number of reasons today: seasonality (it's a typically strong time of year for the metal -- see Prof Lance Lewis' comments from last week), some think it's foreshadowing of dollar selling to come, and technical reasons. Strong action was seen in the gold mining stocks as well -- Agnico Eagle Mines (AEM) +10.83%, Randgold (GOLD) +10.76%, Goldcorp (GG) +10.55%, and Royal Gold (RGLD) +9.33% to name a few -- all ripped higher on the day, outperforming the commodity.
Today on the Buzz and Banter, Smita Sadana gave her thoughts on the break-out in Gold.
Many Professors on the Buzz were buying the gold breakout today but one was not. Professor James Kostohryz gave his view on why Gold is nothing to jump up and down about.
Check out the beautiful breakout in Gold ETF (GLD). After a few months of radio silence on GLD, here's another look. Here are the reasons:
-Triangle formation is usually a continuation pattern, implying a move higher
-The move out of this formation is happening on extremely heavy volume having already surpassed the average daily volume.
-The risk reward is positively skewed with stops close, just in case this breakout turns to be fake. As they say keep your friends close, but your enemies' closer. Similarly in trading, participating in breakouts is fine as long as stops are clear; in this case at the bottom of the triangle, where 10-20 and 50 dma's reside.
As long as the volume remains conducive, the target remains 2009 highs and beyond.
Click here to enlarge
"So, given the untenable nature of this narrative, there has been much speculation today about gold's move being related to "safe haven" buying presumably based on fears of a faltering US and/or global economic recovery.
"I have a radical idea: Recent movements in gold mean nothing from a macro point of view.
"Sorry to disappoint folks looking for something more sexy.
"Triangles aside, gold has been stuck in a trading range for a very long time with $1,000+ as the upper limit. We are still well below the upper end of the range. Gold is simply moving within this range, probably receiving a seasonal boost – perhaps real, perhaps merely anticipatory – related to jewelry demand in India.
"Contrary to popular belief, gold has historically not been a good macro predictor of anything. Not inflation, not growth, not anything. This fact is borne out by reams of published and unpublished empirical cross-correlation work.
"Conclusion: I have no reason to believe gold is "predicting" anything at all in terms of macroeconomics. It is most likely random noise with a slight Indian accent."
Whether you're in the bull or bear camp on gold, today's action was hard to ignore. I would note that gold typically trades like this. It shoots up for a few days, getting everyone excited, before settling back down. I think this is why technicians hate it. But who knows, maybe this time it can shoot past the psychological 1,000 level.
Alright, that's it, we have the Minyanville fantasy football draft tonight, I'll let everyone know how it goes.
Have a great night!
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