Morning Market Thoughts: Gold Stumbles and Stocks Roar
Gold broke down through the major technical support level of 897, dropping to a low near 880, prior to a slight reactionary bounce this morning to 888. Around 6 weeks ago, news was leaked from the Swiss National Bank that they had begun to sell gold.
News from the grapevine
Various other stories and rumors are floating about of huge asset allocators starting to follow the banks lead liquidating Gold. For example Francois Nordhof, the global CIO of Banque de Commerce et de Placements stated “It’s never a good idea to be contrarian to the national bank” and “After the rally in commodities, there is no reason to invest in commodities.”
Nordhof has sold all the gold in his fund and has no precious metal exposure at all. The dollar appearing to finally get some footing is also weighing on the yellow precious metal. My belief is that the gold top is in, and there will be a retracement this year. All commodities have up waves and down waves, there is nothing special about gold, in this regard, despite what the gold bugs will try to have you believe.
In addition to the reason stated earlier, the ultra hype surrounding gold simply can’t last. The “I buy gold” stores seem to be opening on every corner and gold fever has captured the public’s imagination. If this isn’t a clear sign that the gold rally is over, I don’t know what it. These are all classic signs of a top. Going far out on a limb, I am calling for gold to be around 600 by 4.1.2009.
Stocks
The stock index futures are soaring this morning, I suggest staying flat today in the Dow E-mini. Earnings season is in full swing and I believe its best to simply stay out of this market today. If you have been trading off the channels and are long, great work!
Oil pulled back a bit, but is now climbing back toward all time highs on news of a BP pipeline closure.
Dave Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.