The Macro Trend is a Bear, But Watch for Rebounds

We have to be very careful to get out of more equities as stocks rebound because it could be the last chance before we trend another 15 - 20% lower.

Trending Lower Across The Board

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Let’s talk about the dollar for a moment. The US dollar has been stuck in a very large trading range during the past 4 months. But when the dollar actually breaks out of this pattern in either direction, we should see some big price movements across the board in stocks and commodities.
From July through mid-August I was bearish on the dollar. But over the past 2 weeks the price action has become more neutral (more bullish), in my opinion. Its clear there is still indecision with the dollar's value, because every surge in price either up or down is quickly followed by a surge in the opposite direction. The key here is that the support level down at the 73.50 area has held more than three times, and now I think the downward momentum is about to shift. The PowerShares DB USD Bull ETF (UUP) is a good option.
Dollar Index Chart

Gold Chart
Looking at the gold chart, I see potential for another sharp drop to the low $1,600s. While I like the look of this chart for lower prices, there is still a wild card, which is the eurozone issues. I’m not willing to bet on lower prices because we could wake up any day to some poor news that instantly sends gold higher. Rather, I am waiting for things to unfold, and then I will look to buy again for another 10%-20% gain on the next rally.

Crude Oil Chart
This chart is straightforward: The trend is down, and at this time all bounces are to be looked at as shorting opportunities.

SP500 Index
The equities market has broken down sharply over the past couple months. Now we are seeing a rebound, and small cap stocks are making big gains. With the dollar looking bullish and stocks trading up at resistance, I have a feeling we may see another downward move within the next week or so to test the lows or make a new low before putting in a real bottom.

Mid-Week Trend Trading Conclusion:
In short, I feel the market overall is leaning towards lower prices in the coming week or two. After that we will have to re-analyze, because it may be a fantastic buying opportunity for stocks and commodities.

Why Gold May Run Until Late 2013

Gold tends to rise when real interest rates are zero. On average, gold rose by around 48% in 2.5 years, which is an impressive 18 - 19% per annum. How long is the US interest rate expected to remain negative in real terms? Right now, core CPI in the US is around 1.8% and Fed overnight rates is 0 - 0.25% and will remain so until 2013. However, if the US enters into a recession, it may experience deflation temporarily, causing gold price to crash by 30 - 50%. However, things have changed. Ben Bernanke is likely to implement Quantitative Easing whenever Core CPI falls below 1%. This means we needn't worry that interest rates will turn positive anytime soon, at least until 2013. Even if the US starts to hike rates it could take around 2 years before it turns positive because I expect inflation to hit above 4% by then.

Let's assume that as long as interest rate remain at zero from now until 2013, in 1.5 years, it could rise by 38% (19% pa), causing the price to rise to USD2,550 oz. Between 2013 to 2015, it could rise by half the rate, at 9% pa or 18% to USD3013 oz. That's about 63% up from current level or around 15.7% per annum. This is a decent return which is likely to be better than equities.

I prefer gold futures to gold equities because I'm not very confident of 2012 / 13's economic outlook. I may consider buying gold equities at the end of next year when stocks could be down a further 30% from now.


Central banks worldwide are starting to buy gold after decades of buying US Treasuries and European bonds to manipulate their currencies. The debasement of UST and European bonds, and the negative real rates have forced Asian central bankers to diversify their reserves into hard assets like gold.

If you look at the debt crisis that the west is facing, whether some peripheral country in Europe leaves the Eurozone, or the US getting out of their fiscal problems, all of the solutions involves printing money.

If the Eurozone breaks up, every country has to bail out their own banks that may be holding on to sovereign bonds that may default. Gold will shoot up.

If US embarks in any form of QE, gold will shoot up.

If the Eurozone stays in tact, and Germany agrees to bail out all the Eurozone countries in trouble, it involves QE and gold will shoot up.

Japan's economic trouble requires QE to keep interest rates low, the Yen weak to export out of trouble.

It is really a golden age. I'm looking at Silver but I don't think it has the same stability as gold. It is influenced more by industrial demand.


http://seekingalpha.com/article/291242-why-gold-is-going-to-2-000-an-ounce-by-the-end-of-september?source=email_macro_view

http://seekingalpha.com/article/291244-don-t-miss-gold-s-mania-stage-we-re-not-there-yet?source=email_macro_view

Don't Miss Gold's Mania Stage - We're Not There Yet

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We're not yet in the mania stage for gold. We could be as close as a year, or as far as 5 years, but we're just not there yet. Take a look at the chart below, which shows gold compared to two of the last, biggest asset bubbles.

What kind of performance can we realistically expect for gold companies to see when we do enter the mania phase?
It's tough to find historical data on gold companies during the 1970s. Most of them are gone. The rest have been gobbled up or sliced apart into completely different companies.
We do have a frame of reference for the internet bubble. You might remember that time as a period when everyone had a hot stock tip. Everyone was up hundreds of percent, or more, on companies like Cisco (CSCO) and Intel (INTC).