I was pleasantly surprised with today’s sell off. I thought it will drift lower in a range but at some point SPX was down about 1%. Alas, it gave back about one third but that’s OK. I wrote yesterday about the sign of life in VIX and Bond as well as in US$. Also, I have been writing about the weakness in the last week of March for a while now.
While many have been writing about quarter end window dressing which may take the markets higher, I have been harping on the opposite. But I am also writing that such a correction, when comes will be a buying opportunity. Therefore my earlier plan of going long on Friday is still valid as of now. However if tomorrow we see a huge sell off, then it may have to wait. I expect the sell-off to be good but nothing that will derail the up-trend yet. Today NYMO has dipped to negative 26 only and there is good enough scope for further sell off.
Today was one of those rare days when everything was in red. Gold and silver gave back a good portion of its bounce and once again, I stick to my earlier call of further fall in prices of PM. I think a good bottom for PM is still far. Sentiments and technical parameters do not align yet for a good entry. What happened to those investors who purchased gold during August / September of 2011? Are they still holding on to those investment? Because if they are still holding on, the wait will be very long. Yesterday CPM group’s “ Gold Yearbook 2012” was released in New York. Jon Nadler of Kitco has done a good analysis on that report. I quote from Mr. Nadler:
For starters, the finding that gold investment demand fell by nearly 6% last year, at a time when we were all told (by certain agenda-driven newsletters) that investors were beating down the door of their nearest coin shop. Evidently, that was not the case.
We mentioned numerous times in these posts that record and/or near-record gold prices present an obstacle that many an investors is basically unwilling to tackle. CPM’s analysts found that “Such investor hesitance also was seen in gold coin buying patterns over the course of 2011, in Indian demand trends, and in other aspects of the gold investment market.” The research firm believes that investment holding additions will also decline in 2012-if not by much-and that while no major declines in the price of the yellow metal are in the cards this year, neither are new records.
The firm anticipates a possible trading range in gold of from $1400 to $1,900-and-change for the year. This, despite the incessant chants by mining firm CEOs that $2K and $2.5K gold are ‘in the bag.’ Note that high gold prices do matter and that “Investors as a result appear already to be reconsidering purchasing increased amounts of gold at ever higher prices as they have been doing over the past few years. They are instead showing signs of being increasingly willing to hold off on purchasing metal until prices soften from recent levels, a tendency that may continue in 2012 and beyond.
CPM also busted certain other myths that are present in abundance in the gold market newsletter space. One of them relates to gold as an inflation hedge. Aside from the fact that CPM noted that gold is a currency and that all currencies lose value over the long-term and that therefore gold’s purchasing power parity attribute is largely fiction, the firm also pointed out that investors may be placing their bets incorrectly when it comes to gold.
To wit: Quite a few gold investors are piling into the metal in proportions that a far larger than what a prudent portfolio allocation model might suggest, because they are convinced that we will get sharply rising inflation owing to the recent round of global fiscal stimulus. Investors have also bought the line that negative real interest rates are gold-beneficial. It turns out that, historically speaking, returns on gold have actually shown a tendency to decline when real interest rates dipped under -2%. As for the topic of Weimar Republic-style inflation, CPM said that, in the near-term, this type of threat is a non-issue that the anticipated future inflation levels may also not occur.”
In the world of investing, timing is everything. Ask someone who has purchased a house in 2007 and is now deeply underwater. This, when we were told that house prices never go down.
Coming back to the stock markets, everything is going more or less as per plan and I am waiting for tomorrow. A good 20 point sell off tomorrow will validate my call for next week. But either way, a blow off the top rally is coming from next week.
Thank you for reading my blog. Please let me know what you think of my market calls. You can post your comments in the blog or email me directly at bbfinanceblog@gmail.com. I look forward to hearing from you. Without your active participation, it becomes pretty boring!
