A Confirmation
Source: The Stock Market Barometer 03/19/2010

Jobless claims came in a little higher than expected while the change in the CPI was zero. Of course the financial news networks' immediately went to work telling the world how this is not deflationary.

At best it's a thin argument and the statistics do not back it up. Yesterday the PPI came out at a negative 0.6% adding a little fuel to my deflationary argument. Also, the slowdown is not confined to the United States as the following text from a Bloomberg article points out:

Demand to haul cargoes has plunged because of the global recession, sending charter rates lower and spurring carriers to take vessels out of service. BW Gas Ltd., the world's biggest shipper of liquefied petroleum gas, said last week it idled four tankers because rates plunged so low that each vessel was losing the company about $25,000 a day
"There's been an unparalleled collapse in demand," said Harris, who was previously chairman of Clarkson Plc, the world's largest shipbroker..

Yet we see that the Baltic Dry Index and the Transports have been on the rise for several months. This is one of the many contradictions we see in the market place and is related to the tremendous infusion of liquidity into the financial system. Distortions!

General comments aside, I want to discuss two things today: the major Dow Theory confirmation we experienced yesterday and gold. Yesterday the Dow closed higher by 47 points to end the session at 10,733 and that is eight points above the old closing high of 10,725 and a major Dow Theory confirmation.

The Transports began to record a series of new closing highs early last week and the Dow failed to confirm the first five such closing highs, until yesterday that is. Today both indexes are again in positive territory and trying to close higher for the eight straight days. I suppose I could make all sorts of comments about the absurdity of the Dow heading higher from here, blame intervention, and so on but the fact is that it will move higher although a modest correction may be close at hand.

Once a reaction runs its course, then the question becomes how high is high. I look for the Dow to make a run up to strong resistance at 11,245 although we do have good resistance at the 10,817 level. If the Dow could push past the 11,245 mark then there is absolutely nothing to stop it until it reaches 12,399. Given the fact that the Fed will not withdraw liquidity anytime soon, and the fact that big money has been on the sidelines for several months, I would not be surprised to see the Dow run as high as 12,339. That indicates to me that the Fed will continue to grease the wheels and that means that they are winning the battle against deflation, at least for the moment.

Now let's talk about gold as it will be one of the major beneficiaries of the rally in stocks. All the central banks will continue to print currency, probably at an increasing rate, and smart money will continue to view gold as the safe haven. Yesterday gold saw another test of the strong resistance at $1,136.70 and then sold off sharply to $1,118.00, only to come back to close at $1,125.00. Today the spot price is trading up 2.70 at $1,127.70 after overcoming some early selling and looks like it wants to go higher.

I have little doubt now that gold will first move through $1,137.60, then through $1,148.70, and then explode too much higher levels. Right now gold is range bound as you can see on the preceding chart, but the tertiary trend is still headed higher.

The key will be a higher high above the upper band of resistance at $1,148.90 and then it is off to the races. Over the coming weeks I am looking for gold to test the $1,219.20 resistance and then move substantially higher. A lot of gold bugs have been chased out of the market expecting lower prices, and will be forced to pay up for the privilege of getting back into the market.

Even though gold has moved above$ 1,000.00 the general public is still ignorant about the gold market. Once they pile in it will be impossible to stop this train.

US$1,000. No longer Gold's 'Magical Barrier'source: Australian Journal of Mining 03/18/2010

The magical US$1,000/oz. price for gold—once considered unachievable—will be increasingly regarded more as the future "bottom out" floor price, according to a senior Westpac economist.

Addressing the Paydirt Australian Gold Conference, Westpac senior international economist, Huw McKay, said the gold price had stepped up year-on-year by about US$100/oz. above predictions, for at least the past five years.

"What we did not know was going to happen was that we were going to have such an enormous collapse in risk appetite that pushed gold beyond the US$1,000 magical barrier," McKay said.

"That has changed gold trends forever and what was once an invisible ceiling, is now more a level where we talk about the US$1,000/oz. price as more of a floor price going forward.

McKay attributed the gold price pressures to two main factors—the change in demand for jewelry—from two thirds of world gold consumption in 2007 to around 40% currently.

"In parallel with this, there has been an expansion in exchange traded products, which have grown from accounting for 7% of total gold consumption in 2007 to 19% now.

"This is a dramatic trend movement move and it is here to stay," McKay said.

"World equity markets and financing has so much uncertainty to it that the allure of gold has never been stronger.

"Demands for gold has shifted to the investor, with very strong fundamental trends coming together to fuel investor appetite for things they can see, touch, hold and put in a warehouse. Gold certainty meets that criteria."

McKay said the turn towards gold had come out of all other asset classes as "investors try to get into something that holds value."

McKay predicts gold will hold around US$1,006/oz. by year-end, moving only slightly higher to around US$1,030 by 2011.

WGC Sees Gold Demand Recovering in 2010 03/18/2010

Global gold demand is expected to rise in 2010 after last year's fall with economic recovery driving jewelry demand and fueling investor appetite for bullion, a senior official at the World Gold Council said.

"I would expect to see a plus sign at the end of the year," Rozanna Wozniak, investment research manager at the industry-funded WGC, told Reuters on the sidelines of a presentation on Thursday.

Global gold demand fell 11% in 2009, hammered by a 20% drop in jewelry demand, which accounted for 52% of the overall demand last year. Identifiable investment demand rose 7% in 2009.

Jewelry and industrial demand would be supported by the signs of economic recovery, while uncertainties about its pace, inflation and currency risks would bolster investment demand this year, Wozniak said.

"We've got this situation when we've got improving economic conditions but an ongoing economic uncertainty. . .Investment (demand) will be supported by the uncertainty," she said.

Jewelry demand, which started picking up at the end of last year, is seen gathering strength this year as consumer demand recovers, especially in core markets such as India and the Middle East, Wozniak said.

WGC expects central banks—many of which were sellers of gold in the 1990s—to continue buying the metal as a monetary asset and a means to diversify reserves amid currency uncertainties, Wozniak said.

European central banks have been reducing gold sales while non-European central banks are likely to be present on the buy side this year.

China could be among gold buyers this year because the share of gold in its reserves remains small and is likely to turn to its domestic gold supplies to diversify reserves, Wozniak said.

"They (China) have been buying gold locally, and I would expect them to continue to have that preference," Wozniak said.