Ringing in 2008 - with a BANG
Good Morning and Happy New Year,
Gold prices celebrated the start of 2008 in high style, rising beyond the pinnacle they achieved last year. A sharp rise in crude oil (sparked by violence in Nigeria) to $97.44 and a softer US dollar (last seen at 76.30 on the index) ahead of the ISM data for last month contributed to the metal's successful attempt to break out towards higher ground. Although conditions remain on the thin side as part of the trade will not return until Monday, the move suggests that funds may have made additional moves into bullion with Pakistan remaining on edge and investors nervous about financial markets.
New York spot bullion opened substantially higher, finally fulfilling the 27 year old dream of gold bugs everywhere. The metal rose $14.20 to $847.50 bid, as participants made the expectations expressed last month a reality. We can expect additional gains if the financial media disseminates the news and trend-followers pile into the market on speculative emotion. Silver gained 16 cents to $14.93 but remains under the threat of underperforming gold as demand for industrial uses hangs in the balance should an economic contraction become deeper than expected. Platinum on the other hand, showed no worries about users substituting it with palladium and rose an additional $12 to $1540.00 per ounce.
As the market replays the events that gave it notoriety in January of 1980, we can expect to hear ultra-bullish chatter pick up significantly and argue that this is 'only the beginning' of...something. While there is no debate that price moves may now become highly unpredictable (in either direction) since we have waded into basically uncharted waters, the mere fact that speculative positions are approaching a quarter of a million contracts and that the addition of not too many more of them would tilt the market into heavily overbought territory should also be in the back of the minds of latecomers to the party. Tread with utmost care.
We will continue to bring you all sides of the story, pleasant reading or not. It has been our task from the beginning to cover the less often publicized aspects and stories of the market. The rest is (as always) up to you, the individual reader/investor. With this in mind, let's take a look at what Marketwatch's Mark Hulbert sees in the contrarian catacombs these days:
"Consider the latest readings of the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average gold-market exposure among a group of short-term gold timing newsletters. As of Monday night, the HGNSI stood at 66.1%. That's 25 percentage points higher than where this gold sentiment index stood one year ago.
To be sure, given gold bullion's strength during calendar 2007, during which a price of an ounce rose by more than $200, an increase in bullishness is entirely normal. Still, at 66.1%, the HGNSI is getting within shouting distance of levels that would indicate a lot of optimism and euphoria among the gold timers.
On the contrarian grounds that markets like to climb walls of worry, the stock market would appear to have a lot more upside potential than gold.
Note carefully that this forecast focuses on relative performance, and thus does not mean that gold will necessarily have a terrible year. The contrarian forecast for 2008 could turn out to be correct with both stocks and gold rising, for example, but with stocks rising even more.
And, by the same token, this forecast does not mean that stocks will necessarily have a great year. It could also turn out to be correct with stocks having a mediocre year, or worse, but with gold have an even worse year."
Wonder if Mr. Hulbert is vying for the MOTY award himself by bringing his readers such potentially disturbing news on the very day that gold makes a new high...
Stay tuned for ISM data and Fed minutes and watch the spectacle unfold. Such events do not appear to come by very often.