Gold prices after an historic crash have rebounded very sharply. Since hitting $1320 per ounce on Monday April, 15th, Gold (NYSEMKT:GLD) has risen as much as $145 and looks ready to climb even higher to end this week.
Gold has risen every year since 2001 but is off more than 10% this year so far. Investors buy the yellow metal as protection against currency and savings buying power erosion. But, the combination of poor economic data and slowing inflation despite the Federal Reserve’s quantitative easing had investors skittish about the Fed ending its monetary stimulus program. That’s the official story. There are reports of failures to deliver allocated gold circulating as well as the announcement that allocated bullion accounts at Dutch banking giant ABN Amro would be settled in cash rather than physical metal which has radically increased the demand for the physical metal around the world
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Graphics chipmaker Nvidia (NASDAQ:NVDA) is in a difficult position long term. While its discrete graphics card business is still relatively strong, taking market share in 2012 from rival AMD (NYSE:AMD), this is a market that, overall, will continue to shrink in the coming months and years. To its credit Nvidia has attempted to move into different markets, most notably the low-power mobile SoC (system on a chip) market with its Tegra line of ARM-based solutions. Now, it is in the process of launching its fourth generation of the Tegra based on the Cortex A-15 core, for which early benchmarks are long on big numbers and short on context. The news last month confirming rumors that the company would not be supplying the SoC at the heart of the next Google (NASDAQ:GOOG) Nexus 7 tablet deals a serious blow to the company’s projected sales for the rest of 2013.
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Gold was not able to hold onto the $1600 level this week, closing out COMEX trading at $1595 per ounce. Not even weak U.S. GDP and unemployment data released this morning was enough to lift Gold coming into the end of the quarter. However, after a brutal 5 month sell off that brought it back to test the $1550 level, Gold put in the first positive monthly close since August of last year.
While not a reversal signal by any stretch of the definition, tracing an inside bar for the month of March does send a strong signal that selling volume is lightening. With mining and exploration stocks trading at historically low valuations relative to the underlying commodity investors should begin looking to rotate out of over-priced broad equities and into the unloved ones.
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The miscalculation by the Troika in Cyprus has finally put the last nail in the medium term short gold (NYSEARCA:GLD) investment thesis. For just over a year and a half the central banks have coordinated, very effectively, to build an edifice of confidence in the global financial system that would allow the idea that quantitative easing would no longer be needed to finish the job of cleaning up the mess post-Lehman Bros. The Troika, and most explicitly, the IMF, overplayed their hand last weekend with their demands for explicit looting of savers in order to go forward with a rescue plan for Cyprus’ over-leveraged banking system.
This act and the subsequent chaos it has spawned has now firmly put in place a bottom in the price of gold. Regardless of the final outcome in Cyprus – exit from the eurozone, acceptance of the bail-in, civil unrest, etc. – the net effect will be a steady loss of confidence in the banking system, capital flight from both the US and the EU and grater movement into gold as a vehicle for savings and wealth preservation. While I would have preferred a close above $1620 per ounce this week, closing above $1600 as we approach the end of the month is strength enough given the current sentiment.
Germany’s second leading pharmaceutical firm and one of the biggest family controlled organizations in this sector Merck KGaA recently released its quarterly results that topped estimates on the back of a cost cutting drive. The pharmaceutical company doesn’t have much attractive in its current pipeline, yet it continues to attract investment because of its unique sales mix — drugs and liquid-crystals, a market whose oversupply problems are finally coming to an end.
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