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.
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.
The main reason for the duty hike is the rising current account deficit, driven largely by India’s traditionally large gold imports – demand which has grown with the price pulling back below $1600 per ounce and the rupee strengthening somewhat from its worst levels. The current account deficit reached an all time high of 5.4% of Gross Domestic Product in the third quarter of 2012. India’s current account deficit problems look similar to the balance of payments crisis in 1991, when the Reserve Bank of India had to sell 47 tons of gold to Europe as collateral for a loan to avert a sovereign default.
A federal jury in the U.S has ordered Dow Chemical (NYSE:$DOW) to pay $400 million in fines over price fixing of urethane. Several companies were named in the $1 billion class action law suit filed by urethane buyers but Dow was the only one that had not settled. Other defendants in the case included Bayer AG, Huntsman Corp’s (NYSE:$HUN) Huntsman International and BASF SE. Dow will try to have the lawsuit dismissed in a post-trial motion.However, if the verdict is sustained by the judge, then the $400 million could potentially become $1.2 billion under federal anti-trust statutes.
Peter Pham is an author, international fund manager, and a registered financial director by the Cayman Monetary Authority (CIMA). In 2013 he published his first book entitled, The Big Trade: Simple Strategies for Maximum Market Returns. He currently manages the portfolio of a global hedge fund and runs an asset management company, Phoenix Capital. (read more)
The Big Trade: Simple Strategies for Maximum Market Returns
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