Thursday, January 15, 2015

GOLD SKYROCKETS: here's what you need to ask yourself

Well, gold flew up to $1260, dropped back to $1250, and is now trading at $1255. Why? Should this change my point of view on a gold miner retrace? Or is it just a silly knee-jerk capitulation? Well, let's check the news and see:

Reuters - Swiss unpeg the Franc. They've given up pegging the Franc to the weakening Euro. I don't see why this should make gold go up: the Franc is now free to appreciate, and that means the Swiss suddenly have less reason to own gold.

Then again, one of the reasons the Swiss give is the imminent threat of a large OMT from the Eurozone. If the Europeans start "money printing", that might make idiot Americans go long gold, if they happen to understand that the Eurozone is this whole other country yet are still dim enough to not realize that gold demand has nothing to do with "money printing".

So is that it?

Reuters - EU court adviser paves way for ECB money printing. Quote:
The European Central Bank won crucial backing on Wednesday for its pledge to do whatever it takes to support the euro when a top EU legal adviser removed a hurdle to the bank's plans to buy government bonds to bolster the euro zone economy.

Pedro Cruz Villalon, advocate general to the European Court of Justice, said a 2012 ECB bond-buying blueprint, designed at the height of the euro zone crisis to avert a break-up of the single currency and unused so far, did not break EU law.

The opinion was a clear rebuff to German critics of bond-buying, who argue the ECB would reward spendthrift states with cheap credit by printing fresh money and deter painful reforms.

"The OMT (Outright Monetary Transactions) program ... falls within the monetary policy for which the (EU) Treaty makes the ECB responsible," said Cruz Villalon, in an opinion which was met by enthusiasm on financial markets.
Again Mario Draghi is vindicated. He's said over and over that his job at the ECB is to manage monetary policy to achieve an inflation target, and if the EZ countries fail to implement helpful fiscal policies he's going to have to break out the nuclear weapons to counteract their sadomonetarist sabotage. Well, now he's been given the green light to break out the nukes and get glassin'.

Is this a positive for gold? I don't see why. Europeans don't buy gold. Then again, if a large number of Europeans are stupid enough to think OMT has anything to do with "money printing", they might go longer gold, which would make Americans want to get out of their shorts.

And if Draghi can give a hard enough boot to the economy to get it out of the German-made depression trap, that's good for the world economy in general.

So is that the reason gold went up?

Reuters - Rajan cuts Indian rates. Now this is interesting. Indian inflation is low and their current account is healing with the collapse in commodity prices. The market thinks this is just the start of a rate cut cycle, and that's a net positive for Indian wealth creation.

Then again, quote:
For Modi, relief for the economy cannot come soon enough, with some global CEOs venting frustration at a recent investment summit that, eight months into his rule, doing business in India is as hard as it ever was.

There is mounting evidence too that rural India is struggling as Modi curbs aid schemes championed by the last government, compounding the impact of last year's bad monsoon and a slide in prices for farm exports.

With India's $2 trillion economy yet to emerge from its longest spell of sub-par growth in a generation, sources in both Mumbai and New Delhi see room for some slippage on deficit targets as long as Jaitley puts together a credible spending plan for the fiscal year to March 2016.

"It's about the quality of spending," said one government source familiar with the budget preparations. "We need to reduce wasteful spending and spend more on building the capacity of the economy."
It's the peasants who buy a big part of the gold in India, and if Modi is going to cut their subsidies, that's less money for gold buying.

Still, a strong Indian economy is good for gold, considering they buy so damn much of it.

So is that it?

I dunno. Probably what happened this morning is that a bunch of people kneejerked out of gold shorts to the sidelines because of a fear that the established order is now in flux. As usual, gold flies up due to insufficient instantaneous liquidity.

If so, then we have to see if liquidity-over-time corrects the price back down.

But the biggest question is what does the chart do? So I guess I'm stuck watching stupid intraday price and volume again.

I guess that as the dumb end of the market, I have to figure out if I myself would be buying miners right now if I was long miners at the close yesterday.

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