Archive for August, 2013

The Case For Owning Gold and Silver Now

Posted in Philadelphia Gold/Silver Sector Index (XAU) on August 28th, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

After rebounding sharply off of long-term trend line support at 82.29 on June 26, the Philadelphia Gold & Silver Index (XAU) is in position to extend much higher. From a technical point-of-view, monthly stochastic studies have just crossed up bullishly and remain in an oversold condition despite the sharpness of the rebound. This suggests that the upside in gold and silver from current levels could be impressive.

Another thing to consider is that a number of well known hedge fund managers have reduced their long positions in gold and silver, gold and silver EFTs and/or mining shares …as prices declined. That liquidation has removed a healthy amount of overhead supply that could have had a limiting impact on upside gains. Further, a number of gold and silver miners have cut back on production, cut staff, reduced dividends and sold off properties in order to preserve cash. These maneuvers will likely reduce the amount of newly-mined gold and silver from coming onto the market if future months as well.

Another issue to assess is the recent evidence that the jump in interest rates since May 22 has already had a dramatic effect on retail store consumption as well as new home sales. This combination of events suggests that the much anticipated Fed taper might be pushed off onto the proverbial back-burner.

Worries that the implementation of Obamacare could lead to full-time workers finding their hours cut, thus reducing net disposable income, may also have an impact future domestic consumption demand. Moreover, the head of the International Monetary Fund, Christine Lagarde opined last week that a reduction in the amount of QE by the Federal Reserve could augment harmful financial implications for some emerging market economies.  As a result, pressures on the Fed to hold policy steady, as well as a potential call for future fiscal stimulus might emerge heading into the debt-ceiling debate. These conditions might partly be to blame for the recent decline in U.S. dollar index (DXY)  despite the rise in interest rates.

These kinds of uncertainties usually result in lower equity prices and a bump up in the value of precious metals. In the case of the XAU, major trend line resistance doesn’t come into play until a test of the 142 area, which is 27.4% higher than the 111.39 close on Friday.


Can The KBW Bank Index Lift Above Key Resistance?

Posted in Keefe Bruyette & Woods U.S. Bank Index (BKX) on August 23rd, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Amid rising interest rates, the Keefe, Bruyette & Woods U.S. Bank Index (BKX) is now testing key trend line resistance at 67.11 on long-term charts. Another technical factor to consider is that overbought conditions are now present on long-term charts as well. At the very least, this set-up suggests that either a pause or a correction may unfold over the short-to-intermediate term in bank stocks.

Clearly, the prospect for the much-anticipated taper has given investors reason for pause. Adding to the likelihood that a more defensive posture in equities (in general) is  developing, is recent evidence of a slowdown in retail sales, despite a modestly improving employment picture. The criticism of recent job additions, however, is that they have been largely part-timers at relatively low wages. The July BLS report revealed that the biggest jump in job gains last month was in the category of those who are 25 years and older who had less than high school diploma. Further, the BLS also reported that average working hours declined in the private sector from 35.5 hours to 35.4 hours with average overtime hours declining to 3.2 hours from 3.4 hours in June.

These numbers poke a hole in the theory that a jump in the number of part time workers is a prelude to future full time job gains and that existing workers will generally garner an increase in overtime hours before employers make additional hiring plans. Adding to this murky mix was a decline in average weekly earnings from $678.72 in June to $676.70 in July.

Along with the clear retrenchment in retail sales (along with future guidance), this set of statistics may be just enough to put the taper talk on the back burner for a while or until evidence of a more sustainable jobs picture reemerges.

While the continuation of QE at the $85B level could be helpful to lift overall economic conditions in future months, the BKX bank stock index might respond better to an increase in higher quality employment gains along with credible evidence of an increase in economic activity. In any event, keep on eye on the 67.11 level on Keefe, Bruyette & Woods U.S. Bank Index (BKX). It will likely be a key inflection point that will signal the direction of bank stocks.