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Auguries Death Cross Or Gold Standard?


February 23, 2013

banks, gold, silver, wal-mart

Walmart: When Americans stop shopping here, times are tough indeed.

Gold was down (at press time) $56 (-3.2%) for the week to $1,579.30, and silver was down $1.71 (-5.6%) to $28.75. Reuters reported February 22, “Gold looked vulnerable on technical charts after it formed a bearish formation earlier in the week known as a ‘death cross,’ when its 50-day moving average broke below its 200-day moving average.”

The human death cross, George Soros, was, as usual, ahead of the market. Bloomberg reported February 15, “Soros Fund Management LLC reduced its investment in the SPDR Gold Trust, the biggest fund backed by the metal, by 55% to 600,000 shares as of December 31 from three months earlier, a US Securities and Exchange Commission filing showed Thursday.”

Our friend Peter Grandich argued February 21, “Gold and mining shares have been badly beaten up, and there’s no immediate relief in sight. The only positive is the bearishness has become overwhelming, and if support can hold in the coming weeks, we should get a compelling contrarian situation not seen in years.

“The line in the sand is the $1,520 area. It should be heavily targeted by the overwhelming number of bears now. The sidelines remain the best place for gold buyers until the line in the sand is tested. The ultimate conservative approach remains not to be a buyer until gold can close above $1,700.”

So is gold’s run over? Reuters certainly thinks so, but it has been just as certain several times in the recent past and has been proved wrong repeatedly. In the event, Reuters trots out some pretty questionable assertions in support of its thesis.

For instance, it cities “improving global market confidence.” Really? On February 22, the EU Commission published “its first winter economic forecast for the Euro area and the European Union as a whole.” Its verdict: another year of recession and higher unemployment.

According to Marco Butti, EC director general for economic and financial affairs, “This has grave social consequences and will, if unemployment becomes structurally entrenched, also weigh on growth perspectives going forward.”

Also on Friday, Moody’s cut Britain’s bond rating from Aaa to Aa1. According to the Daily Telegraph, “Moody’s pointed to ‘continuing weakness in the UK’s medium-term growth outlook, with a period of sluggish growth which [it] now expects will extend into the second half of the decade.’”

The Daily Mail reported February 19, “Economists cast doubt over German recovery as debt crisis uncertainty suffocates growth.”

Most significant of all, Danish banking executive Lars Seier Christensen said that all the EU’s horses and all the EU’s men won’t be able to put the Euro together again. “The whole thing is doomed,” he declared. “Right now we’re in one of those fake solutions where people think that the problem is contained or being addressed, which it isn’t at all… Once the French get into a fullscale crisis, it’s over. Even the Germans cannot pay for that one and probably will not.”

Reuters also cited “a better US economic outlook and indications the Federal Reserve may end its stimulus program.” It may, if the “recovery” finally shows up. In the meantime, Bernancus Magnus ordered an even bigger geyser of stimulus, $1 trillion for 2013, and pledged “to keep interest rates low until unemployment falls below 6.5% and inflation tops 2.5%.”

CNBC comments that the Fed is “essentially…in the easing business indefinitely, as the jobless rate has been stubbornly high for the past four years and shows little inclination lower except for statistical gyrations caused by people leaving the workforce.”

Perhaps the recovery is here already, and Americans have stopped looking for bargains. Which would explain why Walmart is doing so poorly. VP Finance Jerry Murray lamented in a February 12 internal email, “In case you haven’t seen a sales report these days, February MTD sales are a total disaster… The worst start to a month I have seen in my ~7 years with the company.” He concluded, “Everyone is suffering and probably worse than we are.” Another Walmart executive was close to despair: “Where are all the customers? And where’s their money?”

The data presented above does not constitute a comprehensive survey but does constitute prima facie evidence that the US and global economic pictures aren’t looking too rosy.

As for that “death cross,” Ambrose Evans-Pritchard argues that “it is a buy signal for China.” He writes February 21, “The Chinese don’t declare gold purchases, but it is an open secret that they are buying on every dip, as they have to do merely to keep the proportion stable at 2% of their $3.3 trillion reserves…. I might add that China would have to buy vast amounts of gold to raise the share to 10%, a figure mooted by some officials in Beijing.”

Evans-Pritchard concludes, “The reality is that we have been moving for several years to an informal Gold Standard in which gold takes its place once again as a central store of value—a currency of sorts—in the mix of sovereign reserves.”

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