Buy Gold Now? (source:goldseek)

Last week has to be one of the most stunning in the history of financial markets.

It started with the weekend sale of venerable Bear Stearns to JP Morgan for the laughably low price of $2 a share set the tone for what will be remembered as a prophetic event for the week that followed, and ultimately, for the months that will follow.

The Fed has essentially funded the sale of a distressed asset to avoid the collapse of Bear Stearns, which, if allowed to happen, would put so many other banks into a state of insolvency that the domino effect would ultimately cause more big banking names to fall. The term “capitulation” comes to mind.

So what has happened, is the Fed is exercising its right to print money with renewed abandon, comforted by the short term validation of its strategy afforded by the Dow’s responsive surge. Casual observers might be forgiven for interpreting the bear market rally, representative more of short covers and delusional optimists than of relative strength, for signs that the crisis is over, the market has bottomed, and business as usual is imminent.

But hold the phone. Is this the bottom of the well, or merely a ledge hit on the plummet to resume shortly?

Bet on number 2. Though both gold and oil have taken a near 10% hit during the last few sessions, and sure the Dow has piled on 400+ points in two sessions in the last two weeks, there is much, much more to come.

The confidence in the dollar and the Dow expressed in terms of gold, oil and commodities sell-offs is partially a reaction to the swift and decisive actions Ben Bernanke. The general feeling on Wall Street is one of suppressed awe for the utter absence of hesitation the Fed chairman has demonstrated in the face of the crisis. His creativity and resourcefulness during this time is admirable.

The turbulence ahead will no doubt be tempered by such deftness.

But, and this is the big “but”, the next 10 to 12 weeks are going to be no less chaotic then we’ve those we’ve been enjoying in 2008.

Next up on the Price is Wrong is commercial mortgages and their asset-backed derivatives.

There’s no doubt about the fact that the U.S. is suffering a downturn in economic vitality.

New Residential construction numbers announced Tuesday last week indicated a 36.5% drop in building permits issued since last February, and the numbers were down 7.8% for the quarter. Other key economic indicators confirm the slowdown in consumer spending across all areas of the economy. The result: business is slowing down in tandem.

So with business in a contraction mode, all those new office buildings in various degrees of completion add up to an oversupply of office and commercial space inventory, with the accompanying effect of falling prices. Add to that the inability of anywhere from 80% or higher of the commercial paper underwriting the financing of that construction to renew, and you’ve got a recipe for defaults on a scale that will make the residential mortgage problem tame in comparison.

According to a Wall Street Journal article dated March 22:

The spread on the CMBX Triple-A series 3 index has fallen to around 1.90 percentage points, its lowest level since late February.

That kind of a reading on the triple-A CMBX indexes implies cumulative default rates on the underlying loans of as high as 100%, players say, depending on the assumptions made for recoveries that would follow defaults.

The CMBX Triple A index tracks the cost of protection against default on a series of securities backed by commercial mortgages.

The major difference between commercial mortgage backed securities versus those backed by residential mortgages is exposure. Whereas most residential mortgage-backed securities are represented by hundreds of individual mortgages slices, its not uncommon for a single commercial mortgage to comprise up to 10% of any individual security. That means the quality of the entire issue can crash if just one mortgage defaults.

This is what Ben Bernanke is facing next, and the only real weapon left in the arsenal is more cash, which is okay for the short term, but the dollar is becoming more and more worthless with every billion dollar bailout.

It was exactly a year ago next week that China began to divest itself of US treasuries for the first time in seven years. With the value of all U.S. denominated foreign holdings free falling in value, other currencies are being sucked into the vortex.

All this means is that gold is going to grow in stature as a perceived store of value as long as the carnage continues.

During the first half of 2007, overall investment in gold was relatively weak; identifiable investment was 22% lower than one year earlier while statistically residual “inferred investment” was substantially negative. In Q3, while inferred investment was close to zero, identifiable investment soared as a result of record quarterly inflows into gold Exchange Traded Funds (ETF). In Q4 identifiable investment was more subdued, as retail investors took profits and ETF inflows steadied, but inferred investment became strongly positive. In dollar terms total net gold investment in Q4 reached just over $8bn – a quarterly record.

The $95 price drop in gold this past week is therefore nothing short of a gift. An unparalleled buying opportunity that will quickly be acted on, and one of a likely good number, as the volatility in the commodities, debt, and equities markets is going to stay high for the foreseeable future.

Next stop: $2,000 gold.

MCXARUN
9994500540

What is Behind This Sharp Correction in Gold

What caused such a vicious correction in commodities which took gold along for the ride? We have recently expressed concerns that sentiment became overly optimistic and a technical correction was needed to relieve overbought conditions.



But why was the correction so sharp? The main reason is that the de-leveraging process began to spread from financial paper, particularly mortgage backed securities, into other markets including the commodities sector. Stricter lending standards are causing traders to reduce overall positions, decrease risk and reduce their dependence on borrowed funds. Led by the hedge funds, the highly leveraged players started selling speculative positions in commodities. The correction happened in an instant as some hurried to take profits, while others were met with margin calls.



Excess cash was quickly funneled into the shortest maturity government debt – 3-month T-Bills, which typically approximate the fed funds rate set by the Federal Reserve. As a result, the T-Bill yields collapsed to a historic low of under 0.50%, light years away from the fed funds rate of 2.25%.





The chart of the 3-month T-Bill yields above shows an extreme level of panic in the markets. Traders are operating by a philosophy of “sell first, think later,” dumping all of their proceeds into what is perceived to be the safest possible short term investment.



The flight to safety panic cannot continue much further and this unusual amount of cash sitting in T-Bills will have to find a home elsewhere. It will return to the most oversold sectors of the stock market, stabilizing precious metals and related stocks in the process.

MCXARUN
9994500540

SAFE TRADE

GOLD

our words, "sustain below 12850 sharp down side in coming days" book profit on sell below 12310.. for the day sell only below 11960 S/L 11980 and T/p 11910-900/11860/sustain below 11850 test 11750-25 atleast in coming days OR sell ard 12260-70 S/L 12275 and T/p 12175-120 upto 12075 (any time close above 12375/13100/13400 bullish while close below 11850/11575-475/11300/10950-900/10500/10050/ 9850/9575 bearish for medium term)

SILVER

book profit on sell below 23875, for the day sell only below 22075 S/L 22200 and T/p 22000, sustain below 22000 seen towards 21750 in coming days OR sell ard 22820-850 S/L 22875 and T/p 22700-625/450 (any time close below 22100- 21990/21250/20150/19390/ 18600-250/17850 bearish rally while close above 23900/26100/27500 bullish for medium term)

CRUDE

our words " sustain close below 4130 test 4000 atleast" achieved, book profit on sell 4230-35/4130, for the day sell below 4045 S/L 4065 and T/p 4025-4000, sustain below 4000 test 3960-65 & close below 3960 seen more down rally OR sell ard 4145-55 S/L 4160 and T/p 4110-4070 (now crude need to close above 4160/4335/4460-85 for bullish rally while close below 4140/ 4070/3960/3830/3585/3415-3390 bearish for medium term)

COPPER

book profit on sell below 322, for the day sell only below 315 S/L 317 and T/p 313-11/310/upto 305, sustain below 303 seen one more down rally OR sell ard 324-324.5 S/L 325 and T/p 322-319.5/ 318-316 (upside strong rally only on close above 324/335.5/ 348/354 while close below 310-303/281/267.5/254.5/ 235 bearish for medium term)

mcxarun
9994500540

SPOT GOLD INTERNATIONAL
LIKELY TO TEST $ 895 UPTO $ 885 WITH ANY BREAK & SUSTAIN CLOSE BELOW $ 904

MCXARUN
9994500540

Gold Outlook

Spot gold prices rose moderately on Friday after falling steeply in the previous days. Dollar was relatively steady. Most of the world markets were closed on account of Good Friday.



Gold had corrected from record high levels reached earlier last week, along with oil, as the Dollar gained marginally from record-low levels versus the Euro after the Federal Reserve cut its benchmark interest rate by 75 basis points to 2.25 percent.



The latest rate cut has been the sixth since last September, and has made the reduction in the federal funds rate to 300 basis points, to the lowest point since late 2004. But many market participants and analysts had anticipated an even more severe cut by the Fed, a full 100 basis points, amid serious concerns regarding a recession in US economy.



On Friday international spot gold traded in the range $911.00 - $919.90, and last quoted at $919.10 (909.60).



Crude oil for May delivery in NYMEX settled at $101.44 ($102.54) a barrel. US crude inventories rose by 200,000 barrels to 311.8 million barrels in the week ending March 14, according to the latest update by US Energy Information Administration.



Flurry of gloomy economic data from the US continued, as the Commerce Department on Tuesday reported a drop in US housing starts in February by 0.6 percent to a 1.065 million unit annual rate, down from 1.071 million units in January.



The economic worries and a nose-diving dollar had propelled spot gold to record an all-time high of $1030.80 a Troy ounce on Monday.



In the meantime US Labor Department’s Producer Price Index, which measures inflation pressures before they reach the consumer, rose 0.3 percent in February following a 1.0 increase in January.



The Federal Reserve in a an unexpected move had cut its discount rate for direct loans to banks by 0.25 percent point to 3.25 percent, and launched a new discount window facility for primary dealers, in desperate moves to stabilize financial markets.



The emergency moves by Fed boosted speculations regarding the possibilities for more casualties in the widening US financial crisis.



Adding to the pressure on the greenback, data from the US showed total industrial output fell 0.5 percent in February, much steeper than the expected rate of 0.1 percent.



Another release showed US homebuilders' confidence held steady in March. The National Association of Home Builders (NAHB) Housing Market Index for March remained unchanged at 20.



The University of Michigan/Reuters index tracking consumer sentiment had dipped to 70.5 in March from 70.8 in February.



The US Commerce department reported a worse-than-expected 0.6 percent fall in the Retail Sales in February.



Another release by the US Labor Department showed the initial claims for state unemployment benefits remained unchanged at 353,000 in the week ended March 8. The four-week average of initial claims fell slightly in the latest week, down by 1,250 to 358,500.



Meanwhile, the US Commerce Department reported that the US trade deficit widened slightly in January, up 0.6% to $58.2 billion.



Medium term outlook (Spot Gold)

Bullish above $916; Resistances are $926, $932, $947, $954, $973, $984, $995, $1002, $1022, $1035, $1052; supports $896, $883. Further up-trend is expected above $954.60.



Last day DGCX Gold April traded in the range $912.60 – $929.30 and closed at $913.80.



DGCX Gold April


TECHNICAL OUTLOOK (Intra-day)



GOLD (April) - Bullish above $ 920; bearish below $ 914

MCXARUN
9994500540

MCX BULLION CHARTS

CLICK THE PICS FOR LARGE VIEW





MCXARUN
9994500540

GOLD
LIKELY TO TEST 12180-100/12000 mAX UPTO 11900 IN COMING DAYS WITH ANY BREAK & SUSTAIN CLOSE BELOW 12320(APRIL)


SILVER
LIKELY TO TEST 23450-23100 WITH ANY BREAK & CLOSE BELOW 23890, AND SUSTAIN CLOSE BELOW 23000 LEAD ONE MORE DOWN RALLY(MAY)


CRUDE OIL
LIKELY TO TEST 4070-80 UPTO 4000-10 WITH ANY BREAK & CLOSE BELOW 4130, ONLY CLOSE ABV 4335 SOME UPTREND AGAIN(APRIL)

MCXARUN
9994500540