Although the April reading still signified expansion, an expansion that has lasted 21 months, the Institute for Supply Management' manufacturing index still fell to 60.4% from March's 61.2%. Expectations were for a bigger drop, so the ISM reading beat. The prices-paid component shot up, showing rising inflation.
At the same time, construction spending for March showed a bigger than expected increase. Instead of going up the expected 0.8%, outlays went up 1.4%. Spending on private housing projects was up 2.2%. This increase is likely to prompt an upwards revision to first quarter GDP, origianlly estimated at 1.8%.
Despite the good news, gold climbed after the news was released. Already hoofing up to $1,558 at the time the news was disseminated, 10 AM ET, gold continued to climb. It broke through the top of the $1,550-$1,560 range at 10:30; $1,570 was reached a little after 11:00. That run had more to do with the slumping greenback and a shrug-off of last night's tumble than the above news items. As of 11:25, gold was boating a decent gain after starting off regular trading with a double-digit loss.
Monday, May 2, 2011
Buy Gold Or Reduce Debt? Matt Krantz Recommends Prudence
USA Today's personal-finance advice columnist Matt Krantz, in his latest column, got asked by a lucky reader about this choice: having received $10,000, the reader was wondering if it were better to pay down debt or buy gold. Krantz recommended the prudent course: paying off the debt. Although gold had compounded faster than most credit cards' rates over the last few years, it's still a gamble.
I myself was sorely tempted to buy some gold on a credit card back on January 29th when gold was below $1,315. Yep, I was at APMEX and pulled up the online order form for fifty 1/20 oz. Maple Leafs, although I was wavering between those and two 100-oz bars of silver for about $28/oz.
Granted that my decision to refrain (for financial-prudence reasons) proved to be less than economically rational in retrospect, but the return I would have made would have been eaten into by the interest clock running. Had I gone through with it, I would have sold some to reduce the debt I was carrying.
Trouble is, my timing would have been quite fortuitous. At the time, I did run the risk of having to shoulder paying the minimum payment and watching my stash go nowhere. Had I done so at the begining of December in '09, I would have been in a loss position - not counting credit-card interest - until late spring of '10. If anyone's tempted to undertake what I shied away from, timing matters. Last week was the time to sell enough to pay back (most of) the debt. The trouble is, selling when the market's hot is a completely different skill from buying when there's gloom and panic. From my experience, selling is harder to learn than buying.
So, in the end, prudence might be the best choice even if profits are foregone. Even when an investment is going up, timing and banking the profit are still skills that take time and effort to master. Paying off debt, or refraining to run up debt, aren't.
I myself was sorely tempted to buy some gold on a credit card back on January 29th when gold was below $1,315. Yep, I was at APMEX and pulled up the online order form for fifty 1/20 oz. Maple Leafs, although I was wavering between those and two 100-oz bars of silver for about $28/oz.
Granted that my decision to refrain (for financial-prudence reasons) proved to be less than economically rational in retrospect, but the return I would have made would have been eaten into by the interest clock running. Had I gone through with it, I would have sold some to reduce the debt I was carrying.
Trouble is, my timing would have been quite fortuitous. At the time, I did run the risk of having to shoulder paying the minimum payment and watching my stash go nowhere. Had I done so at the begining of December in '09, I would have been in a loss position - not counting credit-card interest - until late spring of '10. If anyone's tempted to undertake what I shied away from, timing matters. Last week was the time to sell enough to pay back (most of) the debt. The trouble is, selling when the market's hot is a completely different skill from buying when there's gloom and panic. From my experience, selling is harder to learn than buying.
So, in the end, prudence might be the best choice even if profits are foregone. Even when an investment is going up, timing and banking the profit are still skills that take time and effort to master. Paying off debt, or refraining to run up debt, aren't.
Buying Gold On Akshaya Tritya: A Practical Look
Despite Akshaya Tritya falling in early May, a month when veteran gold buyers traditionally refrain, buying a fixed amount of gold on that day has proven to be wise. Despite the Indian stock market roaring up this past decade, in stark contrast to North American markets, investing in gold over the last ten Akshaya Tritya festivals would have beaten stock-market ETFs.
It's an old saw in anthropology that even flagrantly irrational traditions have a functional logic to them. Akshaya Tritya isn't really irrational, but it's still a tradition. Nice to see a secular examination showing its usefulness.
Akshaya Tritya is one of the holiest days in the Vedic calendar. Legend has it that any venture started on Akshaya Tritya is successful. More importantly, it is considered a good day to buy metals (especially gold), which bring prosperity throughout the year. ET Wealth back-tested this premise and found that if you had bought a fixed amount of gold on Akshaya Tritya in the past 10 years, you would have earned annualised returns of 20.2%. Investments in Nifty ETFs on the same days would have earned 17.3%.
It's an old saw in anthropology that even flagrantly irrational traditions have a functional logic to them. Akshaya Tritya isn't really irrational, but it's still a tradition. Nice to see a secular examination showing its usefulness.
Closed South African Gold Mines Leaking Water Into Johannesburg Supply
Johannesburg grew around some rich gold mines, but there's some new trouble from those old mines. Because the water pumps have long been turned off, the mines have been filling up with water. That water, mixed with mine residure, has become acidic and is starting to contaminate the city's water supply.
Acid mine drainage has plagued derelict mines globally for decades, but most of that damage has been in remote areas. The problem for Johannesburg is that the city has been built on top of its gold mines....Given that Johannesburg is a major city, there'll almost certainly be a clean-up drive. There's little hope that the old mining companies will foot the bill, as the mines have been abandoned to the government. Said government has sent out an official to give the line that it's a highly complex problem because of the mines' abandoned status.
For more than a decade Mariette Liefferink from South Africa's Federation for Sustainable Development has campaigned for better environmental regulation.
When almost three years ago the last major pump removing water from the mines was switched off, she knew what was likely to happen.
Water would build up in the mines, it would mix with residue, turn toxic and then eventually start leaking. Slowly at first but leakage problems left unchecked would grow more costly and that's what's happening now.
Acidic water from the mines is already leaking into the city's groundwater and flowing into dams and rivers.
Peter Brimelow Notes Divergence Between Gold And Gold Shares
In his latest Marketwatch column, writen before gold's tumble last night, Peter Brimelow notes a divergence between gold and the Amex Gold BUGS Index (the HUI.) Althouhg gold roared up to a new record, the HUI closed down on the day last Friday.
That confidence doesn't jibe with the tumble last night, but gold does show signs of stabilizing. Needless to say, the divergence theory worked well this time.
Weak gold shares always worry experienced observers. Pring Research noted the shares have “definitely been struggling. … It has managed to set up a negative divergence with the metal price. … This is a troubling factor”The hard-core goldbugs were undeterred, even normally cautious ones like the Privateer.
And I recently noted Sound Advice’s warning: “We caution against getting caught up in the noise surrounding precious metals. … We know there are calls for gold to go to $2,000, $3,000, $5,000, but that is based on expectations of Armageddon, an event that always seems around the corner when times are difficult but which usually does not happen.”
That confidence doesn't jibe with the tumble last night, but gold does show signs of stabilizing. Needless to say, the divergence theory worked well this time.
Indian Physical Gold Demand Picks Up After Price Fall
According to a Reuters report webbed by the Economic Times, last night's tumble induced more buying as traders took the opportunity to stock up for the Akshaya Tritiya festival this Friday at bargain prices.
"There are good deals at current levels. I must have sold 200 kgs at $1,550 (an ounce)," said a dealer with a state-run bank in Mumbai, adding "gold will come to $1,544."The rupee weakened, which cut into the bargain for local buyers.
Aftereffects Of Crash In Silver Pushes Down Gold
It was an odd start to trading at 6 PM ET. Right out of the gate, silver lost about 12% in an outright crash. There was speculation that the crash had to do with mainland China, even though markets there were closed for May Day, but the more plausible explanation came from the CME jacking up Comex margins. With thinly-margined players obliged to sell out, a selling cascade developed in a thin market with not much buying interest. It's a safe bet that a lot of that selling was margin selling. Anyone trading long on 10% margin, with no gains cushion, would have been wiped out in ten minutes. They would have been sold out.
The silver crash is a mute testimony to the dangers of trading futures, particularly at the top of a parabolic rise. A slump in the S&P 500 of 12% over an entire day, back in the days before circuit breakers, would have had the financial press up in arms. It would have been called a crash in page-1 headlines or the Internet equivalent. Yet, silver dropped that amount in eleven minutes on a Sunday evening. Add to that the fact that, despite brokers now requiring as much as 20% margin now, commodities can still be leveraged much more than stocks except for index futures. As Jim Rogers predicted, the end of silver's parabolic rise last week ended up very badly despite the respite last week. Lesson? If an asset bobs around after a parabolic run-up, it's giving you time to get out before something ugly happens.
The funny part of that crash is, gold actually went up while silver was crashing. In about the same timeframe, the metal made a new record of $1,578.20. It's as if the panic selling in silver had induced panic buying of gold, which is counterintuitive in two ways. First of all, gold and silver tend to move in tandem. Secondly, when one asset crashes there tends to be selling of others to try to meet margin calls. Gold was pulled down later, but its jump while silver crashed made for an unusual counterpoint. It's as if the silver crash was tied to the stagflation theme, or the kind of panic that makes traders rush into gold.
As later action showed, it was all for naught. Having made its new record, the metal dove to $1,550 and then bobbled down to the high 1540s. A recovery climb close to midnight ET got gold into an unusually wide trading range, between $1,550 and $1,560, once night had turned into morning. As of 8:25, the spot price was $1,551.40 for a drop of $14.30 since Friday's close. The Kitco Gold Index attributed -$15.40 to predominant selling and +$1.10 to a weakening greenback.
The U.S. Dollar Index also got a boost from the silver crash, which also proved to be ephemeral. After sagging from 73.0 to 72.9 before 6 PM, it jumped up to 73.15 before tumbling down to 72.80. Reversing at 8:50 PM, it then ran up to as high as 73.26 shortly before midnight. That run didn't last, although the slide-back was ragged. From 5:30 AM, the Index was floundering around 73.0 - where it was when trading resumed on Sunday afternoon. As of 8:33, it was still floundering at 73.01.
A Reuters report attributed gold's fall to the news that Osama bin Laden had been killed. Oil lost about two dollars a barrel on the news.
An earlier Bloomberg report said gold jumped to a record as silver crashed.
With no news on the U.S. economy at 8:30, gold slumped to the lower end of its $1,550-$1,560 range after an initial blip-up when regular trading started. Subsequently, the metal dithered around $1,551,50. As of 8:45, the spot price was $1,552.10 for a drop of $13.60 since Friday's close. The Kitco Gold Index assigned -$14.10's worth of change to predominant buying and +$0.50's worth to greenback weakening. The U.S. Dollar Index managed to find enough traction to test 73.05, but slipped after being thwarted. As of 8:47, it was skidding at 73.01.
Despite gold's overboughtedness, it was silver that got hammered. Gold did fall in sympathy, but not after making a new record. Having found support at $1,550, the metal's now licking its wounds and seeing what'll happen next. Today's regular trading will determine whether gold will continue to break down or shrug last night's tumble off.
The silver crash is a mute testimony to the dangers of trading futures, particularly at the top of a parabolic rise. A slump in the S&P 500 of 12% over an entire day, back in the days before circuit breakers, would have had the financial press up in arms. It would have been called a crash in page-1 headlines or the Internet equivalent. Yet, silver dropped that amount in eleven minutes on a Sunday evening. Add to that the fact that, despite brokers now requiring as much as 20% margin now, commodities can still be leveraged much more than stocks except for index futures. As Jim Rogers predicted, the end of silver's parabolic rise last week ended up very badly despite the respite last week. Lesson? If an asset bobs around after a parabolic run-up, it's giving you time to get out before something ugly happens.
The funny part of that crash is, gold actually went up while silver was crashing. In about the same timeframe, the metal made a new record of $1,578.20. It's as if the panic selling in silver had induced panic buying of gold, which is counterintuitive in two ways. First of all, gold and silver tend to move in tandem. Secondly, when one asset crashes there tends to be selling of others to try to meet margin calls. Gold was pulled down later, but its jump while silver crashed made for an unusual counterpoint. It's as if the silver crash was tied to the stagflation theme, or the kind of panic that makes traders rush into gold.
As later action showed, it was all for naught. Having made its new record, the metal dove to $1,550 and then bobbled down to the high 1540s. A recovery climb close to midnight ET got gold into an unusually wide trading range, between $1,550 and $1,560, once night had turned into morning. As of 8:25, the spot price was $1,551.40 for a drop of $14.30 since Friday's close. The Kitco Gold Index attributed -$15.40 to predominant selling and +$1.10 to a weakening greenback.
The U.S. Dollar Index also got a boost from the silver crash, which also proved to be ephemeral. After sagging from 73.0 to 72.9 before 6 PM, it jumped up to 73.15 before tumbling down to 72.80. Reversing at 8:50 PM, it then ran up to as high as 73.26 shortly before midnight. That run didn't last, although the slide-back was ragged. From 5:30 AM, the Index was floundering around 73.0 - where it was when trading resumed on Sunday afternoon. As of 8:33, it was still floundering at 73.01.
A Reuters report attributed gold's fall to the news that Osama bin Laden had been killed. Oil lost about two dollars a barrel on the news.
Markets across large parts of Asia and much of Europe were closed for May Day and Labour day holidays, reducing the number of market participants and making for volatile trade.Needless to say, silver got the press this morning. Holdings of the SPDR Gold Shares Trust were unchanged on Friday at 1,229.64 tonnes.
While gold initially fell more than $5 an ounce after news of bin Laden's death, traders expect its bull trend to remain intact given the macroeconomic and political environment.
An earlier Bloomberg report said gold jumped to a record as silver crashed.
“We opened up this morning in New Zealand exceptionally well bid across the board,” Jonathan Barratt, managing director at Commodity Broking Services Pty, said in a phone interview from Sydney today. “We got a high in gold and then we got massive sell orders in the spot market and the price fell through. When futures opened the market fell again."He was also quoted as saying that kind of move signals a reversal, but it'll take one to two weeks to see how it plays out.
With no news on the U.S. economy at 8:30, gold slumped to the lower end of its $1,550-$1,560 range after an initial blip-up when regular trading started. Subsequently, the metal dithered around $1,551,50. As of 8:45, the spot price was $1,552.10 for a drop of $13.60 since Friday's close. The Kitco Gold Index assigned -$14.10's worth of change to predominant buying and +$0.50's worth to greenback weakening. The U.S. Dollar Index managed to find enough traction to test 73.05, but slipped after being thwarted. As of 8:47, it was skidding at 73.01.
Despite gold's overboughtedness, it was silver that got hammered. Gold did fall in sympathy, but not after making a new record. Having found support at $1,550, the metal's now licking its wounds and seeing what'll happen next. Today's regular trading will determine whether gold will continue to break down or shrug last night's tumble off.
Subscribe to:
Posts (Atom)