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Implications of Gold's Rise Relative to Oil
In recent months, I warned of the ominous implications of a rebounding gold/oil ratio. Yesterday, gold further outpaced oil in relative terms, giving more credence to the thesis of intensifying declines in US fundamentals.
Sounds right enough to me - I entered Gold long at 757 on Ashraf's review of the Gold/Oil ratio, it is now at 897.
As a former Economics Doctoral student I enjoy disscussing the nature of the markets - money seems to be a nice reward for the effort!!!
These posts are constructive, we should all be serious of contents in these post chats to be serious to make money together, not to make it a chat talk. My opinion. Regards.
Thanks!
I expect we will remain in a bear market until Q4 09. No real rate hikes until probbaly 2010.
Steve
GBP and NZD remain the best USD bullish play. I've been telling CMC clients how bearish i was GBP since last October. The currency is even starting to lose a very important thing; its reserve status. While I agree with $1.60, Im not too comfortable in drawing the conclusion for such an excessive rally in EURGBP. Perhaps 0.85 cents is the max. GBPUSD Overall Play remains bearish, but use generous stops. $1.8470, 1.8520 mut act as significant levels of resistance.
Watch for Gold to rise the next 2-4 weeks (see Ashrafs comments below)
England has tons of problem, much worst than USA, no reason for GBP to go up way above 1.80+. How high can GBP goes before we all short GBP/USD to the ground - 1.5 area? Your thoughts and insight pls. As usual, thanks.
What is your feeling on the risk appetite of the true Creditors of this plan - Foreign governements and sovereign funds currently buying treasuries. At the very least they will strongly demand better pricing, which would conflict with the Fed's desire to keep domestic debt prices low so as to keep the credit lines flowing through the markets.
Eventually, Foreign investors sentiment will judge the US paper to risky and flee to safety.
I believe the Fed will have to finally admit to the public, no matter the political fallout, that the Country as a whole has been living on borrowed money and time, and that the Creditors have become concerned with the amount of risk present in the US economy.
It is at this point that I believe the short term corrective rallies will turn and the Bears will come hungrily out of hibernation, finally selling off and removing the "bad money" from the markets. Foreign investment will stay on the sidelines as the dollar, bond and equities markets effectively reach new "real" equilibrium from the current nominal highs.
Once this has ocurred the U.S markets may be in for one of the largest rallies in history as sentiment will have reversed and Foreign investors will shift from agnostic to bulish.
I will be staying long Gold, taking no other positions over the next 2-3 week. Closely monitoring for the correction to end, and calculating where to enter USD/JPY short position.
How long do you foresee the Bear conditions persisting post correction?
Your observations on the Gold/Oil ratio continue to be spot on.
Except for a very small play in USD/JPY and my long term Gold position, I am staying on the sidelines today. I am not sure if the current intervention by the Fed is a good decision. Banning short selling is anathema to those who believe in free markets. Additionally, the immediate euphoria over the equity rally is not being observed in relation to the surge in commodity prices: Oil +6%, Copper +4%, Wheat +3.5%, Soybean Oil +5%, Corn +3%; and equities are, for all practical purposes, rallying on bad news not getting worse. I believe that this spells the final act of the dollar rally with no curtain call in sight. Inflation looms nearby at the same time as major U.S employers/manufactureres and financial/service firms are cutting their payrolls to buoy stock prices. This is akin to giving a junkie one more fix before being shipped off to rehab to truly get on the mend.