Wednesday, August 24, 2011

Gold Prices Ease From Record Highs

The market was nicely higher in early trading, but it looks like traders are selling into the lift, and the rally is fading as of this post.

Financials are leading the early action, after Bank of America (BAC) was upped to a Strong Buy at a tier one firm and the stock is up more than 8%. Other large banks are higher as well.

But utilities are also strong this morning, and that group is often considered very defensive. So it's not the usual group of growth stocks leading the market this morning, although many of them enjoyed large percentage moves yesterday.

Gold prices have sold off sharply from their recent record highs. After touching $1900 a few days ago, gold prices are down another $75 today back near $1780. People are now asking whether the run in gold is over. My take is that things just got overheated in gold, and now it is going to have to go through a consolidation period. So just be patient, and let gold build another base. There will be plenty of time to add to positions later on.

In economic news, the July durable goods report rose a much stronger than expected 4.0%. Moreover, orders for the prior month were revised higher. This probably lessens the calls for an immediate recession, but let's see how the GDP data looks later this week.

Asian markets were lower overnight after Japan had its debt rating downgraded one notch by Moody's. Japan has the biggest debt-to-GDP ratio, and the slower growth in the country isn't being helped by the recent strong rise in the Yen.

The dollar is flattish today, and oil and gold are once again mixed. Gold is lower, while oil prices are up a bit near $86.25.

The 10-year yield is seeing a nice little bounce near 2.20%. The VIX is down only slightly to 36.0. It is testing its 20-day support, a level I would like to see it break below to signal the market could rally more.

Trading comment: Of course, how the week ends really hinges on the combined GDP report Friday couple with Bernanke's comments at Jackson Hole. I have said I think expectations are running too high for him to pull another rabbit out of the hat. I think he will say that the Fed will remain extremely accomodative, but I doubt he will explicitly unveil a QE3 program. Hopefully investors realize this and stocks won't selloff after his speech.

The SPX held its recent lows at 1120 this week, and could simply be building a short-term base from which to move higher over the next few weeks. What happened to August being a slow month where portfolio managers could go on vacation?!??

long BAC


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