Gold rallies as housing struggles
A slowdown in the housing market, driven by a rise in mortgage rates, is pushing up precious metals on renewed cheap money hopes.
Addictions are hard to break. It's so easy to fall back into old habits. Find a new supply. Ease the pain.
That's exactly what's happening with Wall Street, which is hooked on the Federal Reserve's cheap money morphine. Investors are looking for any reason to believe the $85 billion-a-month bond purchase program will continue unimpeded, despite signs that a "taper" of around $10 or $15 billion will happen next month. This after new home sales came in lower than expected on Friday, driven clearly by a rise in mortgage rates from sub-3.5% a few months ago to nearly 4.5% now.
Hopes of more money printing, to stem the slide in housing, is lifting Fed-sensitive assets like Treasury bonds and gold in a big way.
New home sales plunged to a 394,000 annual rate in July vs. the consensus estimate for 487,000 and the prior month's 497,000 result. As a result, supply has risen to 5.2 months of sales from 4.3 months in June, easing the tightness in the market and taking some pressure off of prices. Indeed, the median selling price fell to its lowest level since January.
Gold and silver surged on the report, with silver up nearly 3% as it nears the breakdown gap created back in April. The metal is up nearly 30% from its June low.
Because of my expectations of both higher inflation and a Fed that will keep monetary policy too easy for too long (either by tapering more slowly or by keeping short-term rates lower for longer) in the context of a resurgence in global manufacturing activity, I think the move in silver and gold will continue.
I'm expanding my exposure with the addition of Canadian gold miner Claude Resources (CGR), a high-risk/high-return trade.
Disclosure: Anthony has recommended USLV, LSG, and CGR to his clients.
Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at email@example.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
MSN Money on Twitter and Facebook
2% GDP growth, year over year will not match what the value will be.
10% GDP China? Can not be sustained.
85 billion a month?
Asset and some commodity prices got way ahead of the economy in the 2000s. Some real estate and stocks were priced as if it were the year 2070. Well when prices collapsed, the fed did everything it could to keep those prices high and higher, mostly to save their very wealthy friends from extreme losses. But price fixing by the fed will never work. Prices must be freed and allowed to normalize to what the real market will allow based on what people really earn and can afford. Then artificial low interest rates and QE aren't needed. A report I read today said, family income is 7% below 2000 levels. So why shouldn't asset, gas, health, and food prices be 7% below 2000 levels too? That's where the real economy is even if the government won't admit it.
Now if the Fed bought more MBS instead of bonds, it would drive the mortgage rate back down and do what this @&*#ing policy was intended to. If you are going to manipulate the markets at least do it where it has the most impact. Listen to Arvind Krishnamurthy of Northwestern and Annette Vissing-Jorgensen of Berkeley.
Yes, the Fed will taper. By how much is uncertain but $10 - 15 billion per month is likely.
The Fed needs to conserve its monetary ammunition for a much worse torrential downpour.
Oh, looky there, the Dow is above 15,000. Bulls, take a picture of this, it will last longer.
this is the guy who said to get out of stocks in late winter / early spring right before a huge rally. he said to move into cash.
"A slowdown in the housing market, driven by a rise in mortgage rates, is pushing up precious metals on renewed cheap money hopes. "- Mirhaydari
Really? I would attribute the rise in the price in gold and silver to the collapse of currency values in Asia- in particular the dramatic collapse of the Indian Rupee. See the following articles:
Both gold and silver prices rebounded at the domestic bullion market today amid weak Indian rupee against US dollar and emergence of fresh demand from stockists as well as investment buying.
Silver also recovered smartly owing to aggressive speculative buying, coupled with strong industrial off-take.
Brisk low-level buying and sliding rupee supported the price trend in the yellow metal. The Indian currency today hit a historic low of 58.16 against the greenback.
Standard gold of 99.5 per cent purity shot up by Rs 230 to finish at Rs 27,760 per 10 gm from last Saturday's closing level of Rs 27,530.
Pure gold of 99.9 per cent purity rose by Rs 215 to end at Rs 27,890 per 10 gm from Rs 27,675.
Silver ready (.999 fineness) jumped by Rs 490 to close at Rs 44,690 per kg from previous closing level of Rs 44,200.
On the global front, gold eased in early trade, extending losses after posting its biggest one-day drop in a month on Friday due to stronger-than-forecast US payrolls data.
Spot gold was down at USD 1,379.61 an ounce in early European trade while silver was down at USD 21.57 an ounce.
and this article from from FXPRO:
At a time when the global investment community is completely transfixed by Europe’s debt crisis and the potentially adverse consequences for the single currency, what has largely escaped attention up until now is the increasing pressure on Asia’s major currencies. Particularly noteworthy is the continuing collapse of the Indian rupee, which overnight fell further to a new record low against the dollar. Since the end of July, the rupee has lost more than 20%; since last Monday, the rupee is down nearly 4%.
It was not meant to be like this. India is one of the BRIC countries with massive growth potential. Some had earmarked India as offering greater risk/reward than China. However, so far this year, any dollar-based offshore investor has lost 35% on Indian equities. So, what has gone wrong?
India’s affliction is shared by many of its Asian neighbours right now. Highly leveraged to global growth, foreign investors have been fleeing high-beta economies like India. Concurrently, domestic conditions have also taken a dramatic turn for the worse. In the year ended October, industrial production fell by 5.1%, almost matching the nadir reached in early 2009. The government’s fiscal position is deteriorating rapidly with the slowing economy weighing heavily on tax revenues. High oil prices are also wreaking havoc on the trade side – October’s trade deficit of almost USD 20bln was the highest for 17 years.
Although the rupee is certainly the weakest of the major Asian currencies, it is not alone. China’s policy officials are engaged in a massive arm-wrestle with foreign investors - the latter have been attempting to get capital out of the country consistently over recent weeks, with the yuan hitting the daily permitted low on each of the past ten trading sessions. The Korean won is also under enormous pressure, down 10% since the end of July. With most of Europe burning, and Asia quite dependent on European capital, it is little wonder that Asia’s heavyweights are suffering.
It's odd that no one on MSN money is even mentioning this collapse and it's fairly obvious connection to the rise in gold and silver prices.
Although this Article will be relegated to archived pages in the next hour or two...
Many are now talking about a "breakout" in Gold and moving into "bull territory."
Going over 1400 and through 1416 as an indicator...
Gold did touch 1406 over the weekend or last night in early trades in Asia, I believe...?
I'm sure we will see more writings, this week and all the reasons why..
From this week and last...Stay tuned.
Good job Dennis..Some have done real well, during the Recession and Recovery...Others, who knows???
The 'secret" was never to run...
But walk slowly, taking advantage of everything available.
The rest pretty much sit around and CARP, all day long; What a waste of life.
A goldbug here, a goldbug there....Should be Goldbugs everywhere.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Fed keeps important 'considerable time' language in reference to short-term interest rates, but dissents and dots leave doubts.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.