Global Fear ... Don't Flinch

By: Randolph Buss | Sat, Jun 4, 2005
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Just when you thought it was safe to go back into the water the market forces have seemingly been stirred up and have thrown off some new waves. These last few days (and weeks) have brought to the fore a number of issues but before we go a bit more into detail on a few of the issues, I want to step back and take a bigger look over the economic landscape.

To my mind, right now, the overlying tendency which I sense right now is fear. The fear I sense is slowing creeping all over the marketplace(s). It is a fear which is oozing into every major market and marketplace in the world. Let us just take a look and some of these. I will not go into long statistical aberrations and charts and what have you but rather I will simply point out what the markets are looking at. I read an incredible amount of newspapers, magazines, websites, articles - all very informative and much of it excellent. Remember, in a globalized and instantaneous and news-addicted world, ideas and suggestions get transported immediately to every part of the globe. But what is constantly in the back of my mind and which is very often difficult to discern is the forest from the trees. Where is the forest and what is it looking like - inflation or deflation or benign bliss?

EU:

USA & Canada:

Asia:

The biggest underlying factor behind the three economies above is the global game of ROI verses RISK. The now fully global operating banks and equity houses have built a very complex house of cards around pyramid schemes and derivative schemes in search of global income (Return on Investment) whereby the underlying risks are most likely near unknown and are likely so convoluted and spread across multiple (unknown) parties, for that is the nature of the beast. This is why the first one who blinks in this global game of DARE could very well start a chain reaction of unforeseeable consequences. As in all societies, complexity advances until the intelligence of the players is no longer able to foresee or prepare adequately and timely for the coming onslaught. It is a story of rebuilding each time. And each time the players always think it will be different. Has fear now paralyzed governments from embarking on making logical and long-overdue decisions for fear that the consequences of their decision shall be the equivalent of pulling the lowest card out from under the delicately balanced House of Cards? I believe it has. The only alternative is then to wait for an external or exogenous event which will give one player an excuse to move but without drawing fire from the other trading partners and thus avoid being the global scape goat.

Right now each trading bloc above is staring down a loaded gun barrel and dare not flinch.

A look at Gold :

Beyond the recent articles whereby many an analyst had postulated on a potential drop down to the $400 or even $380 level, and the HUI down to the 150 or lower, both the metal and the shares have been holding up well and even made considerable gains this week, so far. I believe there is still a potential for a drop to occur mid-term but short term we are seeing both rally along with substantial gains in silver. After taking a closer look at a few charts, I thought to highlight a few of them here.

Needless to say, from a technical perspective they are looking very interesting and relatively bullish. I am cautious as often we have seen very quick turnarounds in both gold and silver and especially silver over the past 18 months. As is shown below, some interesting information can be seen highlighted in yellow on the WEEKLY charts, not daily.

I note that these are observations - not solid facts. The point is simply to provide us with potentials and to keep us aware that most things move in some sort of rhythm. Nevertheless these do tend to point to bullish behaviour in the near future.

Finally I wanted to take a look at the latest COT figures and lo and behold we see the gold action conformant with the Commercial trading lots. Over the last 6 months the Commercials have been perfectly playing the metals - relevant figures I have highlighted for you consideration.

GOLD - COMMODITY EXCHANGE INC.
CFTC Commitment of Traders  *Combined Futures and Options*
May 27, 2005
Reportable Positions as of May 24, 2005 Non- Reportable Positions
Speculators Commercial Total
Long Short Spreading Long Short Long Short Long Short
113,396 66,334 60,409 116,516 186,319 290,321 313,062 52,321 29,580

Changes from last report - Change in Open Interest: -229
-9,331 7,410 -653 11,214 -8,497 1,229 -1,740 -1,458 1,511

Percent of Open Interest for each category of traders
33.1 19.4 17.6 34.0 54.4 84.7 91.4 15.3 8.6

Number of traders in each category; Total Traders: 254
121 76 64 45 43 197 156    
(CONTRACTS OF 100 TROY OUNCES) Open Interest: 342,642
Chart courtesy of 321gold.com

I don't want to get much too ahead of the game right now but where does money ultimately go to in times of fear? Usually it goes to a safe haven. Could we be seeing an elevated interest in gold and silver as the global conditions are ever riskier and not well understood by all players or the risks are perfectly well understood and those players are hedging with a safe haven or is it all just coincidence? We don't know and we can only watch. But I certainly would keep it in mind as a strong possibility.

Well, that's it for the Thursday - this week was hard. I had so much real work on my plate and could not get out my usual - more frequent - updates. So goes it sometimes... But tomorrow is Friday so we should smile and enjoy...

More on this in upcoming issues - if you would like to know more, please sign up for a free subscription to Der Invest Informant here. As well, please visit the site daily and read my Latest Letter.

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Mr. Buss, Excellent letter as always of course. I cannot express my gratitude of "having eyes and ears", within the European Community. You, Sir, are simply, an information resource of inestimable value. Danke Schoen!! JZ, USA


 

Randolph Buss

Author: Randolph Buss

Randolph Buss
Berlin, Germany
www.dinl.net

Randolph Buss, currently works in portfolio & asset management | commodity fund advisory & management | macro investment research as editor and publisher of his newsletter read in over 45 countries.

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