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Well, we got the correction in gold and silver that I've been expecting for the last few weeks.
Then they bounced straight back up again. Then rocketed as the Federal Reserve released its minutes.
Is the correction over now?
I wish I knew...
was hoping to see gold pull back to the $750 an ounce area and consolidate for a week or two before the next move up. We may still pull back there, but I must say that even I, Mr Uber Gold Bull, am amazed at how strong these markets are in the face of the carnage elsewhere. It’s like August, there’s so much bearish sentiment about; the only difference is that this time gold and gold shares are holding up.
I bought some bullion on Monday. I will buy more if the market drops further. If you're looking for more guidance on when to buy, then Tom O’Brien, a sometimes very effective market timer, who hosts his own radio show at TFNN, thinks we are headed lower - but I'd warn you that he has not called the move since August well at all.
Could silver be the next uranium?
Jim Dines is one of the more popular US newsletter writers. He has been famously bullish on uranium since the turn of the century and had all his readers invested for the huge surge (and subsequent decline) in prices we saw earlier in the year. In his latest letter, he proclaimed at great length and in great detail the virtues of silver.
Let’s hope silver does what uranium did. Such a thing is possible. It’s happened before (when silver went to $50 an ounce as the Hunt brothers tried to corner the market in the 1980s). As Mark Twain said: "It is not worthwhile trying to keep history from repeating itself, for man’s character will always make the preventing of the repetitions impossible".
Why it's time to bag bargains in Canada
When it comes to junior resource stocks, forget Aim. The TSX (Toronto Stock Exchange) is the place to be. But as the end of year approaches, traders often sell their losers in order to realise capital losses, which they can offset against their gains elsewhere, and thus lessen their tax burden.
This tax-loss selling can create opportunities, particularly in illiquid small caps, sending the stocks of perfectly good companies on sudden drops – which are sooner or later corrected. Indeed, in January the markets often swing the other way, so purchases made in November and December can start paying off very quickly.
So if you see a company you like selling off and your research reveals no good, fundamental reason for it, the chances are it’s tax selling. Grab the opportunity and buy. We are in tax-selling season now. It’s a chance to pick up bargains.
The UK housing market is turning American
Whether it’s banks tightening lending, newspaper headlines proclaiming a slump, estate agents saying business is dead, boards staying up for longer, or conveyance-ing lawyers twiddling their thumbs with nothing to do - the anecdotal evidence does not look good for housing.
It’s amazing. In a bull market, every bit of news seems to point to higher prices. Then the market turns and horrendous stories seem to come of nowhere. Horrendous story follows horrendous story. That’s what’s happening now.
In the summer, estate agents reported a definite slow down, but no one was concerned. Summer’s a quiet time of year, after all. We needed a period of consolidation. We had some interest rate rises. Then we got the August credit crisis. Then we got the run on Northern Rock (NRK). Barratt (BDEV) reported falling sales. Then yesterday, out of the blue, petrol was poured onto the bear’s fire as Paragon (PAG), the UK’s third-largest buy-to-let mortgage lender, warned it may have to close to new business due to funding problems.
There is more of the proverbial standing by to hit the fan, just you watch. Look at the chart below. Is it not enough to make your eyes bleed?
That's the chart for Barratt, the UK’s largest builder. This is interesting for the following reasons (my thanks to ‘Dr Bubb’ of Global Edge Investors for alerting me to this):
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1. The US house builders peaked in July 2005.
2. But the US housing indices only went negative a year later, in July 2006. 3. In the last housing downturn (1989-94), the US led the UK by about a year.
4. Our builders peaked in February 2007.
In other words, building stocks are a wonderful leading indicator for housing. They tell us where the housing market is going. Ours is going pear-shaped, or Barratt-shaped, or Paragon-shaped, or Northern-Rock-shaped, whatever you want to call it.
To see where our housing market will be twelve months from now, cast your eyes on the above chart, then cast them across The Pond. The only difference is we’re more leveraged than they are. By that I mean we’re more indebted - or, to use layman’s terms, completely mullered.
And as US homeowners are already finding out, interest rate cuts won’t save us this time.
Turning to the wider markets...
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London's blue-chip FTSE 100 index rallied yesterday afternoon to close 105 points higher, at 6,226, thanks to a strong start on Wall Street and bargain-hunting amongst property stocks. Land Securities, British Land and Liberty all featured at the top of the table, whilst Northern Rock retained its place at the bottom of the leaderboard with a fall of 7%. For a full market report, see: London market close.
Wall Street's early recovery also gave a boost to stocks on the Continent. In Paris, the CAC-40 closed 74 points higher, at 5,506. And in Frankfurt, the DAX-30 added 118 points to end the day at 7,630.
Across the Atlantic, expectation-beating forecasts from economic bellwether Hewlett-Packard gave the market an early boost, although the announcement of losses from mortgage issuer Freddie Mac and the downward revision of economic growth forecasts offset earlier gains. The Dow Jones swung in and out of positive territory, eventually closing 51 points higher, at 13,010. The tech-heavy Nasdaq rose 3 points to close at 2,596. And the S&P 500 was 6 points higher, at 1,439.
In Asia, exporters suffered in the wake of the US economic growth forecasts, leading the Japanese Nikkei 373 points lower to a close of 14,837. And in Hong Kong, the Hang Seng was 1,153 points lower, at 26,618.
Crude oil futures added $3 to close at a new record high of $98.03, and were even higher - at $98.39 - this morning. And in London, Brent spot had risen to $95.68.
Spot gold had risen to $803.40 this morning, up from $793.90 in New York late last night. Silver was at $14.68.
Turning to the forex markets, the pound was at 2.0638 against the dollar and 1.3932 against the euro. And the dollar was at 0.6748 against the euro and 108.66 against the Japanese yen.
And in London this morning, Northern Rock fell a further 15%, the seventh day in a row shares have fallen, after disclosing that a fresh takeover bid received late yesterday was also materially below the bank's closing share price.
Finally, our recommended articles for today...
Why it's time for France to get real
- Sarkozy's recent speech on the dollar may have been foolish but it certainly distracted from the mess that is his own country's economy. Tom Bulford looks why demands for early pensions and a misguided belief in the right to cheap camembert could bring France to its knees: Why it's time for France to get real
Opec's oil slip up is another reason to hold gold
- Gold may have dropped $46 last week, but a correction of 5% is nothing new in this gold market. In fact, another recent event - the news that OPEC members are losing faith in the dollar - means the arguments for staying with gold are stronger than ever. James Turk takes a closer look at the gold market here: Opec's oil slip up is another reason to hold gold
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