Wall Street Wrap – Goldman ups Gold to $1,200
By Robert Perrego, at 5:44 pm on November 11th, 2009Goldman Sachs Group Inc. (NYSE: GS) raised their price target on gold to $1,200, citing continued low interest rates and central bank buying. The interesting shift over the past year or so has been that central banks are now net buyers of gold, where in the past they were sellers. “Gold conspiracy” allegations exist, due in part to central bankers being such traditional sellers of gold. The “conspiracy” is that the world’s central banks are suppressing the price of gold to hide the true rate of inflation. Goldman has noticed that central banks are now deciding that even if their government needs money, and the gold they have had on hand for decades now has a very large profit built in, the perception is that a) it is going higher, and b) that it is a good way to diversify from paper currency, most importantly the dollar. Governments from India to China to Chile are now net buyers of gold.
China reported that their industrial production was up 16% showing that somewhere on the planet an economy is doing well. Next week Obama travels to China and he has stated he will ask them to appreciate their unit of currency, the yuan. China has seen decent internal economic growth but a large share of their jobs still rely on the export business. Appreciating the yuan will make U.S. goods cheaper relative to Chinese goods, and thus hopefully create more jobs here at home. Sounds good right? Appreciating the yuan also depreciates the dollar even more, and that means the trillion dollars plus the Chinese are holding will be worth less. The Chinese may agree to appreciate the yuan even though they lose jobs and dollars, as they would like to see the U.S. consumer back on their economic feet and buying Chinese goods like locusts as we did in the good old days.
The reason I am so bullish on gold, and pretty much every other commodity, is that if this economic recovery remains tepid and jobs are hard to find worldwide, we could end up with a spiral race to the basement among the world’s currencies. Each government will be trying to steal jobs from the others by devaluing their currency to make their products cheaper worldwide. As the currencies are devalued, relatively, commodities increase in value. It is not easy to run a printing press and have a gold bar pop out the other end.
The Dow Jones Industrial Index was up 44.29 points today (+0.43%, 10,291.26) with the S&P 500 gaining 5.5 points (+0.50%, 1,098.51) and the Nasdaq 100 put in the strongest performance rising 9.78 points (+0.55%, 1,782.95)
New York Spot Gold is up $11.90 an ounce (+1.08%, $1,117.70, 4:54 p.m.) and traded an all time high of $1,119.60 this morning. Something VERY unusual happened today as both the Dow and gold rose AND the dollar was UP! For quite some time now the Dow and gold would go exactly opposite the dollar. I can see the Goldman stamp of approval on gold hyping up some buyers but the Dow rising too? This is very strong relative performance for gold, and my chart of the iShares Gold ETF (NYSE: GLD) shows me that gold has now broken out to the topside of the ‘return’ or ‘reaction’ line of its trend channel. This is very bullish as this means there is NO MORE resistance to the upside.
Nymex crude was up 23 cents to $79.20 a barrel today. Hurricane Ida turned into tropical storm Ida and is no longer threatening oil production in the gulf.
The home-builders were on fire today with Toll Brothers (NYSE: TOL) saying business jumped a greater than expected 42% year over year. This had all the home-builders up over 5%. TOL +16.42%, BZH +12.35%, PHM +8.13%, DHI +5.73% and LEN +5.73%.
Tomorrow we get Jobless Claims. Let’s look at this positively, Thursdays are always an adventure now.
