Insights

Housing Numbers Bad, Gold Good. Again.

So this is not a daily “gold to the moon” column, it just so happens that gold keeps going higher while housing gets worse.  The SPDR Gold Trust (NYSE: GLD) traded a new high at $113.09 while spot gold hit $1,153.90.  This morning at 7 a.m., the Mortgage Bankers’ Association Purchase Applications report showed they dropped 4.7%.  Last week it dropped 11.7%.  Applications are declining less quickly, but are still declining, and are now at their lowest level since 1997.  Then the CPI came out higher than expected at 0.3% vs. the 0.2% expected, meaning inflation may be kicking in.  My favorite part about this number is when they say “less food and energy”, because of course food and energy are not important.  Then Housing Starts were reported at a disappointing 529k vs. the 600k expected.  The new home buyer tax credit has been extended  and it seems like the U.S. Government will give you (or promise you) Rhode Island if you buy a new house, and still – low activity.  So what is a trader to do?  Buy gold.

After trading as low as 10,360, the Dow Jones industrial Average rebounded to close down just 11.11 points (-0.10%, 10,426.31).  The broader S&P 500 was off fractionally, dropping 0.52 points (-0.04%, 1,109.80) and the tech heavy Nasdaq 100 lost 10.47 points (-0.57%, 1,801.74)

Goldman Sachs call last week that central banks were becoming buyers of gold was dead on as yesterday Mauritania bought 2 tonnes of gold off the IMF.  This comes on the heels of India backing up the truck for 200 tonnes last week.  Hedge Fund superstar John Paulson has bought a lot of gold already, but he wants more.  Paulson is starting a new fund for gold and gold derivatives in 2010.  So what do you do when the smart people and the biggest buyers in the world, central banks, are buying?  You buy.  Period.

New York Spot Gold traded an all time high of $1,153.90 before settling back lower and was last seen trading $1,144.80 an ounce (+$4.20, +0.37%, 4:25 p.m.).  In the last 15 trading days, gold is up about $115 an ounce or 11.4%.  Is this the top?  Is gold in a bubble?  Well, they said $1,000 was too high and before that $900 was a bubble.  No one really knows what the fair value for gold is, but looking to the desires/needs to own it tells you 3 things; 1) it is perceived as being better than holding dollars, 2) the central banks of China, India, Chile and Mauritania have shown they think it is better to hold than dollars, and 3) John Paulson, a very smart guy, wants to spend more dollars to buy gold and gold stocks at a time when gold is at an all time high.  My conclusion – gold is going higher.

Now from gold to Goldman.  Charlie Gasparino from CNBC was on TV calling for Lloyd Blankfein to resign.  I hate to flack Charlie as he set me up for my first Wall Street interview and job, but… shaddup already!  Charlie was complaining that Goldman used the government guarantee to issue Goldman bonds during the depths of the crisis and was now a commercial bank.  Of course they did!  The U.S. Government rolls out a plan to help refinance the banks as SOME of them were about to collapse and Goldman got in on it for low cost financing.  What do you expect them to do?  Then the Government allows Goldman access to the Fed window for cheap short term financing.  So Goldman jumps on it and uses very cheap money from the Fed window and pumps it into the market to make more money.  What do you expect them to do?  Goldman paid the TARP money back.  Goldman is doing what they always do – make money.  Hey Lloyd, stop apologizing, and until the country starts spelling it Amerika – do what you do best, make money.

Advanced Micro Devices (NYSE: AMD) jumped up 10.42% today and some news sources were reporting this was because of the settlement with Intel Corp. (NYSE: INTC) for $1.25 billion.  I have another few news flashes for you then, ’sand found on beach’ and ‘water is wet’ as this news is as old as, well, November 12th.  If this was not the easiest 10% everyone missed (including myself), I don’t know what is.  Ok, maybe the 11.4% in 15 trading days for gold was pretty obvious, but I did not miss that one.

Looking ahead for the next big percentage move most of us will miss, we have Jobless Claims on the calendar tomorrow.  Jobless Claims, always the life of the party, are expected to be 504,000.

On Friday Philadelphia Federal Reserve President Charles Plosser speaks in Singapore.  Today, St. Louis Fed President James Bullard remarked that if the Fed reacts like it has to past recessions, interest rates were not going up until into 2012.  In the last week, every other Fed President, Chairman, janitor and bottle washer has said interest rates will probably stay low for a long time, a jobless recovery is likely and inflation may end up becoming a problem.  Friday we find out what Charlie (not Gasparino) thinks.