Sunshine Profits

Fish are jumping and the cotton is high. Yes, it’s summertime and the living is (quantitatively) easy. At least that’s how it looks from the Federal Open Market Committee minutes for the July/August meeting that revealed support among some of the members for a new round of quantitative easing.

The summer dog days are upon us leaving investors cooling off in the shade waiting for a refreshing breeze of market-moving news.

Many metaphors have been used for gold but never to our knowledge has the price of gold been compared to the non-barking dog. (This refers to the Sherlock Holmes story, Silver Blaze and the “curious incident of the dog in the night-time.” Holmes infers that the dog made no noise because the villain was someone the dog knew very well.)

So, gold didn’t move below $1,500 and it rallied recently – the worst is behind us, right? It might be, but there are reasons to think otherwise and in today’s essay we will feature two charts (courtesy by http://stockcharts.com) that should make you think twice before investing your whole capital in the gold market.

Gold rose sharply Wednesday after a European Central Bank council member suggested the possibility that Europe’s rescue fund could get a banking license, allowing it to tap cheap ECB funding.

It seems that every season we hear a new catch phrase, be it “subprime,” or “quantitative easing”, or “risk on, risk off” or “the new normal.” The latest bon mot if you haven’t already come across it, is “fiscal cliff” with the attendant worry that the U.S. is about to fall off a precipitous edge.

Each week we reply to questions from our subscribers and include them in our Premium Updates. Today’s essay is dedicated entirely to commenting on one of the letter that we received this week.

The Federal Reserve will hold a two-day policy meeting on July 31 that is expected to yield no change in U.S. interest rates, but markets will analyze and dissect every word of Chairman Ben Bernanke for any clues that the central bank will do more to promote economic growth.

All the fundamental factors that have made gold such a stellar investment for the last decade are still intact.

Let’s start by stating that the title of this essay refers to the current situation on the gold market – not to the long-term fundamental picture.

Today’s market session is very volatile, not only in case of euro, dollar and stock indices, but also in case of precious metals.

Gold prices fell last Tuesday for the first time in eight days and Wednesday gold fell below $1,600 an ounce as buyers stayed on the sidelines ahead of the meeting of the U.S. Federal Reserve which announced Wednesday a modest increase in its efforts to reduce borrowing costs for businesses and consumers.