Charts and Must-Reads on Gold, Oil & More

After rallying strongly yesterday, gold is down this morning. Is this the end of gold's brief rally?

Mother of mercy, is this the end of Rico?

I don't think so. The action in the Market Vectors Gold Miners ETF (GDX) seems balanced between bulls and bears, and this comes after quite a nice rally.  

(Updated chart)

The GDX still has a lot to prove. But we'll see. At this stage, I'd rather have bought last week -- which I did -- then be on the sidelines right now.  People with different risk profiles will view the situation differently.

I'm more concerned about the gap down in PTR, and REXX has dropped to support (?) at its 50-day moving average. And the SPDR S&P Oil & Gas Equipment & Services Index (XES) has gapped lower after gapping higher last week.

 (Updated chart)

Most of my energy positions remain in positive territory, and the money flow into the XES remains strong, but still, that chart action is worrisome. Weakness in crude oil is dragging down oil companies. [XX Note -- crude inventories rose more than expected for the fifth week in a row] I may take gains sooner rather than later.

On the other hand, natural gas looks like its downward momentum has stopped, and it may be ready for its next leg higher. So, let's leave it at "the energy market is in flux right now."

6 Good Reads for Wednesday

In the meantime, here is what I am reading ...

1. Art Cashin remembers the Crash of 1987: "The interaction with the futures saw prices melt away.  The Dow closed down 508 points.  One specialist, who made too good a market, ran out of funds and the firm was sold to Merrill Lynch that very night.  At watering hole after watering hole, traders and specialists reported again and again how strained their resources were.  Wall Street could not survive another day like this.  Luckily, innkeepers, like Harry let them put the drinks on a tab.

"What is often lost in the retelling is that the next day, Tuesday, was far more dangerous.  It was the day that the wheels almost did come off the locomotive."

Cashin added this important note:  “Keep An Eye On Gold – Our friend and colleague, Paul Richards, recalls that the last time we raised the debt ceiling, gold rallied 17% over the next 15 days.”

2. Excerpt from Eric Sprott's letter to the World Gold Council:

"For very different reasons, we are now at a similar pivotal point for gold. Over the past few years, we have seen incredible incremental demand from emerging markets. Indeed, so much so that the People’s Bank of China has announced that it is planning to increase the number of firms allowed to import and export gold and ease restrictions on individual buyers. In India, the government has been fighting a losing battle against gold imports by imposing import taxes and restrictions. Moreover, Non-Western Central Banks from around the world are replacing their U.S. dollar reserves by increasing their holdings of gold.

"But, demand statistics reported by the World Gold Council (WGC) consistently misrepresent reality, mostly with regard to demand from Asia.

... snip ...

Since ETFs have a finite size (about 1,900 tonnes left), these outflows cannot continue for much longer (see our article on the topic). All these observations point to a considerable imbalance between supply and demand (unless Western Central Banks decide to fill this void with what is left of their reserves).

3. Interestingly, money does grow on trees. Or at least, gold grows on trees. In Australia, mate!

4. Many are looking for Indian gold buying in November to boost gold prices. Considering that India's government continues its gold import restrictions, I don't see it. The biggest winners from the ban are gold smugglers, naturally.

5. ETFs are adding gold again. The SPDR Gold Trust (GLD), the world's largest exchange-traded gold fund added gold on Tuesday for the first time in a month, and by the largest volume in 8 weeks. It added 6.7 metric tonnes.

You know how important I think this is. The trust's assets remained near 56-months lows at 878 tonnes.

6. Quote for the day: "Anyone who averts his eyes from the hopeless lives many of our fellow citizens lead and tells himself and others that these men and women only have themselves to blame, is either a fool or a soulless bastard."