Tuesday, July 15, 2014

Charts on Gold, The Drought, and the Bulls and da Bears

Quote of the Day
"A bubble is a bull market in which you don't have a position." -- @EddyElfenbein

The Quiet Water Crisis in California
For First Time, California Gets Ready For Mandatory Water Restrictions
Californians have been looking to the sky all year for signs of rain, and in January Gov. Jerry Brown declared a drought emergency and asked for voluntary cuts by residents of 20 percent. A board survey recently found that statewide water use had declined by just five percent since then.

Do you think this just affects California? California grows an amazing amount of the food that ends up on America's dinner table. Look for higher prices everywhere.

Da Bears!
The ratio of bullish to bearish investment advisers tracked by Investors Intelligence is higher now than it was at the time of the 2007 and 2000 peaks.

(updated chart)

However, this is not the harbinger of imminent doom some would have you believe. The fact is, the highest level of bullish-to-bearish sentiment in the last 30 years occurred prior to the 1987 crash -- but early in 1986, well before the eventual market peak.

Gold & Silver
The sharp pullback yesterday came about due to a number of forces converging. But for whatever reasons, someone with big pockets went in and sold gold in the futures market at the open like there was no tomorrow.

That said, $1,300 wasn't violated. It still could be, as there is deeper support further below.

(Chart updates at end of day)

More reasons to remain bullish: Traders continue to add long positions, as tracked by activity in the ETFs -- though a lot were probably stopped out yesterday. The inflation bid is still in play and seems to be getting stronger. 

And then there's seasonality. As I mention in an upcoming article for FreeMarketCafe.com's Daily Grind: 
According to a study by Canada’s Globe & Mail, from July 12 through October 9 gold bullion has gained an average of 3.63% during the past 29 years. That may not sound like a lot, but it outperforms the S&P 500 over the same time frame by 4.98%.
The gold trade has been particularly profitable in recent history, gaining in 14 of the past 17 years for an average return of 5.44%.
So, gold has a lot of things going for it. Interestingly, silver has more going for it, though that's grist for another article. If you have the stones to buy the pullback, pick your targets and potential entries.

Have a good Tuesday.

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