Christmas Eve: Stop Reading Blogs and Spend Time With Your Family Edition

Just a few notes before I go enjoy a busy day of Christmas festivities, church, Christmas pageant, and big ham supper tonight.

• You know who really tried to get the Christ out of Christmas?  Hitler! 
• How can you make prison worse? Privatize the food.  Too bad for anybody locked up by mistake, eh?
• The Mexican Mint has run out of gold coins to sell. Hmm ... for all that investors hate gold, somebody is sure busy buying up the physical.
• The Oxford Club is re-running my story about the old-time commodities: Gold, Frankincense and Myrrh
• We need a pretty chart, so here's state-by-state economic growth (from the Philly Fed) ...

Hooray, Florida is finally leading the nation in something to be proud of!

• One more chart -- Sure, the Fed is "tapering" its QE program by $10 billion.  Let's put that in perpective, courtesy of Sprott analyst David Franklin, who posted this chart of the Fed's balance sheet ...

(source)

• What Was the Star of Bethlehem, Really?  My money is on a comet, but I'm not opposed to a nova or distant supernova. 

If you want to read the other, competing ideas about what the star could have been, here you go.

Finally, since I'm not going to get around to it tomorrow, Merry Christmas to Jesse, IWNATTOS, Otto, Josh, Barry,  Bonddad, Bill, and all the other blogs I read on a regular basis. Keep up the good work, and I look forward to more great things from you in 2014.

Merry Christmas to all -- God bless us every one.

Gold Is Up and the Dollar Is Down -- Chart

I thought we'd revisit a chart I keep posting of the relationship of between the US dollar and gold -- the "seesaw of pain" as I call it. 

(updated chart)

You can see that this morning, gold gapped higher while the US dollar continues to bleed lower. The day's not over yet -- anything can happen -- but this is a potential set-up for a rally in gold and a pullback in the US dollar. Since the US dollar's larger trend is down, maybe we'll see a resumption of that trend. But be sure to wait and see how the day ends.

Naturally, seeing how the dollar ends the week would be even better.

What seemed to spark this was the prepared testimony of Federal Reserve Chair nominee Janet Yellen, which was released late Wednesday afternoon. Yellen said she would continue current Fed Chairman Ben Bernanke’s monetary policies and said the U.S. economy still needs monetary stimulus because it is performing below its potential. The market place read Yellen’s remarks as dovish monetary policy.

This gave gold a lift yesterday afternoon, but REALLY put a fire under the broad stock market. The action in gold is more short-covering. We need to see follow-through. Gold and silver remain totally at the mercy of tapering expectations.

What could help the dollar (and hurt gold) is if the European Central Bank cranks up its easy money policies. That would probably push the euro lower and boost the dollar. 

However, for now, I'll take the good news where I can find it. This is helpful for the three gold mining positions we entered in Gold & Resource Trader this week.

More Gold News

In other gold news, Bloomberg reports -- quoting The World Gold Council -- that in the third quarter, global gold demand slipped to 868.5 metric tonnes, from 1,101.4 tonnes a year earlier. Investors pulled 118.7 tons out of ETFs and similar products, while buying from central banks was 17% lower than a year ago. So, central banks are still buying, but at a lower rate. 

Also, China’s demand for jewelry, bars and coins rose 30% to 996.3 metric tonnes, while usage in India gained 24% to 977.6 tonnes. So it's a continuation of the big shift from West to East.

Finally, as of November 13, holdings in gold-bullion-backed exchange-traded products stood at 1,873.3 tonnes. That is down 29% from the beginning of the year, but selling seems to have subsided, and holdings in the gold ETPs seems to be hammering out a bottom. We'll see.

Gold Price Rallies, Dollar Fades

Let's check in on my favorite chart comparing the US dollar (as tracked by the UUP) and gold (as tracked by the GLD) ...

(Updated chart)

We can see that gold continues to march higher. And it is marching higher on what should be good news for gold. That's very important.  For a while, gold was going down on good news, which is quite bearish.

• The good news for gold today includes that the year-over-year inflation rate fell to 1.2% in September from 1.5% in August. That gives the Fed room to keep on with QE infinity.
• Also, ADP reports that 130,000 private-sector U.S. jobs were added in October, shy of the 150,000 consensus forecast. Weaker jobs data indicates that the Fed will keep on with QE infinity.
• Finally, gold production went up in the US in July, and prices still went up. That's gold moving higher on what should be bearish news (more supply).  That's all pretty bullish.

But now is when I disappoint my gold bug friends by saying that the tests for gold aren't over this week.

There are two real tests left. The first will be the reaction to the Fed statement later today. And the second will be how gold ends the week.

More conservative investors may want to refrain from adding positions until after we see positive results from those tests.

Meanwhile, the US dollar remains near a two-year low against the Euro, and the US dollar index does not seem to be able to manage a significant bounce from the low it tested on the 24th and 25th.  However, it could just be faking us all out, so be prepared. 

One final note -- Miners working in Mexico including Primero Mining and Silvercrest Mines are rallying this morning despite the fact that Mexican lawmakers remain "firm" on a new 7.5% to 8% mining tax. Sure, it's easy for miners to rally on a day that gold goes higher, and we'll have to see how these miners (and any miners) end the day. Still, it's almost as if the bad news was priced in. And a rally on what should be bearish news is ... you guessed it ... bullish.

But we'll see. Good luck out there.

Before You Get Too Bullish on Gold, Look at This Chart

Gold is rallying today on news that A) the Fed might not taper until 2014 and B) the Republican leadership has focused on the debt ceiling, "strapped a bomb" to their collective chest, and are making a "Dear Santa" list of demands.

Meanwhile, for his part, President Obama "understands that he cannot repeat his blunder of 2011, when he mistook the GOP’s debt-ceiling threat for an invitation to engage in normal fiscal bargaining."

Worried that this time they really mean it, Wall Street is selling stocks and buying gold.

The sell-off/pullback in stocks should play out pretty much the way I laid out in this post on September 18.  My view on the major stock indices hasn't changed. But what about gold?

(Updated chart)

Looking at a chart of the SPDR Gold Trust (GLD), which tracks gold closely, you can see that gold broke down from its uptrend earlier this month. It rallied hard on the news that Ben Bernanke wasn't "tapering" Quantitative Easing, then has slowly given all those gains back. Its rally today is within the parameters of a pennant pattern.  Pennants are continuation patterns, and "fly at half mast."

The likelihood is that when the Debt Ceiling Crisis in Washington is resolved, gold will break down lower out of the pattern and perhaps find a new, lower base.

Also note that the 20-day moving average is about to turn lower through the 50-day moving average. This tells you all you need to know about short-term momentum.

So, I expect we'll see a deeper correction in gold. It doesn't have to work that way -- some new development could send gold much higher. But if things work out the way I expect, then that next leg down will probably be a great buying opportunity.

Why? Because all the long-term bullish forces in gold's favor remain in place.

Also remember the old Wall Street saying, "when it's the best time to buy, you won't want to."

You can draw your own conclusions. You're in charge of your own investing destiny.  Good luck, good trades, and have a great weekend.

I'll be in Baltimore next week. I hear they have Internet connection there in the Big City, so I should be posting.

The Case for Pipelines

The market seems confused lately, and not only by the Fed. After rallying hard last week when the Fed announced it was NOT going to taper its $85-billion-per-month quantitative easing program, the market ended the week by giving it all back.  I still think we could see short-term market weakness due to the looming budget battle in Washington. But longer-term -- say, the next 6 months -- I'm more sanguine. I think the US economy and market could do pretty well over that time frame.

So, what to buy?  I'm bullish on US energy production -- I think we haven't seen the top yet, and won't see it in the next six months, anyway. Therefore, those companies that transport oil and gas through pipelines should see increased business.

We are seeing rising nat-gas production from the Marcellus Shale (Haynesville Shale production has fallen, but not enough to matter yet). Natural gas production from the Marcellus is expected to continue growing as infrastructure constraints in the play ease up. Second-quarter results from Cabot, Range, and other Marcellus producers highlighted the issue of backlogged wells – those that have been drilled but are not currently producing, mainly because they lack pipeline connection.

As backlogged wells are connected to pipelines and brought online over the next several months, production growth this year could top even last year's levels.

Meanwhile, US domestic oil production looks like this ...

Put oil and gas production together, and, according to the US Federal Reserve, US oil and gas extraction increased in August by 11.4% from a year earlier to the highest level since the Federal Reserve began reporting data in January 1972 -- more than 40 years ago!

Sure, some of that product will transport by rail, and some by barge. But a lot will transport by pipeline.

The AMLP is a basket of companies including Enterprise Product Partners (EPD), Kinder Morgan Energy Partners (KMP), Magellan Midstream Partners (MMP), Energy Transfer Partners (ETP) and more. You have one guess as to what business these companies are in, and that guess better start with a "P".

The pipes have a meter and they charge for the amount of oil or gas they pass.  While they are in the energy business, their fortunes do not particularly depend on energy prices, because people need oil and gas delivered whether it is expensive or cheap.  In this respect, pipeline MLPs are like utilities.  

And utilities were one of the beneficiaries when Ben Bernanke shocked Wall Street by NOT cutting quantitative easing at at the most recent Fed meeting. 

Side note -- reports that Chairman Bernanke shouted "Who's Your Daddy? I'M your Daddy!" while keeping QE intact have NOT been substantiated.

Anyway, no QE cut means that bond yields go back down, and utilities, which offer yields that compete with bonds, went up rather nicely last week.

(Updated chart)

Utilities actually saw a poor end to the week, so their rally potential is still questionable.  Still, there's no doubt that with bond yields falling, stocks and funds that pay nice dividends are looking more attractive than before the Fed's announcement on QE.

And that brings me to my next point, which is that the AMLP sports a 5.82% dividend yield. 

Now, let's look at a weekly chart of the AMLP itself ...

(Updated chart)

You can see that the AMLP rallied sharply last week, much like utilities, and on strong volume, too. It still has to break through resistance, and nothing is certain.  But I think this is a good bullish bet for the next 6 months.

Not everything is rosy. Fund expenses can eat up some of the dividend yield. And your own tax situation will also affect total return. Let's add in the uncertainty of the oil business, which is a boom-and-bust business. Finally, there's the generally confused mood the market finds itself in. This may lead to more short-term weakness in the AMLP. But that's probably a buying opportunity considering the intermediate forces I've mentioned.

Bottom line, investors would consider the AMLP because it is a play on rising US domestic energy production, and all that oil and gas flowing through pipelines.

This is not an official recommendation. You are in charge of your own investing destiny. Do your own due diligence before buying anything. And before you buy, make sure you know at what price you will sell.