aikitrader
06-26-2006, 12:00 PM
Article by Bill Fleckstein
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/BadDataWeakFedBuyGold.aspx
The Fed has talked down markets
Turning to the subject of trading generically, I suspect we'll see lots of gyrations heading into the Federal Open Market Committee statement on Tuesday and Wednesday. I have no idea how far the tape may go in any one direction. What I can say, though, is that Fed-jawboning has pretty much worked its magic, because commodities have been smacked, and many markets now appear terrified of the Fed as an entity.
I find those fears to be more than slightly ironic -- given that the Fed is the engine of inflation and that the Fed has only recently awakened (since it started to be almost laughed at by the gold market) to the 5%-plus-or-minus rate of inflation we've been experiencing for a couple of years.
The Fed members' ability to still command credibility (after two bubbles in five years and various other blunders) continues to amaze me. But I suspect that, before this year is out, the Fed's credibility will be in short supply. The little rampage in gold about a month ago was just a taste of what things might look like when the Fed is finally understood to be trapped and not in charge. ETF heft
Speaking of gold, I was pleasantly surprised to see two market developments:
The gold ETF (StreetTracks Gold Trust (GLD (http://moneycentral.msn.com/detail/stock_quote?Symbol=GLD), news (http://news.moneycentral.msn.com/ticker/rcnews.asp?Symbol=GLD), msgs (http://moneycentral.msn.com/community/message/board.asp?Symbol=GLD))) took in more gold as prices plunged (with total ounces held now at a record).
Although the silver ETF (the iShares Silver Trust (SLV (http://moneycentral.msn.com/detail/stock_quote?Symbol=SLV), news (http://news.moneycentral.msn.com/ticker/rcnews.asp?Symbol=SLV), msgs (http://moneycentral.msn.com/community/message/board.asp?Symbol=SLV))) saw its ounces drop a bit, they are now just shy of their previous high with silver $4 lower.
What this points out: The un-leveraged "cash-type" buyers are availing themselves of dips in price to get more exposure. Meanwhile, the leveraged futures traders are being forced to sell weakness. I recently beefed up my metals' exposure and will now be at full strength as we head into the upcoming week's data.
I think folks should keep that distinction in mind. Due to leverage, people who trade futures tend to chase strength and sell weakness, while cash buyers tend to do the opposite. That phenomenon is one reason why people who trade futures usually lose money.
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/BadDataWeakFedBuyGold.aspx
The Fed has talked down markets
Turning to the subject of trading generically, I suspect we'll see lots of gyrations heading into the Federal Open Market Committee statement on Tuesday and Wednesday. I have no idea how far the tape may go in any one direction. What I can say, though, is that Fed-jawboning has pretty much worked its magic, because commodities have been smacked, and many markets now appear terrified of the Fed as an entity.
I find those fears to be more than slightly ironic -- given that the Fed is the engine of inflation and that the Fed has only recently awakened (since it started to be almost laughed at by the gold market) to the 5%-plus-or-minus rate of inflation we've been experiencing for a couple of years.
The Fed members' ability to still command credibility (after two bubbles in five years and various other blunders) continues to amaze me. But I suspect that, before this year is out, the Fed's credibility will be in short supply. The little rampage in gold about a month ago was just a taste of what things might look like when the Fed is finally understood to be trapped and not in charge. ETF heft
Speaking of gold, I was pleasantly surprised to see two market developments:
The gold ETF (StreetTracks Gold Trust (GLD (http://moneycentral.msn.com/detail/stock_quote?Symbol=GLD), news (http://news.moneycentral.msn.com/ticker/rcnews.asp?Symbol=GLD), msgs (http://moneycentral.msn.com/community/message/board.asp?Symbol=GLD))) took in more gold as prices plunged (with total ounces held now at a record).
Although the silver ETF (the iShares Silver Trust (SLV (http://moneycentral.msn.com/detail/stock_quote?Symbol=SLV), news (http://news.moneycentral.msn.com/ticker/rcnews.asp?Symbol=SLV), msgs (http://moneycentral.msn.com/community/message/board.asp?Symbol=SLV))) saw its ounces drop a bit, they are now just shy of their previous high with silver $4 lower.
What this points out: The un-leveraged "cash-type" buyers are availing themselves of dips in price to get more exposure. Meanwhile, the leveraged futures traders are being forced to sell weakness. I recently beefed up my metals' exposure and will now be at full strength as we head into the upcoming week's data.
I think folks should keep that distinction in mind. Due to leverage, people who trade futures tend to chase strength and sell weakness, while cash buyers tend to do the opposite. That phenomenon is one reason why people who trade futures usually lose money.