Here Are Four Key Levels For Gold Bulls To Watch

For the faithful who have crossed the desert and suffered the slings and arrows of critics and the ridicule of non believers, gold's move today to an all time high of $1,276 delivers the greatest of all vindications. All it took was some comments by Ben Bernanke about quantitative easing triggering dollar weakness, and it was off to the races. It didn't hurt that the Indian wedding season, the largest annual purchaser of gold, is just beginning. Actually, it wasn't much of a desert, maybe more of a Zen rock garden, as the barbarous relic, (yes, Alison, it's barbarous, not barbaric) sold off for only six weeks, down to $1,155, before it resumed its recent ascent. The Chinese buying I predicted put a floor under the price much higher than traders anticipated, frustrating hoards of buyers lower down (click here for "China's Insatiable Appetite for Gold").

So now the question arises of what to do with your bounteous profits, and how much risk does the yellow metal present here. I get asked this question a dozen times a day, by some who have been long since the current move started more than a decade ago at $260, and others who stood on the sidelines and watched in awe as it went to the moon, kicking themselves all the way. Is it too late to get in?

They call the yellow metal the barbarous relic for a reason. Let's face it. We've had a great run. Gold is one of the top performing assets of 2010 by a long shot, soaring 16% YTD to its peak today, when most other asset classes sucked. Investors did even better in the futures, leveraged ETF's like the (UGL), and gold mining shares or their out of the money calls. (more)

Stock Shock-The Movie

Stocks Surge To Celebrate Unprecedented 19th Sequential Equity Outflow, $10 Billion In September Redemptions

It is beyond a joke now: ICI's latest data discloses that in the week ended September 8, domestic funds saw outflows of $2.2 billion, following last week's massive $7.7 billion. And yes, ETFs experienced outflows as well. So far September has experienced nearly $10 billion in outflows, even as the market has ramped by over 6%. Who is buying this shit? Just ask The New York Fed and Citadel: they may have a few pointers (wink wink). This is the 19th sequential outflow from US stocks, and amounts to $65 billion in redemptions for the year. With the market pretty much unchanged YTD, it means that mutual funds can not resort to capital appreciation as a substitute to outflows, and most are on their last breath (Janus: blink twice if you are still alive please). The kicker: the S&P is at the level it was when the outflows began back during the flash crash. If that doesn't restore all your confidence that Uncle Sam will be so good at managing the market (just like he has done with everything else), nothing else will. Throw in a little HFT, a little subpennying, a little Flash trading, a little DMA trading, a little quote stuffing, a little hedge fund clubbing, a little specialist front running, a little daily flash crash in big caps like Nucor Steel, and you can see why next week we will most certainly have our first inflow in 20 weeks. Or not. It doesn't matter. Nobody that is made of carbon, or who doesn't already have direct access to the Fed for zero cost funding, is trading stocks anymore. (more)

Stocks end higher on dollar moves

(CNNMoney.com) -- Stocks surged in the last half hour of trading to close higher Wednesday, tracking the U.S. dollar's strength after Japan moved to rein in the surging yen.

The Dow Jones industrial average (INDU) rose 46 points, or 0.4%, to close at 10,572.73. The Nasdaq (COMP) added 12 points, or 0.5%, to end at 2,301.32, and the S&P 500 (SPX) ticked up 4 points, or 0.4%, to settle at 1,125.07.

Energy and technology shares had been lower earlier in the session, dragging down the broader indexes, but they turned mixed in the last hour of trade. Housing shares remained mostly lower.

Foreign exchange rates were in the spotlight after the Japanese government's first jump into the currency market since 2004. The yen rose to a fresh 15-year high against the dollar Tuesday, prompting recently re-elected Japanese Prime Minister Naoto Kan to announce the nation will sell yen and buy dollars. The move boosted the dollar Wednesday. (more)

From Oil to Natural Gas

Don’t look now, but Big Oil is rapidly transforming itself into Big Nat Gas. Royal Dutch Shell expects more than half its output to be gas by 2012. Seven of eight projects Exxon Mobil completed last year were gas projects. ConocoPhillips has bought an Australian gas firm, and Chevron is aggressively pursuing a liquefied natural gas project down under.

“There are several things at work here,” explains Chris Mayer. “One is that new oil deposits, like pitchers who can hit, are becoming harder to find. They are also costlier. The Kashagan oil field, which was supposed to be a great find in the Caspian Sea, is seven years behind schedule and billions of dollars over budget.

“Another factor at work is that 90% of the world’s oil reserves are in the hands of national oil companies. They are off-limits for the likes of Exxon and others.”

In contrast, natural gas deposits are not only more plentiful, they’re getting cheaper to develop. “The cost to build an offshore LNG terminal,” says Chris, “is about half of what it was only two years ago.” On top of that, the world’s use of natural gas is growing at a faster rate than oil. And it has the lower-carbon thing going for it.

“However, I don’t expect the price of natural gas to rise in a big way anytime soon. There is simply too much of it.”

That won’t last forever. “Longer term, the current low nat gas price is not sustainable, as most of the industry seems to lose money at these prices. As old contracts (made when natural gas prices were higher) roll off, these producers will start to shut down production.” That means less supply, and then higher prices.

You can well imagine pure-play natural gas stocks can be an investing minefield. But readers of Chris’ premium advisory Mayer’s Special Situations have navigated it successfully: They collected a 107% gain in 2008, and they’re up 111% on a nat gas play bought just over a year ago -- even as the price of gas has gone nowhere.

Chart of the Day

How to Invest in a Deflationary Environment

morningstar.com,

Question: I've been reading a lot about deflation recently and am worried. Will any investments hold up well in a deflationary environment?

Answer: Although inflation grabbed all the headlines less than a year ago, it's downright tame right now. Instead, some market participants are concerned that we could confront a period of declining prices as the government's stimulus package winds down, particularly if unemployment stays high and the housing market stays in the doldrums. Some investors, such as DoubleLine's Jeffrey Gundlach, have argued in the past that deflation could be a near-term problem, followed by high inflation rates down the line.

Why It Hurts
At first blush, declining prices for stuff may not sound that bad, particularly for consumers who might be able to take advantage of lower prices for everything from groceries to LCD televisions. But a persistent need to slash prices can be bad for businesses and could ultimately lead to layoffs, reduced consumer spending, and declining prices for a broad swath of assets, from real estate to commodities. Those forces, in turn, could put pressure on corporate profits and stock prices.

Inflation is a force to be reckoned with, too. But it's deflation that really makes economists shudder. (more)