The second gold rush

With the announcement coming from the US Federal Reserve last week that they would print a further $600 billion in order to acquire longer tern Treasury securities, alternative options such as gold are trading at new highs in dollar terms.

The new injection of US billions is in addition to bringing interest rates to nearly 0% and purchasing more than a $ trillion dollars of Treasury Securities and US backed mortgage securities.

The dual mandate of the US Federal Reserve is to promote a high level of employment and low, stable inflation.

Gold is a safe haven asset and in times of uncertainty, ultra low interest rates, demand has continued to push the price up.

The last real bull run was in the 1970’s when gold started the decade at around $35/oz and peaked at over $850 in early 1980. Most of the price appreciation occurred in the last 2 years of this bull market as the price moved up sharply from $200 at the beginning of 1979 to the $850/oz just over a year later.

The chart below superimposes that rally with the current price starting in 2001, producing one view of the possible further upside for the yellow metal.

Source: Sarasin, Ned Davis September 2010

Priced to perfection

This is the ALSI futures end of day graph.

It's looking to break to the downside and and looks to run out of momentum.

A break downwards will confirm our view, and a close/trading below 27 000 could confirm the trend.

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A positive day ahead

By the looks of things to come today, it looks like an up day around the world with positive news from the G20 Summit regarding the currency situation.

The G20 countries have all agreed that they will not weaken their currencies to help boost their income from exports.

The ALSH has crossed over on the moving averages and looks to be struggling to keep the upwards momentum intact.

Shares showing weakness are Cadiz, Standard Bank, Old Mutual, ABSA, Lonmin, Amplats, and Wesizwe.

Shares giving a heads up are Firstrand, Illovo, Remgro and Vodacom, with Pick n Pay looking to extend gains to the upside.

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Markets peaking out.

The JSE contintued its rally from yesterday's close as we're up 197 points.

Volatility is starting to show since we've had fairly good days with the market moving down on Tuesday, and bouncing back yesterday. In the end we are where we were on Monday...

Out of a technical perspective, the moving averages are starting to converge, but hasn't crossed yet. Some stocks showing weakness is MTN, Standard Bank, Old Mutual and Discovery.

Resource stocks are providing the momentum on the JSE at the moment, with the rand also trading between R6.98 -R6.90 to the dollar.

Stocks that's performing well are Reinet, BATS and Anglos and Billiton to name a few.

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Look out for jobless claims later this afternoon out from the USA.

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Which way today?

The JSE closed down a 185 points (-0.61%) on Friday to close at 30066.

The US markets closed mixed with the DOW down, while the S&P 500 and the NASDAQ closing in positive territory.

The US futures are trading in the red at the moment with all the index futures down over 0.5%.

The price of Brent crude has also declined to 81.78$ per barrel from a high of 86$ per barrel last week.

A possible short could be SASOL, which is looking weak, but keep in mind the 770c dividend it divulged a week ago. But the trend is looking negative as its moving average indicators are on the way down.

Also Firstrand is starting to look weak, which could indicate some downside.

All signs at the moment indicate a lower open today.

Let's see how the markets open.

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Markets continue their rally

The ALSI opened up this morning by about half a percent.

The Allshare Index traded at 30500 this morning which makes that a new high for 2010.

The US markets closed well up above 0.5% for the day yesterday and the futures also point to a positive start for the day.

Resource shares are the biggest gainers for the day with Exxaro leading the charge. The Euro overnight pierced the $1,40 level and is currently trading at $1,409, and gold at $1383.90, which is an all time high.

As long as the trend stays up, being long is the way to go. The dollar is also weaker against the Rand and is currently trading at R6.77/$.

As long as the US dollar weakens, we'll see strong markets.

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JSE above 30 000!

This morning the JSE Allshare broke through the 30 000 level. To put this into perspective, at the height of the market before the 2008 crash, the Allshare was trading at 33 000. This is only 10% from here.

The strength of the markets is supported by a weak US Dollar and more quantitative easing measures from the US government to stimulate the US economy.

What this means is that the Federal Reserve will be pushing their printing presses to the limit to print more dollars. These dollars will find their way into the market, bypassing banks and eventually ending up in the stock market looking for yield.

As with any country printing more money while growth remains mediocre, inflation will follow, maybe not in the short term, but definitely over the long term. This is the main reason behind the gold rally.

The ALSI futures are currently trading at 27011 which is up 242 points or 0.9%.

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Markets eyeing direction from abroad

Yesterday our market inched up another 28 points to close at 29295, falling back from an intraday high of 29411.

The US markets retreated last night by closing down almost 1% and the VIX spiking up 4.58%. US futures indicate an unchanged start to the day, but it's way too early to tell.

It looks like the market rally is losing steam, so be cautious in putting on new long positions. Take some profit from profitable trades and either wait for the market to break up again, or to pull back a little.

Our futures market is trading down 49 points since the open, and it looks like it can break down to the 26000 level today. The rand is trading steady just above R7/$. Any stocks with foreign exposure would benefit if the rand should weaken.

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