And Gold Bounces Back

The S&P pulled another u-turn last week, this time rising about 1.7% . But of course volume in this up week was lower than it was in the prior week when the S&P fell. Volatility inched back down into ultra-complacent levels, where it’s been hovering for most of the last four months. Breadth is not getting stronger. In fact, several indicators—such as the percent of stocks above their 150 ay moving average—are topping and are starting to turn down.

Very interestingly, as the US equity markets continue to push up against record highs, the US economic picture continues to darken. Last week, another host of results came if below consensus expectations. A very important (but not widely known) measure of national economic strength is the Chicago Fed National Activity Index, and it fell badly. Existing home sales missed, as did new home sales. Is the ‘recovery’ in the housing market waning? Flash manufacturing PMI missed badly, as did the Richmond Fed Manufacturing survey. Durable goods orders were a disaster. Both headline and excluding transportation results came in far below expectations. The Kansas City Fed Manufacturing Index missed. The first quarter 2013 GDP estimate missed. Just about the only positive result was the initial jobless claims figure which was slightly better than expected.

Technically, the S&P500 is still in very over-bought and overly bullish territory. The blind belief in the Fed’s ability to manipulate the markets higher, and at the very least, keep them high without suffering major pullbacks, has now just about been accepted by most market participants. The consensus is that nothing can go wrong, which means that pretty much all stock buyers have already purchased stocks. This begs the question—who will be left to buy if—for any reason—some of these stock owners decide to sell?

Last week, this blog once again highlighted the opportunity to buy gold…..mainly because it had been offered at prices that are one normally sees at department store clearance sales.

So how has gold fared over the last week or so?

Very well thank you. After bottoming out at about $1,321 gold rebounded (so far) all the way to $1,485 late last week. That’s a gain of $164 per ounce from the lows, or 12.4%.

Keep in mind that’s 12.4% in only a week’s time.

Now, of course it’s unrealistic to expect everyone to nail the exact bottom (so far) at $1,321 but even if you bought at $1,350, you’d be sitting on a gain of almost 10%.

Sadly, most folks who bought gold as a speculative investment were doing the exact opposite—that is, they were selling (most likely their paper ETF gold holdings) near the lows and are now kicking themselves for making the classic investment mistake—-selling near panic lows.

As hard as it is to do, successful investors do the exact opposite—they BUY during panic lows.

And the good news is:  this WILL happen again, not necessarily in the gold market, but certainly in other markets. Be prepared:  develop a buy list and set buying price targets. Then when the panic happens, BUY!

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