When the market rallies it is generally on the back of a falling dollar. Remember it is not proportionate, however, it is reactionary. Therefore, regardless if the dollar is negative or positive on the day the market will catch a bid if the dollar declines regardless of where it is trading at the time.

Bearish warnings for DOW / SP500 / EURO daily charts continue.

Bullish warnings for the USD index / VIX index / USDCAD / USDCHF on the daily charts continue.

More updates later.

http://twitter.com/GrandSupercycle

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11/17/09 London, England – Gold hit a new record yesterday. The price rose $22.50 to $1,139.

And today we take up a foul and disagreeable task. We ask ourselves: what if we are wrong?

If you bought gold when we first recommended it, ten years ago, you are in a very comfortable position. Gold sells for more than 4 times as much today. But what should you do now? And what if you didn’t go for broke on gold in the early ’00s? Is it too late to get in on the bull market?

To give you a warning, in the following windy ambulation we come to no conclusion we haven’t come to before. We say gold is going to the moon. If we are wrong about when…we will be delighted sooner than expected…self-satisfied…and insufferable for years. If we are right, we may have to wait a long time before saying “I told you so.”

First, the press has certainly noticed the bull market in gold. How could it not? Most reporters say gold is going up simply because the dollar is going down. In the popular press, we found no other explanation. In fact, much of the notice of gold seems to occur within articles about the dollar. We found, for example, that the dollar is at a 15 month low…and, coincidentally, gold has just hit an all-time high.

There’s something lopsided about this account of things. If the yellow metal has hit a record high, how come the dollar is down for only 15 months and not since the Flood? Makes you wonder if the dollar isn’t the whole story.

Elsewhere, we find that the dollar is trading at $1.49 per euro. Wait a minute. We remember the dollar at the exact same level…was it a year ago…more…? And it’s been at that same level, more or less, all the while gold has gone up more than 10%.

It’s not the fall of the dollar that is driving the gold market, in other words, it’s something else…it’s the fall of ALL paper currencies. For when the dollar goes down, so do the rest of them – more or less. No nation wants its currency to rise too much against the greenback. Americans are still the world’s biggest spenders. They spend dollars…not rubles…not euros…not zloties. A nation whose currency rises against the dollar is in a competitively weaker position. Its costs – in local currency – go up while its sales – in dollars – go down (it has to charge higher prices). Typically, central banks buy up dollars with money created for that purpose…thus increasing their own money supply and thus decreasing the value of their own local currencies relative to the dollar.

Since all the world’s central banks, more or less, are doing this, all paper currencies are going down together – compared to gold.

But wait, wouldn’t they be going down together against everything else too? If currencies are getting weaker…shouldn’t they be getting weaker against oil…and McDonalds’ hamburgers…and woolen underwear? The oil price is at $78 – where it’s been stuck for a while. Oil is a special case, but almost all consumer prices are stuck too. Take out energy and food, and consumer prices are deflating in the US. Put back in the energy and food and they’re just stuck. There is no sign of generalized consumer inflation – not in the USA and not in Europe either.

The only thing that is going up is gold. There is a bull market in gold and gold alone. But why?

According to the law of supply and demand, you expect the price of a thing to fall when its supply increases faster than the demand for it. In today’s news are two reports on gold production. One, from South Africa, tells that a scientist says the nation’s residual gold in-the-ground is much less than expected. It has been overstated by 900%, he says. Another report shows the output of from the gold mining industry clearly topping out. Gold supply, in other words, is increasing, but not as fast as it used to.

The supply of paper money, on the other hand, needs no new discoveries. Since there have been huge increases in the monetary base of paper money all over the world, it is reasonable to expect the price of paper money to go down. Gold, traditionally the thing that paper money is priced in, should go up. Speculators are buying it now in anticipation. Even central banks are buying again. And nearly everyone expects the price to continue going up.

As near as we can tell, gold is properly priced already. Comparisons are rough, but an ounce of it appears to buy about as much stuff as it did 2,000 years ago. You can buy a suit of clothes for an ounce of gold – no problem. Go to Wal-Mart; you can buy 4 suits.

As Roy W. Jastram wrote in his 1977 book, The Golden Constant, gold’s “price has been remarkably similar for centuries at a time. Its purchasing power in the middle of the twentieth century was very nearly the same as in the midst of the seventeenth century.”

Gold…or the people who speculate in it…may be looking ahead. Or, they are dreaming. If gold is already about where it should be why would you pay more? You must expect paper currencies to go down…to buy less stuff. In other words, you’d have to be anticipating a fall-off in the value of the paper currency.

It may come to pass exactly as they imagine it. Gold may rise and rise and rise…as paper currencies fall and fall and fall some more. In that case, we here at The Daily Reckoning headquarters as well as all of our dear readers who followed our advice 10 years ago will be delighted. Gold may hit $1,500 by the end of the year. By the end of next year it may be $3,000. By the year after, well…who knows…? “We told you so,” we will say.

But there is almost always more under Heaven than speculators think. When we look into it, we see gaudy increases in the monetary base…but only very modest increases in M2, the money that buys stuff. What’s more the rate of increase for M2 has fallen in half over the last 8 months. It’s now only about 7% annually in the US. And when we look at the CPI we see no increase at all. And despite the ‘recovery,’ unemployment is still rising and house prices are still falling. So, if speculators see the price of stuff going up in paper currency terms, they must be looking way over our heads.

To more fully describe our own state of mind, we don’t doubt that all the liquidity added to the world’s monetary system will eventually be soaked up by paper currencies. But it could take a long time; we might be dead before it actually happens.

But since we are entertaining the possibility that we might be wrong; let us look at what is going on in more detail. If there were a real recovery – as announced in the world’s newspapers and proclaimed by its stock markets – you’d expect a rising increase in demand…leading to higher prices…leading to a higher gold price.

Yesterday’s news brought word of greater retail spending than anticipated. This was greeted as more evidence that a recovery is actually underway. But upon examination, we discover that the evidence comes almost all from auto sales. We also find that the number crunchers contributed to the lift by revising figures for September. These are month to month movement numbers. So you can raise October’s number simply by lowering the number for September.

What’s more, while sales went up…auto prices actually went down – in paper dollar terms. This doesn’t sound inflationary to us.

Meanwhile, news reports said that fewer people are defaulting on credit card debt. The reports also tell us that delinquencies on credit card debt are up. So, we’d have to call that a draw.

And then there’s the news from GM. The giant, government-owned auto company says it will repay its loans from the feds earlier than expected. But wait…we also find that the company continues to lose money. How then will it repay debt? Perhaps by refinancing!

Other reports are similarly confusing and inconclusive. Profits are up on Wall Street. But wait…sales are down. You can increase profits by cutting expenses (getting rid of employees, mainly). But you can’t increase sales. And as long as sales are falling you have to expect lower profits in the future. (Stock market buyers…take note.)

“With the majority of publicly traded companies done reporting third quarter earnings,” writes 5 editor, Ian Mathias, “the trend is clear: Profits were way better than expected, revenue was flat at best.

“Of what little we recall from freshman year, Finance 101 insists that profit equals revenue minus costs. Thus there really can’t be any questions left as to how the market pulled off this quarter…companies are simply trimming the fat at an incredible clip. Not exactly a long-term plan for growth.”

The New York Times reports that job losses continue to be “deep and enduring.” Mortgage applications are running lower than they were 9 years ago. “More households report food shortages,” says a Wall Street Journal headline. And insiders are still selling their own companies.

So, it still looks to us as if we are in a depression…one that will take many years to sort out. It is unlikely that the bull market in gold will reach its final blow-off top while the depression continues. But stranger things have happened. Eventually, gold will reach the apogee of its bull market. And when it does, we want to be ready for it. We will celebrate with champagne and sparklers.

Still, we wouldn’t get out the party hats…not just yet.

Until tomorrow,

Bill Bonner
The Daily Reckoning

There is very good weather in Saint-Petersburg (Russia) now and a lot of people and some of my colleagues from FBS Company have holydays. But the oil market has no summer vacations. Every day in the oil market happens a thousand of the events. About the events of previous week I would like to write in the Dealbreaker Community.
P.S. I apologise for my long message:)

06/29/2009 Monday
Oil futures ended above $71 a barrel on Monday, rallying after an attack on an oil platform in Nigeria rekindled supply worries. Light, sweet crude for August delivery rose $2,33, or 3,3%, to end at $71,49 a barrel on the New York Mercantile Exchange. Earlier, the contract soared to an intraday high of $72,40 a barrel. Oil prices have rallied 37% over the last three months.
Earlier Monday, the Movement for the Emancipation of the Niger Delta said that it had struck at the Shell Forcados offshore platform in Delta state, the report said. Nigeria is a key exporter of crude. In the currency markets, the dollar was mixed against most other major currencies. The greenback rose against the Japanese yen, while the dollar fell against the euro and the British pound. Dollar weakness typically boosts dollar-denominated commodities such as oil.
Meanwhile, the International Energy Agency revised lower its forecast for global oil demand, but energy traders shrugged it off.
A Japanese news report Monday said China plans to increase its strategic crude-oil reserves by 160% over the next five years.

06/30/2009 Tuesday
Crude-oil futures lowered Tuesday as US data showed faltering consumer confidence and falling home prices, setting back hopes for a recovery and higher oil demand. Despite the loss, oil rallied 41% in the second quarter.
Crude for August delivery fell $1,60, or 2,2%, to end at $69,89 a barrel on the Nymex. Earlier, it had surged as high as $73,38 a barrel, the loftiest level in eight months. Crude rose 5,4% in June, extending its monthly winning streak to five. It has gained 57% in the first half of the year.
A stronger dollar weighed on crude. In the currency market, the dollar strengthened against most of its rivals. Gains for the greenback typically weigh on dollar-denominated commodities such as oil because it makes them more expensive for holders of other currencies.
Also Tuesday on the Nymex, July reformulated gasoline lost 2% to $1,8972 a gallon, while July heating oil fell 3,7% to $1,718 a gallon. The gasoline and heating oil contracts expired on Tuesday.
In Asia, China hiked domestic gasoline prices in announcement late Monday, according to media reports. Retail prices will rise by 8,6% for regular gasoline and by 9,6% for diesel, the reports said. At just over $3 a gallon, Chinese motorists will now pay about one-eighth more for a fill-up than Americans, who were paying an average $2,66 a gallon last week, Reuters reported.

07/01/2009 Wednesday
Oil futures have fallen below $70 a barrel as government data showed crude inventories at a key delivery point rose for the first week in five and gasoline stockpiles increased for a third week. Weak demand pushed up total petroleum product inventories for the 14th consecutive week.
August crude futures fell 2,2%, to $69,89 a barrel on the New York Mercantile Exchange. Oil ended second quarter's trading up 41%, the biggest three-month gain in 19 years.
The Energy Information Administration reported Wednesday that crude oil inventories at Cushing, the delivery point for Nymex crude futures, rose 200,000 barrels to 28,6 million barrels in the week ended June 26, rising for the first week since the week ended May 22.Meanwhile, gasoline inventories increased 2,3 million barrels and distillate stockpiles, which include heating oil and diesel, gained 2.9 million barrels. Gains in both products came bigger than expectations.
The EIA seems to lag the API so we are seeing a drop in crude.
Energy traders also digested a series of economic reports on Wednesday. Companies in the U.S. private sector shed 473,000 jobs in June, according to the ADP employment report released Wednesday. The report comes one day before the Labor Department reports on nonfarm payroll growth for June.
Separately, the pending home sales index rose 0.1% in May after an upwardly revised gain of 7.1% in April, the National Association of Realtors said.
ISM index rose to 44.8% in June from 42.8% in May.

07/02/2009 Thursday
Oil futures tumbled nearly 4% Thursday, reaching their lowest level in one month and posting their third weekly loss in a row, as a disappointing jobs report rekindled concerns over when a recovery may begin to take hold.
The Labor Department said Thursday that nonfarm payrolls shrank by 467,000 in June, a bigger drop than the decline of 325,000 expected by economists. Also weighing on crude prices, the dollar strengthened against most of its rivals. The Labor Department report also showed the unemployment rate ticked higher to 9.5% in June, the highest since August 1983.
August crude futures dropped $2.58, or 3.7%, to settle at $66.73 a barrel on the New York Mercantile Exchange, the lowest closing level for a front-month contract since June 3.
Futures lost 3.5% this week. Trading is closed Friday in observance of the Independence Day holiday.
The Energy Information Administration reported Wednesday that total U.S. petroleum-product inventories rose for the 14th consecutive week as demand remained weak.
The EIA data also showed total crude inventories excluding those in the Strategic Petroleum Reserve marked a decline. The inventories, however, still stood above the upper boundary of the average range for this time of year, according to the agency.
On the fundamentals level, high levels of inventories, low demand and sufficient supply continue to point to lower prices.

07/03/2009
Independence Day holiday in U.S.
So, following the results of a week from June, 23th till July, 3rd 2009, oil quotations have decreased in comparison with the last week. Brent price have fallen to $65,6 per barrel, the decrease for a week has made 4,8%. WTI price has fallen to 3,5% to $66,73 per barrel. We feel crude is due for a correction in the coming weeks.

Fundamental review.
The pound was 0.5% higher versus the dollar. The Britain pound bought 1,6499 American dollar.
Last week a lot of the macroeconomic statistics and news was published in Great Britain. Many data carried a negative shade.
- U.K. inflation continued to fall in May but, not for the first time in recent months, the deceleration was much less sharp than expected. Hence, the CPI rose firmly by 0.6 % in comparison with April that, while largely seasonal, was enough to see just a 0.1 percentage point drop in the 12-month rate to 2.2 %. CPI inflation accordingly remains above its 2 % target.
- Recent comments from the BoE have been deliberately cautious about the U.K. economy's recovery prospects.
- Annual average earnings growth accelerated to 0.8 percent in the three months to April. The outcome, which followed a slightly smaller revised 0.3 % decline in March, was above expectations but still low enough to underline the lack of any significant inflationary pressure in the domestic labour market.
- The number of people out of work rose by a further 39,300 on the month to 1,544,800 in May. The rise, which was smaller than expected, lifted the jobless rate by 0.2 % points to 4.8 % from a weaker revised 4.6 percent in April.
- On the ILO measure, joblessness climbed by some 232,000 in the three month to April. The increase took the number out of work to 2,261,000 and lifted the jobless rate to a slightly lower than expected 7.2 %, still its highest level since the second quarter of 1997.
- Retail sales volumes were unexpectedly weak in mid-quarter when volumes fell 0.6 % from April to stand 1.6 % lower on the year.
My colleagues from FBS company and I keep frostily negative forecast on the British pound.

Fundamental review.
Last week EUR/USD has fallen by 1,5 %.
Last week has been sated by the European economy macroeconomic data. The index of business activity in industrial sector has grown to 40.7 points and in services sector to 44.8. Retail sales in April have a little grown up, however, annual dynamics remains negative - retail sales has declined by 2.3%. All other reports carried the extremely negative shade. Gross national product for 4 quarter of 2008 was reduced to 2.5%, the data for 4 quarter has been reconsidered, as a result annual falling of gross national product has made 4.8%. My colleagues from FBS company predicted falling to 4.6 %. The unemployment rate continued prompt growth and has reached 9.2%. Producer prices for April have dropped to 1.0%, and annual falling has reached 4.6%. These are record values from the beginning of indicator calculation since 1980.
The European Central Bank, which sets interest rates for the 16-nation euro zone, held its key rate at 1% and said it will launch a €60 billion program to buy low-risk bonds in July. ECB President, Jean-Claude Trichet, speaking at a news conference following the central bank's decision, forecast the pace of the bloc's sharp slowdown will ease this year. Mr. Trichet called the current 1% policy-rate level "appropriate."
The situation in Europe will continue to remain difficult; the rate of unemployment can already exceed 10% level. Many European countries are subject to risk of sovereign obligations defaults. German chancellor A. Merkel has scarified the US Federal Reserve System and the Bank of England because of their active monetary issue.
However, in view of EUR/USD strong growth which in May has grown by 6,7 % (from the beginning of March euro has risen by 12%!), analysts of the largest European banks (Deutsche Bank, UBS and Barclays Capital) recommend to sell euro. UBS experts don’t exclude that within three months euro can drop to $1,30 level.
Investors, against negative macrostatistics, left highly remunerative currencies, preferring the American dollar and US treasuries.
1/ US Factory Orders index in April has grown only by 0,7%, instead of expected 1,1%.
2/ ISM non-manufacturing index in May has reached 44,0 in comparison with 43,7 in April and contrary to expectations of 45,0. This indicator is above 50 throughout eight months on end, specifying economic activity reduction.
3/ The number of workplaces in the American companies in April has decreased by 545 thousand, according to report of ADP Employer Services.
Payroll employment in May was unexpectedly and significantly less negative than in recent months. But the unemployment rate also was a sharply higher than projected. Nonfarm payroll employment in May fell only 345,000, following a decrease of 504,000 in March and a drop of 652,000 in February. The May drop-off was not as severe as the consensus forecast for a 530,000 decrease. March and February revisions were up a net 82,000. For the latest month, losses were widespread in both goods-producing and services-providing industries.
By major categories, goods-producing jobs fell 225,000 in May, led by a 156,000 drop in manufacturing employment with motor vehicles & parts down 30,000. Construction declined 59,000 while natural resources & mining decreased 10,000 in the latest month. Service-providing payrolls fell only 120,000 in May after dropping 230,000 the month before. The latest decline was led by a 51,000 decline in professional business services, a 30,000 fall in financial activities, and a 22,000 decrease in wholesale trade.
On a year-ago basis, payroll jobs were down 3.9 percent in May, compared to down 3.7 percent the month before.
Wage inflation remained very soft in May as average hourly earnings posted a 0.1 percent gain, matching the rise in April and coming in below the consensus forecast for a 0.2 percent rise. The average workweek edged down to 33.1 hours from 33.2 hours in April.
The yield on the benchmark 10-year Treasury note rose to a seven-month high.
Last week the US dollar has made prompt jerk upwards that can signal about end of American currency downward trend.

Fundamental analysis.
The euro traded at $1.4089, up from $1.3883 Monday. The dollar index, a measure of the greenback against a basket of major currencies, fell to 79.751, down from 80.961 in North American trading Monday afternoon.
The euro traded at $1.4089, up from $1.3883 Monday.
The U.S. dollar declined Tuesday, reversing a steep increase over the past few trading sessions, as investors questioned the long-term staying power of the greenback's recent resurgence.
The dollar fell as a pop in oil prices and stability in U.S. stock markets boosted risk appetite and sent investors into currencies that pay higher yields than the greenback.
The euro recouped some earlier gains after data showed a steeper-than-expected drop in German industrial output.
The dollar index, a measure of the greenback against a basket of major currencies, fell to 79.751, down from 80.961 in North American trading Monday afternoon.
The euro traded at $1.4089, up from $1.3883 Monday.
The dollar registered strong gains last week, jumping after U.S. non-farm payrolls showed a smaller-than-expected loss of jobs during May. U.S. Treasury yields jumped, particularly at the short end, on increasing bets that the Federal Reserve could begin to raise its official interest rate from near zero by the end of the year.
Dollar bears argue that the greenback's recent jump was largely a rebound from technically oversold levels and that fundamentals will favor a return to weakness in the U.S. currency in the near term.
The block of macroeconomic statistics, collected by FBS analysts:
1. Germany - CPI. There were no revisions to headline inflation in May. The final data still have the CPI declining 0.1 percent on the month to show no change on the year, down from an annual rate of 0.7 percent in April.
2. Great Britain - Industrial Production. For once, the industrial sector exceeded expectations in April when output rose 0.3 percent on the month. Moreover, the originally reported 0.6 percent fall in March was halved.
Even so, the increase still left a 3.2 percent drop in production over the latest 3-month period while in the year to April alone, activity was down 12.3 percent.
3. Great Britain - Merchandise Trade. The merchandise trade gap widened out by a larger than expected Stg0.5B to Stg7.0B in April. The deterioration reflected a 2.6 percent monthly rise in imports that more than offset a 0.6 percent increase in exports. The underlying trade deficit performed in much the same fashion, posting an extra Stg0.7B of red ink to reach Stg6.6B as import growth outstripped exports.
4. United States - International Trade. The U.S. international trade gap in March widened to $27.6 billion from $26.1 billion deficit the month before. But the widening was not due to a rise in imports but due to exports dropping a sharp 2.4 percent. Meanwhile, imports slipped 1.0 percent. Oil imports did rise but were offset by other imports falling. The March report paints a picture of contracting demand worldwide. Looking ahead, we may say a widening in the April gap due to higher oil prices boosting overall imports. But there is a good chance that we'll see a further deterioration in both exports and nonoil imports.
5. United States - Treasury Budget. The U.S. Treasury monthly budget report posted a record $20.9 billion deficit in April, a month that since 1983 (not long after the end of the 1982 recession) has seen nothing but budget surpluses.

Fundamental analysis.
On May, 4rd EURUSD holds steady near the previous levels. The European Central Bank, the Bank of England and the Bank of Canada left key rates at the same level. The European Central Bank, which sets interest rates for the 16-nation euro zone, held its key rate at 1% and said it will launch a €60 billion program to buy low-risk bonds in July. Canada's central bank, meanwhile, left its key rate on hold at a record low of 0.25%. The Bank of England also kept its key rate on hold at 0.5%.
ECB President Jean-Claude Trichet, speaking at a news conference following the central bank's decision, forecast the pace of the bloc's sharp slowdown will ease this year. Mr. Trichet called the current 1% policy-rate level "appropriate."
Today the following block of macroeconomic statistics is expected:
1/ Britain Producer Output Price Index for May
2/ Britain Producer Input Price Index for May
3/ Employment index in Canada for May
4/ Unemployment index in Canada for May (previous level – 8,0%, forecast – 8,2%).
5/ Employment Situation in the USA for May. Nonfarm payroll employment fell a very steep 539,000 in April, following a 699,000 plunge in March. The good news was the contraction in jobs eased somewhat. The big question for the May employment report is whether the shrinkage in losses will continue. A second slowing in a row in payroll layoffs will be a boost to equities. On the wage front, average hourly earnings were very weak in April, rising only 0.1 percent and May's number likely will be sluggish, too. Turning to the household survey, the unemployment rate jumped 4 tenths to 8.9 percent in April. If this rate doesn't ratchet upward again in May, it will be a big surprise as it is hard to find an economist not calling for further increases in the unemployment rate for some time.
6/ US Consumer Credit index for April (previous level – $-11.1 B, forecast – $-7.0 B)
FBS analysts predict that the euro will continue to become stronger relatively to dollar. It is connected, first of all, with possible acceleration of inflation rates. State budget huge deficiency is threat of US financial stability.