Sunday, December 6, 2009

Dollar strength puts gold rally in jeopardy

The US Dollar showed signs of life late last week as a better than expected jobs report created increased the likelihood of higher interest rate hike. Stocks were generally higher with the Dow trading near 10,500 on several occasions before closing at 10,388 with the S&P at 1105. In Mumbai, positive growth numbers from September lifted shares almost 3% for the week with the Sensex finishing at 17,101 and the Nifty at 5108. While I had been more bearish, the market did generally follow expectations as most of the gains came early in the week on the Mercury aspects to Uranus and Neptune with declines occurring later as the harmonic aspect between Mars and Saturn tightened and Venus came under Saturn's sextile aspect. The most interesting day was Friday as the jobs report brightened the outlook for the Dollar. While stocks were up sharply at the open, profit taking took over and markets slumped after that. This was the first hint perhaps that more good economic news may longer be good for the markets since it risks ending Bernanke's low interest rate regime and the cheap dollar and the resulting carry trade that has fueled the bubble of 2009. After making a high of $1227 on Thursday, Gold plunged over 5% on the renewed enthusiasm for the Dollar.

This week looks more clearly negative, at least in terms of fast moving transits, as two transits will dominate the sky. First, Monday's Mercury-Pluto conjunction may trigger a lot of pessimism due to its 90 degree aspect with Saturn. It's possible that the bearishness may spill into Tuesday since Mercury will still be close enough. The Moon transits Leo early on the week and that may not help matters any since it will be hemmed in between malefics Mars and Saturn. Wednesday's Virgo Moon applies to Saturn is another source of worry since it will again release that problematic Saturn-Pluto energy. The second pattern of significance will be more prominent later in the week as the Sun will form an exact 120 degree aspect with Mars on Thursday. While both planets are natural malefics, it's not clear if this will generate negative market sentiment. It seems there will be enough malefic energy to generate one down day at the end of the week, but we should expect a bounce day here also.

As optimistic Jupiter slowly makes it way towards idealistic Neptune and their conjunction on December 21, it seems likely that we will see another manifestation of this hopeful planetary combination. Off the top, we can see that the Copenhagen climate conference from Dec 7-18 is an embodiment of this idealism and hopefulness as world leaders will once again come together with the best intentions and grapple with this seemingly intractable policy problem. It remains to be seen, however, if anything of substance can be achieved from this meeting. In market terms, the huge bubblicious rally that began back in March can be understood in terms of the initial conjunction between Jupiter and Neptune. Due to retrograde motion, these two planets have been in fairly close proximity with each other for the past eight months. Previously, this optimism manifested as hope for an economic recovery which, in turn, sparked a rally in stocks as investors looked forward to improved corporate earnings. While it is very possible that the December 21 conjunction could coincide with another move higher, there is another plausible interpretation. This time hope for economic recovery may only translate into a higher Dollar since continued good news will boost the greenback. This is exactly what happened on Friday as the Dollar soared against most other world currencies on good employment numbers which increased the likelihood for a rate hike sooner rather than later. But what's good for the Dollar may be bad for stocks because much of the recent rally is rooted in the dollar carry trade. If the dollar continues to appreciate on hopes for a recovery, the carry trade will unwind and this will generate a mass exit from equities. Needless to say, gold is also extremely vulnerable here as the Dollar gets its mojo back.