If you like to trade volatile and choppy markets the Gold market is your dream come true. It has certainly become a true World market with the insertion of an ever growing middle class in China, India, and the Middle East. The gold market has been deemed a "safe haven" for investors during uncertain economic times. The rally over the past seven months argues that it may be more practical to purchase more Gold to further diversify a portfolio than to sell profitable Gold and metal positions to defend positions in other market sectors such as an equity portfolio.

During the past month the Gold has sold off. In my opinion, much of this selling pressure has been due to an overbought market, lack of new buying momentum, and of course -profit taking. But in my opinion nothing has really changed. High energy prices persist, in fact Crude oil is trading at all time high levels. There is still a severe problem in the Mortgage, Housing, and Credit sectors. So why is Crude oil trading at all time highs while gold is trading under $900.00? Since they are both "anti Dollar" they should be running together!

In my opinion the FOMC is selling Gold to inject cash to support the Dollar, and I still feel the U.S Dollar is being supported on a very weak foundation. The past seven months have been incredible and in my opinion the Gold rally is more than justified.

Mike Daly

www.dalygoldreport.com

Futures trading involves substantial risk and is not suitable for all investors.

This week is a quadruple witch week which will usher in exceptional volatility. We are in the pre-Christmas mode and the market is depressed enough to end the expiration with a boost to the upside. By Friday noon, with the future's expiration out of the way early in the morning trade, it is likely that things will slow to a crawl. Christmas Eve is Monday and that session will only be a half-day, inspiring some early-escapes to that Christmas vacation.

Forget about sub-prime problem, we have the "Exotic Mortgage" mess next, and this one involves the high end borrower and not the low end borrower! What happens when the McMansion is mortgaged at a higher valuation than the McMansion can be sold for?

What happens when the real-estate taxes are due on the McMansion? Here is a thought, strip the house of all salable items and abandon it. Let the bank, the lenders, and the municipality fight over who gets the leftovers. No, this is not an imaginary scenario, but a very real one which is the next part of the housing bubble to burst! Here we are hitting the high end, not the low end of real-estate. Further, there will be less compassion for this group of borrowers than was seen for the low-end sub-prime borrowers. Think about some of the expensive high end communities without a tax base to draw upon, interesting huh!

Just a few months ago the S&P 500 was posting record highs in what seemed like consecutive days, for months on end (in fact, it was only in July that we were setting historical records). What "surprised" the market at that point - the subprime crisis - was not really a surprise at all. February 2007 endured its own mini meltdown when subprime paper became a cause of concern, but it didn't truly have any long term effects on the market until July when anything related to subprime paper began to significantly drop in value.  Eventually bids became nonexistent and prices on the paper began to disappear, leaving traders bewildered as the credit markets began to slide.

 Where was the market heading and for how long would the drag continue? Soon enough, the market retested the February lows around 1375 and bounced hard back near record highs. Below is a 60 minute chart from one of the time periods discussed above - August 9^th to August 21^st. During that time, the market fell approximately 135 points from its high to low. I have drawn a trend line (blue) that the market obviously had trouble getting above. Notice that after falling to its lows and quickly recovering on August 16^th that the trend line held as resistance before the market dramatically blew through the chart (I'm sure many of you recall the key reversal day on the 16^th). That left traders on their way to bid markets higher across the globe until another round of the credit crunch came along in October & November.

In all honesty, this second round (really the third round now) of the credit crunch did not come unexpectedly. Credit conditions never truly improved significantly from late August to late October, but instead they consolidated (see commercial paper chart below). The markets were alleviated with Fed rate cuts as traders and media pundits glossed over the gloomy scenario still looming. That said, we have a market that is truly reacting to what is out there - a bad credit market that does not have a lot of positives to look at in the future. A weaker dollar, a stagnant economy, a tight job market, a housing market in despair at the same time it looks like a majority of financial firms who've invested in the subprime deep black hole are struggling to price their subprime assets.

Take a look at the chart below. It is a 60 minute chart of the S&P 500 from October 31^st to November 19^th - the third round of the credit crunch. Notice any similarities between the two charts? It should be pretty obvious that the trend line is following a noticeably similar line (and decline for that matter). The August drop took us from 1510 to 1375 (approximately 135 points), while this decline has taken us from 1560 to 1440 so far (120 points). Both of these drops are due to similar reasons, although today's drop has come along with more write-downs, a weaker dollar, slower consumer spending and inflation hawks on the prowl. We seem to have gathered a plethora of information on who holds this paper, but the assets still can't be priced accurately. The financial innovations that are so well received when they first hit the market are now being scrutinized by regulators, compliance committees and risk management. Although we feel like there has been a lot of information uncovered, it seems that it could be just the tip of the iceberg as we head into the final month of the year.

click on the chart to enlarge

 Will this market be able to rebound or will we slowly fade into the New Year? My thoughts will be scrutinized by some, but the markets do not look to be in good shape. Yes, we can rebound somewhere in here - it could be 1440, 1400 or 1375 - but prospects for the future are misty and dreary.