IT’S PRETTY RARE for gold to make a new monthly high for the year in May, let alone for all time.

But when it does (or so history suggests), new buyers might expect better-still prices come Christmas – and gold in 2010 just happened to finish May with a new record monthly close against all major currencies bar the Japanese Yen and Australian Dollar.

Only 10 previous Mays since 1968 have finished with the best monthly close of the year-so-far. More typically, the “summer doldrums” had already begun, with prices peaking in March or April, before dipping or moving sideways and then picking up as autumn drew on.

After seven of those 10 previous May highs – all but one of which (1993) came during longer-term bull runs in gold – the Dollar gold price rose again to hit new month-end highs for the year by the end of December. Overall, the average year-end gain for May’s buyers in those 10 years currently stands above 14.7%.

Note: That’s skewed by the blow-out jump of 1979 – gold’s final blow-out during its prior bull run – with a near-94% rise.

What with BullionVault users growing their privately-owned hoard above 20 tonnes of gold bullion last month – as well as German coin dealers being emptied, the US Mint enjoying a record month for Gold Eagles, and London’s wholesale market having to cope with a one-day purchase of 30 tonnes by the SPDR Gold Trust – it’s little surprise that May 2010 also finished with a new record high monthly close on BullionVault’s Global Gold Index.

Beginning at 100 on 4th Jan. 2000, the GGI prices gold against a weighted basket of the world’s top 10 currencies by GDP. The Global Gold Index thus removes currency noise and replaces it with a deeper “paper vs. metal” growl. It shows the (entirely notional) price of gold for those 2.5 billion people who account for over two-thirds of world economic activity…

As you can see, the GGI doubled between Jan. 2000 and the start of 2006, and has since doubled again. Last month, the GGI rose 5.2% from the end of April 2010.

The constituent gold prices – in descending order of GDP weight in the index – are shown below next to their May 2010 gains.

Most telling, perhaps, is that jump against the Euro. Long considered a serious challenger to the US Dollar’s status as world currency No.1, the Euro is in fact the world’s most heavily-issued currency…used by 330 million people across 16 of the world’s richest nations…and accounting for around one-third of emerging-market central bank reserves.

If, like Iran today and Russia last month, those Asian central banks decide to reduce their Euro exposure, they’ll no doubt raise their Dollar holdings, and add a little more gold to their comparatively small stashes, too.

Adrian Ash
for Money Morning Australia

Adrian Ash is head of research at www.BullionVault.com

Sell Australian Dollar and buy Japanese Yen – tick

Put options on Westfield Group – [screech!]

According to Richard F on the Money Morning blog, he has a much better idea than the Westfield trade:

“How about shorting RP Data – (ASX: RPX).”

Now that would be just spiteful wouldn’t it! It’s a thought though. They are super leveraged to the housing market. When that falls over you wouldn’t think there would be too many punters coughing up for their research.

Although let’s be fair about it. An even better trade would have been to have bought RP Data stock last year when it was trading for less than 10 cents per share:

Now it’s trading at just below 50 cents. We can only hope Mr. Joye and his mates took the opportunity to tuck in at what was clearly a bargain price.

The only problem with short selling RP Data is the lack of liquidity. If you look at the one-month chart below you can see it rarely trades:

You’d need bravery the size of basketballs to risk getting yourself in on a short position there. With such low liquidity it wouldn’t take much for someone to push the share price higher and suddenly you’d find yourself in a margin call and having to sell your house to cover the losses!

So, as a short selling proposition, I’d stay clear of RP Data.

Why not buy Japanese stocks?

There are a couple of other alternatives, but before I get on to those, a quick note on the Sell AUD, Buy JPY contrarian trade.

First, you can read Slipstream Trader editor Murray Dawes’ take on the Aussie dollar in the companion article.

But buying the Yen is potentially just the first step. Rather than paying to hold Yen – because you’re forfeiting interest payments on Aussie dollars – you could go one step further and follow the advice of The Daily Reckoning’s Bill Bonner.

Bill thinks the trade not just for 2010 but for the entire next decade is to buy Japanese stocks. Aside from the obvious – Sony, Toyota, Honda – your editor couldn’t tell you a single thing about which Japanese stocks to buy.

But if you like the idea – and again, this isn’t advice, just information – the easiest and probably lowest cost approach is to buy the iShares MSCI Japan exchange traded fund. It trades on the ASX with the ticker IJP.

You can buy and sell it just as you do any other share traded on the market. I’m not saying you should go for it but… ah, why not, I like the Japan trade idea. Look at the chart below to see the twelve month performance:

If you go for it, just be careful when placing orders as it’s also reasonably illiquid – yesterday less than five thousand shares changed hands.

Anyway, back to the bearish property strategy…

Other suggestions have been that Westfield isn’t a great idea due to its exposure to the US and UK markets. Something more local would be a better bet.

We had another look at all the commercial property trusts and not surprisingly the best time to short sell them would have been eighteen months ago. Many of them are still in the red by 80% or 90%.

Short selling them now is certainly possible, but there’s probably better options.

Commercial property trusts still well down

Something like the SPDR S&P/ASX 200 Listed Property Fund [ASX: SLF]. As the name suggests it’s a listed fund made up of a number of individual trusts which are also listed on the ASX.

In fact, we had recommended it as a buy to Australian Small Cap Investigator subscribers earlier last year as a way to get exposure to the potential bounce in the property sector. That happened to some degree, however we only picked up just over a 20% gain before advising subscribers to cash out in November.

But the most obvious idea is one we overlooked. If you’re bearish on Australian residential property then surely you’d look to sell the company with the biggest exposure to it.

It’s a proverbial no brainer.

And with the share price of the company in question back to pre-crash levels, thinking about doing something soon isn’t such a bad idea. Here’s the chart:

It’s Commonwealth Bank of Australia [ASX: CBA] of course.

Go for the biggest when selling short

As the company proudly admits, it’s the safest of the four major banks because it has the largest exposure to Australian residential mortgages [gulp!].

Of course, short selling something just because it’s high isn’t always the best strategy. Especially if the price goes even higher. So for this one I’m happy to defer to our resident Slipstream Trader and technical analyst Murray Dawes.

I asked him this morning what he thought of the idea. The upshot is that it’s not a trade Murray would make right now, and it’s not a trade he’d recommend to Slipstream Trader members just yet.

However, he does think there’s an opportunity for a quick swipe at it on the short side, providing you’ve got your stop order placed close behind in case it swings the other way.

But in terms of a Contrarian Investment Idea for 2010, getting in to a short position on CBA looks premature. We’re not thinking of short term trading ideas, we’re thinking about longer term progressive downward movements in the share price.

Plus you want to protect yourself against potential losses as well.

One way to do that is with what the guys at City Index call a ‘guaranteed stop loss’ order. I won’t give you all the details here because I don’t have the space. All I will say is that it’s a good way of knowing exactly what your maximum loss will be before you make the trade.

That’s got to be worth something.

It’s certainly a good idea if you want to trade on the short side but are worried about getting ‘caught short’ and losing a bunch of cash.

Anyway, I think that pretty much settles our 3 Contrarian Investment Ideas for 2010:

• Buy gold
• Sell Aussie dollar, and buy Japanese yen
• Short sell CBA – but not just yet!

But as I wrote earlier in the week, if you’ve got any other ideas or you think our contrarian ideas are rubbish, feel free to make comments when on the Money Morning website when this article is posted later today.

Cheers.
Kris.

60-Second Market Round Up
by Shae Smith

The S&P/ASX 200 was down yesterday to 4,868.10, lower by 31 points. The positive lead in from the US has seen the index open up nearly 20 points higher this morning.

The Australian Bureau of Statistics will release their figures on the labour market today, and these will include the unemployment rate.

The Dow Jones Industrial Average closed at a 15 month yesterday. The Dow ended the day at 10,680.77, up by 53 points. However Bruce Bittles, a chief investment strategist at Robert W. Baird, is worried that expectations are a too high and the market is “suffering from a little too much optimism”. Read more about the US market here.

Overnight in the UK, the FTSE dropped 0.46% to close at 5,473.48.

The Nikkei closed at 10,735.03, lower by 1.32%

Gold continues to dominate the news this week after another short rally last night. Spot gold gained about USD $9 overnight, based on speculation that the Fed will keep rates at these unnatural lows for an extended period.

The price of spot gold in Australian dollars is trading at $1,232.66 while in US Dollars it is trading at $1,138.11. The price of silver in Aussie dollars is $20.18 and in US Dollars it is $18.63.

The Aussie dollar versus the US dollar is trading at USD$0.9236, and against the Japanese Yen JPY84.37

Crude Oil closed at USD$79.67

For the biggest movers on the market yesterday click here…

It has of course been in a very strong uptrend with other commodity currencies for the past year and so I guess the question of the hour is can it continue?

Now, I don’t profess to have a crystal ball for long term forecasting. I’ll leave that to all of those brilliant “economists” who have an uncanny knack of consistently getting it… wrong!

My job is to make money trading. And although you may not realize it, charts are actually used as a risk management tool more than a forecasting tool.

Therefore my comments about the AUD are focused on the current state of the market and where you should be wary or looking for opportunity.

Click to enlarge

A quick look at the weekly chart of the Aussie shows it is in a very strong uptrend at the moment. The market took five years to rally from 60c to 94c between 2003 and 2008. We’ve rallied that far in a year and a half.

That’s truly amazing stuff.

With the momentum so strong to the upside it would be a brave man or woman to stand in the way of this steam train and I would need to see some clear signs of failure before I would start getting bearish on the Aussie dollar.

Also we’re now getting very close to the 2008 high of 98.5 cents and the market is so focused on reaching parity that I wouldn’t be surprised to see some ‘blow off’ rally attempting to take out the 2008 highs and aiming for parity.

The music could then easily stop and we could see a false break of the 2008 high which could then be a great shorting opportunity.

If we get up close and personal with a daily chart of the AUD we can see a sideways distribution forming:

Click to enlarge

We’ve already had a false break of either edge of the range and have now powered through the midpoint or ‘Point of Control’ of the structure (Slipstream Trader members will know what I’m referring to here).

The short term trend has also turned up so there’s a chance now that the AUD is on the verge of heading for another leg up. The points to be wary of on the way up would be around 95.5c which is 50% outside of the current range and is an area where it could fall over.

If it can burst through there the next stop is the 2008 high of 98.5c and then parity.

All bets are off if we see a sell off beneath the recent low of 87.3c. This would confirm the failure of the last four months distribution and we could see a more sustained selloff if this were to occur.

Regards,

Murray Dawes
Editor, Slipstream Trader

These are the two big, possibly permanent, losers from the aftermath of the ‘Great Recession’, but watching the action in Canberra there’s a sense of Nero Claudius fiddling on his lyre during the Great Fire of Rome.

Not that Australia is burning – far from it – but profound structural shifts are taking place in this country while our political leaders squabble endlessly and pointlessly about asylum seekers and emissions trading.

This country has indeed come through the ‘Great Recession’ in good shape and our resource industries are looking forward to decades of boom on the back of China and India, but that picture masks some difficult and lasting problems. Every silver lining, it seems, has a cloud; complacency is unwarranted.

In particular the 50 per cent appreciation in the currency from its long-term trading range could drive a manufacturing catastrophe.

Unions and industry groups are calling for government assistance after last week’s closure of local tyre manufacturing by Bridgestone Australia, but the task is too great for that. A thousand flowers will die if the currency continues to rise, or even stays where it is.

In addition to that, we are now seeing a classic post-bubble deleveraging cycle manifest in the structural tightening of credit around the world. Global bank lending is continuing to contract although there are signs in Australia that business lending is beginning to resume.

But it will not return to the way it was. Much of the securitised lending market has vanished, never to return, and bank capital has permanently increased.

Last week, Leighton CEO and president of the Australian Constructors Association, Wal King, said that despite the government’s education building plans, firms in Australia would remain under pressure for at least two years because of “tight funding for development and the fall-out from the contraction in global industrial production”.

He and the AIG’s Heather Ridout were releasing a joint construction outlook survey on the same day that Treasury Secretary Ken Henry spoke about the structural changes that will be forced on the Australian economy by a sustained terms-of-trade boom.

The survey predicted a drop of $9 billion in engineering and construction work this financial year. The chief economist of the Master Builders Association, Peter Jones, predicted a 7 per cent fall in employment over the next couple of years.

Last week two senior bureaucrats gave important speeches about the consequences of high terms-of-trade – Ken Henry, and the RBA’s Assistant Governor (Economic), Philip Lowe. The terms-of-trade, by the way, is the ratio of export prices to import prices – that is, export prices divided by import prices.

Lowe pointed out that despite big falls in commodity prices from their peaks last year, Australia’s terms-of-trade are around 50 per cent higher than the levels prevailing in the 1980s and 1990s.

The only other time they have been as high as they are now was when the wool price spiked in the 1950s.

The result of this is that Australia has become, and will probably remain, a very high investment economy: the big contradiction to the story about Australia’s lack of investment in infrastructure that was highlighted yesterday by the Rod Sims of Port Jackson Partners, is mining, which is now 5 per cent of GDP – a record by a big margin. Also, huge LNG projects are now planned for export to China, on top of iron ore and coal expansion to take advantage of China’s steadily growing steel consumption.

Philip Lowe says the mining booms of the 1960s and 1980s look “relatively small” compared to this one.

Ken Henry said: “Standard economic theory tells us that if the terms-of-trade remain at high levels, not only will the resources sector command more capital and labour, manufacturing and other industries whose relative output prices are declining will command less, even as our total stock of capital expands.

“Furthermore, as the factors of production are reallocated, the pattern of growth will be characteristic of what is often referred to as a ‘two speed economy’; and real wages growth and labour productivity growth will be weak – possibly even negative.”

Many countries are taking action, usually pointlessly, to prevent this reallocation by halting the rise of their currencies against the US. Brazil, for example, slapped a tax on capital inflows; Korea, Thailand, Russia, Indonesia and Taiwan have been buying dollars.

A good start in Australia would be some recognition of what’s going on.

In our last analysis (Money Morning dated May 26), we were expecting a correction to 0.44 after the currency pair had peaked and started correcting. The level of 0.44 corresponds indeed to the 50% Fibonacci retracement ratio of the bullish trend occurred between October 2008 and May 2009 (between points A and B on the chart)…

Click to enlarge

But actually the price action did not correct to this level but found some support earlier, just above 0.475. This level corresponds to the first Fibonacci retracement ratio (23.6%, point C).

The currency pair well rebounded from this low point posted in July. It reached a recent high of 0.5108 (point D). This is slightly above the previous high of last May (point B). However the pair has started pulling back downward. Points B and D are likely to build a “double top” pattern that typically generates a trend reversal.

A bearish divergence has appeared on the Commodity Channel Index (CCI). A popular method of analysing the CCI is to look for divergences in which the underlying asset is making new highs while the CCI is failing to surpass its previous highs. This classic divergence is usually followed by a correction in the asset’s price. This is exactly the nature of the current configuration as the price action jumped above 0.51 (point D) while the CCI was actually declining.

A further correction on the price is therefore expected. The immediate objective is the intermediary support validated last month just above 0.4750. The following levels at 0.455 and 0.44 (the two next Fibonacci retracement ratios) are likely to become new targets if the bears take the lead.

Chinese stocks helped drive the main index of Asia-Pacific stocks (excluding Japan) to an 11 month high, as two surveys showed accelerating Chinese factory output growth. Car and tyre makers were among the biggest winners, after the US Government announced increased funding for its "cash for clunkers" program to encourage households to trade up to more fuel efficient vehicles.

• In Tokyo, the Nikkei finished flat at 10,352.
• Hong Kong’s Hang Seng was up 1 per cent at 5:38pm (AEST).
• Mainland China’s Shanghai composite index gained 1.5 per cent to 3,463, its highest level since March last year.
• Singapore’s main share index was flat at 2,659.

Currency markets

The resurgence is due to increased optimism about a global economic recovery, and demand for currencies linked to commodities. At 5:53pm the Australian dollar was fetching:

• 83.60 US cents
• 79.41 Japanese yen
• 58.80 euro cents
• 49.96 British pence
• 1.2612 New Zealand dollars

Major movers in Australian market

The Australian share market has extended its rally, rising 0.5 per cent on the back of another strong showing by the banks.

At the close, the S&P/ASX 200 was 19.4 points higher, or by 0.5 per cent, at 4263.4 while the broader All Ordinaries rose 21 points, or 0.5 per cent, to 4270.5 points.

• ANZ and NAB led the charge of the big banks, with both up 2.5 per cent, and CBA and Westpac both up by just under 2 per cent. The banks have benefited from broker upgrades as the wave of economic optimism has led analysts to upgrade their profit forecasts. The ANZ also gained after sources told several media outlets that ANZ is close to a deal worth around $1 billion to purchase some of RBS’ Asian assets.
• Aquarius Platinum was amongst the best gaining miners, surging 8 per cent on a broker upgrade.
• Wheat exporter GrainCorp jumped 6.7 per cent to $8.00 after it raised its profit forecast for a second time. Competitor AWB also gained 4.2 per cent on the news.
• Sino Gold picked up 2.8 per cent on the discovery of gold mineralisation near its White Mountain mine in China.

Westpac slashes bank fees

Consumers have scored another victory in the battle against exorbitant bank charges when the Westpac group announcing plans to cut a range of penalty fees from as much as $40 to just $9.

The decision by Westpac and St George – the NSW-based bank it bought last year – follows a move last week by their big four rival, National Australia Bank, to axe the entire overdraft fee of $30 on accounts used by 700,000 personal customers from October 1

KUDOS to NAB FOR BEING THE FIRST BANK TO ACTUALLY CARE.. The rest will follow just to be competitive

Westpac said it would reduce "exception” fees across credit cards and personal and business accounts to $9 from current levels of up to $45. The move includes Westpac subsidiary St George Bank.

Major oil stocks were also mixed, with Oil Search losing one cent to $5.63, Santos up 18 cents at $14.70 and Woodside Petroleum dropping 80 cents, or 1.8 per cent, to $44.90.

Gold miners had mixed fortunes, with Lihir Gold easing 3 cents to $2.74, dual-listed Newmont Mining jumping 16 cents to $4.96 and Newcrest Mining steady at $30.00.

Australian government bonds advanced, pushing the two-year yield down 11 basis points, or 0.11 percentage point, to 2.64 percent, according to data compiled by Bloomberg. The price of the 5.25 percent note due August 2010 rose 0.170, or A$1.70 per A$1,000 face amount, to 104.011.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, declined to 4.06 percent from 4.23 percent late in Asia yesterday.

more….

On the Sydney Futures Exchange, the December share price index futures contract was 154 points lower at 4,211 on a volume of 16,525 contracts.

CommSec market analyst Elvina Simpson said stocks were being heavily sold off in every sector, giving up gains yesterday as investors took profits, bringing the recent rally to an end.

more…