Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
US Coronavirus Trend Trajectory Forecast Current State - 7th Apr 20
Boris Johnson Fighting for his Life In Intensive Care - UK Coronavirus Crisis - 7th Apr 20
Precious Metals Are About To Reset Like In 2008 – Gold Bugs, Buckle Up! - 7th Apr 20
Crude Oil's 2020 Crash: See What Helped (Some) Traders Pivot Just in Time - 7th Apr 20
Was the Fed Just Nationalized? - 7th Apr 20
Gold & Silver Mines Closed as Physical Silver Becomes “Most Undervalued Asset” - 7th Apr 20
US Coronavirus Blacktop Politics - 7th Apr 20
Coronavirus is America's "Pearl Harbour" Moment, There Will be a Reckoning With China - 6th Apr 20
Coronavirus Crisis Exposes Consequences of Fed Policy: Americans Have No Savings - 6th Apr 20
The Stock Market Is Not a Magic Money Machine - 6th Apr 20
Gold Stocks Crash, V-Bounce! - 6th Apr 20
How Can Writing Business Essay Help You In Business Analytics Skills - 6th Apr 20
PAYPAL WARNING - Your Stimulus Funds Are at Risk of Being Frozen for 6 Months! - 5th Apr 20
Stocks Hanging By the Fingernails? - 5th Apr 20
US Federal Budget Deficits: To $30 Trillion and Beyond - 5th Apr 20
The Lucrative Profitability Of A Move To Negative Interest Rates - Pandemic Edition - 5th Apr 20
Visa Denials: How to avoid it and what to do if your Visa is denied? - 5th Apr 20 - Uday Tank
WARNING PAYPAL Making a Grab for US $1200 Stimulus Payments - 4th Apr 20
US COVID-19 Death Toll Higher Than China’s Now. Will Gold Rally? - 4th Apr 20
Concerned That Asia Could Blow A Hole In Future Economic Recovery - 4th Apr 20
Bracing for Europe’s Coronavirus Contractionand Debt Crisis - 4th Apr 20
Stocks: When Grass Looks Greener on the Other Side of the ... Pond - 3rd Apr 20
How the C-Factor Could Decimate 2020 Global Gold and Silver Production - 3rd Apr 20
US Between Scylla and Charybdis Covid-19 - 3rd Apr 20
Covid19 What's Your Risk of Death Analysis by Age, Gender, Comorbidities and BMI - 3rd Apr 20
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Overbought Gold Signals Pause in Bull Market Trend

Commodities / Gold & Silver 2009 May 25, 2009 - 04:27 PM GMT

By: Ned_W_Schmidt

Commodities

Best Financial Markets Analysis ArticleThat the U.S. dollar has serious problems should, by now, be obvious to even economists working for the Obama Regime. We probably cannot say the same for those at the Federal Reserve, for they do not seem to consider such matters important. To those economists such matters are exogenous factors, and not worthy of inclusion in the discussion. Until the dollar’s fatal flaws manifest themselves as headlines, neither group will act to stop the Obama Dollar Devaluation. As Gold Bugs have learned, though, alternatives to holding the dollar do exist. China and Brazil also recognize this,  having now decided to explore the means of eliminating the dollar from their business dealings. The question of if the dollar “disappears” is being replaced with the question of when it “disappears.”


Readily apparent in the above chart is that the U.S. dollar has broken down. No support exists for it in terms of its value against the world of other currencies. Few traders are willing to grab a “falling knife.” That said, however, expectations of immediate gratification from the dollar’s demise may be somewhat premature. A negative trend for the U.S. dollar is now recognized. However, that trend will unfold with rallies and failures, not in an immediate collapse. A key element of a trend is time.

With the dollar having fallen for nine weeks, an over sold condition has now developed. That is indicated by the blue oscillator in the chart. Currency moves near universally overshoot on the upside  and the downside. For that reason, the short-term movement to the downside may be exaggerated. Some upside reaction to release the tension would be the norm.

Expectations of immediate gratification, therefore, in the $Gold market may be premature. The U.S. dollar’s bear trend will take time to unfold. As that happens, periods of euphoria and disappointment should appear in the markets for both $Gold and the stocks of the producers. Restraint on both actions, and calls for action, on the part of investors might be wise at this time.

Aside from the over sold condition of the U.S. dollar, some fundamental factors may contribute some to the short-term tempering of both the dollar’s collapse and $Gold’s ascension. Aside from lore on the Summer influence on markets, real events, rightly or wrongly, are associated with Summer. As bountiful quantities of carbon dioxide are joyfully generated in backyards, dollar liquidity tends to seasonally unwind.

In the above chart is a red line of circles, using the left axis. That line is the inflationary component of U.S. money supply growth. It uses M-2 and a six month measurement period. The most current plots indicate a slowing in the growth of the  inflationary component of U.S. money supply. That development is consistent with past Summer time experiences. Apparently, some seasonality does exist.

Dollar liquidity, despite the best efforts of the Federal Reserve, is declining. That action should, in the short-term, bolster the dollar somewhat. Further, that lowering of liquidity growth tends to dampen the action in $Gold. 

But note, this lowering of dollar liquidity growth is not a permanent situation. With the Federal Reserve throwing vast quantities of credit at the system, a turn in this liquidity growth can be expected. Seasonally, it has happened as Fall approaches. 

Also, in that chart are buy signals for $Gold created from the action of the inflationary component of U.S. money supply growth. Those buy signals occur when the rate of change in the inflationary component of U.S. money supply growth is negative, and then turns positive. Think of that as equivalent of someone stepping on the U.S. monetary “gas pedal.” Those buy signals are indicated by black triangles. 

One of those black triangles, that one on the far right, is a projected buy signal. It has not occurred yet. Using the past experience, and acknowledging the wild eyed nature of U.S. monetary policy, a projection can be made for the next buy signal. It is projected for September.

A further short-term concern is the over bought nature of $Gold, and the persistence of that characteristic. The black line in the above chart is an oscillator designed to measure “enthusiasm” in the $Gold market. When over bought, it gives “Do Not Buy” signals. Reason for that is that we never sell in a bull market. Reverse of that is that we never buy in a bear market.

In particular, we note the similarity between the oscillator’s pattern during this period and the period before the last period of weakness in the price of $Gold. Those patterns are marked by bright colored boxes. Will it repeat? Perhaps. The persistent high level of enthusiasm, and expectations of immediate gratification, do raise some caution flags, Or if you prefer, blue triangles.

What should a $Gold investor being doing now? First, hold your Gold. Second, build cash for any period of price weakness that might develop this Summer. Now would be a good time to review holdings of paper equities, selling any inappropriate ones that have benefitted from the most recent bear market rally. Hold that cash in a suitable vehicle with which to later buy $Gold. Non U.S. dollar investors should be using any weakness in the price of Gold brought on by the recent rally in non dollar currencies to add to holdings. One need only look about at the leadership failures in current U.S. and U.K. governments to realize that Gold should indeed be in your portfolio.

By Ned W Schmidt CFA, CEBS

Copyright © 2009 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to http://home.att.net/~nwschmidt/Order_Gold_GETVVGR.html

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules