Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Precious Metals, Gold and Silver, When Will They Finally Bottom?

Commodities / Gold & Silver 2009 Jul 13, 2009 - 01:52 AM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleIn the recent two Premium Updates I briefly discussed inflation and its effect on gold prices. I showed a chart indicating the massive increase in the amount of money that had been recently pumped into the system. I’ve looked deeper this past week into the issue of inflation researching what some of the smartest people have to say on the subject. There are those, like billionaire investor Warren Buffet, who believe that inflation is inevitable:


 "A country that continuously expands its debt as a percentage of GDP and raises much of the money abroad to finance that, at some point, it's going to inflate its way out of the burden of that debt."

Then there are those, like Nobel Prize winning economist, Paul Krugman, who don’t believe that inflation is just around the corner. Although the Powers That Be have increased the money supply by a trillion dollars, most of that money is sitting in commercial bank vaults as excess reserves and not out in the real world creating “inflation” by buying up cars, houses and flat screen TVs.

Although in ordinary times the Fed’s recent actions would cause “inflation”, wrote Krugman in a New York Times article, these are not ordinary times. 

“Banks aren’t lending out their extra reserves. They’re just sitting on them — in effect, they’re sending the money right back to the Fed. So the Fed isn’t really printing money after all.”
 
In my opinion, banks aren’t lending yet, but that is likely to change. Think about it in market terms – the short run situation may be irrational and emotion-driven (banks may fear to lower cash reserves in case additional regulations are introduced), but in the long run, it is the fundamentals that drive prices. Banks have money but want to earn more, so they will eventually lend it to earn interest.

Nobody can be absolutely sure what the future holds for inflation, however, in my view, the vast majority of signals are screaming “inflation ahead”.
Let’s begin this week’s analysis with the U.S Dollar chart (charts courtesy of http://stockcharts.com).

U.S. Dollar

The USD has been trading sideways since its sharp pullback at the beginning of June. Back then the correction was significant, but only in terms of range, not in terms of time. It is often the case that requirements of both time and range need to be fulfilled before prices can resume their previous trend (in this case, down).
 
Please take a moment to study the following weekly chart:

Taking into account weekly closing prices, we are now very close to a resistance level, which, unless we see a confirmed breakout, makes lower USD values in the near term more likely.

As far as implications for the USD Index are concerned, we have been trading sideways for approximately a month now, a considerable amount of time, thus making the correction more likely to be completed soon. This is naturally bearish news for the U.S. dollar and bullish for the precious metals market.

General Stock Market

In the previous Premium Update I warned that  (…) there are signs that the general stock market may move lower in the short term. Should that be the case, it could affect the prices of precious metals, particularly silver. Still, I believe that this would only be temporary.

This has been the case this week, as the SPY ETF moved lower on higher volume:

Not only has the general stock market moved below the May lows, but it has done so on a relatively (compared to the previous week) high volume, which makes this move more important. Additionally, the head-and-shoulders formation appears to be completed:

The breakdown below the neck level (currently below the 90 level) has been confirmed by a relatively high volume just after it materialized. Additionally, we witnessed a brief pullback to the neck line, which did not close above it, thus confirming the formation. Unless we see a sharp move above this line (89 level) on Monday or Tuesday, the technical picture remains bearish for the general stock market. 

Gold

This week has been disappointing for precious metals investors as gold, silver and corresponding equities followed the general stock market lower.

Gold moved lower despite the technical similarity to a previous pattern that was followed by higher prices. Higher prices were likely, but of course, not guaranteed. In order to make calls that have the greatest probability of being correct, it is important to always take what the market provides and use it on an “as is” basis.

Currently, gold appears to be close to bottoming out, as it seems to be forming the zigzag correction pattern. As mentioned in the past, precious metals tend to correct in a zigzag fashion, and this time we could see another example of this tendency, meaning that the bottom is rather near. Meanwhile, the medium term chart has not changed much in the past week.

The bullish cup-and-handle formation is still intact, even though the “handle” is now considerably bigger. This does not change the overall bullish implications this chart has on gold prices. Additionally, the Stochastic Indicator, which has proven a valuable tool in timing local bottoms in the past, is also suggesting that the bottom is rather near. While I have left the detailed descriptions for my Subscribers, I will provide you with one more chart from the premium version - one of our indicators suggests that higher prices are likely in the future.

The SP Short Term Gold Stock Bottom Indicator has flashed a “buy” signal on Friday, as it turned up after having declined below the dashed horizontal line. In the past, similar action meant that a bottom is already in, or that it will be in rather soon. Last time it was the case at the end of June, and the HUI Index has indeed put a local bottom. Currently, it may mean that precious metals are still vulnerable in the immediate term, but they are not likely to consolidate much longer.

Summary

The long-term situation remains inflationary and favorable for the precious metals sector; however, the short-term situation is rather cloudy. In the very recent past, precious metals have taken the general stock market’s lead, while the dollar has been trading sideways without a decisive breakout or breakdown from its trading range. The long- and medium-term trends are down for the USD Index, so a breakdown from here is more likely than another counter-trend upswing. Still, a significant plunge in the general stock market may negatively affect prices of gold, silver and corresponding equities.

Investors who are already in the market and plan to keep their positions for at least several months don’t need to trade the rest of the downswing. Short-term Speculators might want to wait a little longer before opening long position in the precious metals market.

To make sure that you get immediate access to my thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

    P. Radomski
    Editor
    Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw RadomskiArchive

© 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