Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Dow Short-term Stock Market Trend Analysis - 6th Mar 21
Intel Rocket Lake EXPLODE on Launch - 11th Gen CPU's RUN VERY HOT Bad Cinebench R20 Scores - 6th Mar 21
US & UK Head for Post Coronavirus Pandemic Lockdown Inflationary Economic BOOM - 6th Mar 21
FED Balance Sheet Current State - 5th Mar 21
The Global Vaccine Race Against Time and Variants - 5th Mar 21
US Treasury Yields Rally May Trigger A Crazy Ivan Event (Again) In Stock Market - 5th Mar 21
After Gold’s Slide, What Happens to Miners? - 5th Mar 21
Racism Pandemic Why UK Black and Asians NOT Getting Vaccinated - NHS Covid-19 BAME - 5th Mar 21
Get Ready for Inflation Mega-trend to Surge 2021 - 4th Mar 21
Stocks, Gold – Rebound or Dead Cat Bounce? - 4th Mar 21
The Top Technologies That Are Transforming the Casino Industry - 4th Mar 21
How to Get RICH Crypto Mining Bitcoin, Ethereum With NiceHash - 4th Mar 21
Coronavirus Pandemic Vaccines Indicator Current State - 3rd Mar 21
AI Tech Stocks Investing 2021 Buy Ratings, Levels and Valuations Explained - 3rd Mar 21
Stock Market Bull Trend in Jeopardy - 3rd Mar 21
New Global Reserve Currency? - 3rd Mar 21
Gold To Monetary Base Ratio Says No Hyperinflation - 3rd Mar 21
US Fed Grilled about Its Unsound Currency, Digital Currency Schemes - 3rd Mar 21
The Case Against Inflation - 3rd Mar 21
How to Start Crypto Mining Bitcoins, Ethereum with Your Desktop PC, Laptop with NiceHash - 3rd Mar 21
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Incompetent Central Banks Gold Invest by Selling Low and Buying High

Commodities / Gold & Silver 2009 Nov 09, 2009 - 07:07 PM GMT

By: Ned_W_Schmidt

Commodities

Best Financial Markets Analysis ArticleWow, the light bulb finally went on last week. Perhaps we have never truly understood investing. Bank of England in the 1990s was selling Gold as it plunged to below $300. Now, with Gold soaring above US$1,000, the Reserve Bank of India is buying. The trick is to apparently sell low and buy high. We always thought it went the other way. But we do note a distinct difference in this pattern from buying high and then selling low. If only central bankers had revealed this secret of high level investing earlier, how much happier we all would have been.


We then learned on Friday that the central bank of Sri Lanka had been buying Gold.

"We have been observing that prices of gold have been going up so we have been strategically buying gold over the past several months as part of a reserve management process of diversifying our portfolio,' he(Central Bank assistant governor Nandalal Weerasing) said.(thepensinsulaqatar.com, 8 November 2009)"

That buying because the price was going up sounds a lot like momentum investing. Buying something because it is going up is good way to end up owning something when it goes down. Will the central bank of Sri Lanka be selling when the momentum is negative? Or, will Gold then be a long-term holding being held for diversification purposes and price recovery? Never have been nervous about a positive view on $Gold till last week.

In our first chart this week is plotted the six-month rate of change on $Gold using the green line, and the left axis. The red line is the inflationary component of U.S. money supply growth. It uses the right axis. We assume that the price of $Gold is somehow influenced by the inflationary growth of the money supply.

As can be observed in that chart, those lines seem to move somewhat together. When U.S. money supply growth is highly inflationary, the return on $Gold seems to rise. When the inflationary component of U.S. money supply growth is declining or negative, the return on $Gold weakens or declines. Those buy signals on $Gold's return are created when the money supply measure turns positive from a negative reading. We note that those buy signals seem to offer good guidance.

Let us consider the more recent experience in that graph. First, we observe the large upward spike in the inflationary component of U.S. money supply growth. That occurred as a result of the massive injection of funds into the U.S. financial system by the Federal Reserve. That aggressive easing did raise the return on holding $Gold.

However, the most recent period is producing some troublesome divergence. The measure of the inflationary component of U.S. money supply growth continues in negative territory. At the same time the return on $Gold has been rising due to the entry of so much momentum driven money into the Gold market. Hedge funds that would not touch Gold at "$400," now love it.

Based on the data presented in that chart, an expectation that the return on $Gold will decline is reasonable. Does that negate the long-term bullish case for Gold? No. What it means is that the long-term is composed of multiple short-terms, some of which we may not enjoy. Note, though, that the money supply measure does seem to be bottoming. It should turn up in the months ahead as the Federal Reserve continues its reckless policies. On balance, the return on $Gold should moderate, and then again turn positive sometime in the coming year.

Our second chart, above, plots the GDM, the Gold Miners Index. That is the index of Gold stocks used as the investment model for the GDX, the Market Vector Gold Miners ETF. The picture presented is worrisome. The GDM has failed to confirm the recent action in $Gold. As stocks discount the future, the GDM may be telling us that today's high price for $Gold may not persist into the immediate future.

We also wonder if a head and shoulders pattern might not be developing. We have drawn into the chart a possible neck line. Any move down through that possible neck line would be worrisome, and suggest further weakness in the stocks and likely in Gold. We note, also, that a similar worrisome picture exists in Silver. Why has Silver not followed Gold higher?

While remaining a committed long-term Bull on $Gold, that no asset price moves in a straight line must be acknowledged. A short-term period of weakness in $Gold seems increasingly likely. Should that happen, U.S. dollar-based investors should use those lower prices to add to positions.

Investors in other currencies will likely have different experiences. For example, EU€Gold has finally escaped the long lateral pattern in which it had been trapped. That action suggests that €700 is the new floor for Euro-based investors. While over bought short-term, EU investors should add to positions on any price weakness, and prepare themselves for higher Gold price. The Canadian $Gold situation is more like that of $Gold. A sharp break may be necessary to shed the accumulated over bought condition. Should that break occur, Canadian investors should add to their Gold holdings.

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