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
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20
Does the Stock Market Really "See" the Future? - 12th Sept 20
Basel III and Gold, Silver and Platinum - 12th Sept 20
Tech Stocks FANG Index Nearing Critical Support – Could Breakout At Any Moment - 12th Sept 20
The Tech Stocks Quantum AI EXPLOSION is Coming! - 12th Sept 20
AMD Zen 3 Ryzen 4000 Questions Answered on Cores, Prices, Benchmarks and Threadripper Launch - 12th Sept 20
The Inflation Mega-trend is Going Hyper! - 11th Sep 20
Gold / Silver Ratio: Slowly I Toined… - 11th Sep 20
Stock Market Correction or Reversal? The Jury Isn't Out! - 11th Sep 20
Crude Oil – The Bearish Outlook Remains - 11th Sep 20
Crude Oil Breaks Lower – Sparking Fears Of Another Sub $30 Price Collapse - 11th Sep 20
Inflation by Fiat - 10th Sep 20
Unemployment Rate Drops. Will It Drag Gold Down? - 10th Sep 20
How Does The Global Economy Recover After This Global Pandemic? - 10th Sep 20
The Best Mobile Casino - 10th Sep 20
QE4EVER! - 9th Sep 20
AMD Ryzen Zen 3 4800x 10 Core 5ghz CPU, Cinebench Benchmark Scores (Est.) - 9th Sep 20
Stock Traders’ Dreams Come True – Big Technical Price Swings Pending on SP500 - 9th Sep 20
Should You Be Concerned About The Stock Market Big Downside Rotation? - 9th Sep 20
Options Traders Keep "Opting" for Even Higher Stock Market Prices - 8th Sep 20
Gold Stocks in Correction Mode - 8th Sep 20
The law of long-term time preference and Gold ownership - 8th Sep 20
Gold Bull Markets: History and Prospects Ahead - 8th Sep 20
Sheffield City Centre Coronavirus Shopping Opera Ahead of Second Covid-19 Peak - 8th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Have Gold and Silver Topped?, Precious Metals Stocks Provide Important Clues

Commodities / Gold & Silver 2009 Dec 04, 2009 - 04:11 PM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleThe precious metals market is declining just as I mentioned in the previous essay, but before I proceed with providing you with my thoughts on the current situation, I would like to put this analysis into proper perspective.

I’m in London this week and the city is vibrant. Rubbing elbows in Piccadilly Circus with the crowds rushing to catch the latest West End show, you hardly feel that there is a global economic crisis. Londoners seemed to have shrugged off the Dubai crises, as did the rest of the world. They seem to be happily unaware, or else they are ignoring, the fact that Britain’s government debt is on the rise and is expected to be more than 80 percent of the nation’s economic output next year.


It does make you wonder.

Dubai went from boomtown to doomtown in very short order. This one-time desert wonderland with palm-shaped islands, extravagant architecture and indoor ski slope, is now strapped to pay its bills.

Is this an isolated event or is it an omen of more debt bombs waiting to explode? Will governments, gorged on debts, be able to shoulder their obligations?

The New York Times reported this week that bills for an “unprecedented borrowing binge” by nations around the globe are starting to fall due. “The numbers are startling,” said the New York Times. Germany’s debt outstanding is expected to increase to the equivalent of 77 percent of the nation’s economic output next year. Ireland and Baltic countries are in even worse shape, with Ireland’s public debt expected to soar to 83 percent of gross domestic product next year. 

Governments have taken on increasingly short-term debt, which will be coming due soon. They plan to “roll over” the loans extending the debt as long as there are creditors willing to buy short term paper. In the U.S., for example, treasury bills maturing within one year have risen from around 33 percent of total debt two years ago, to around 44 percent this year, according to the New York Times.

Within the next year, the U.S. Treasury will have to refinance $2 trillion in short-term debt. If you add deficit spending to that, estimated at $1.5 trillion, and pretty soon you’re talking about a whole bunch of money.

Most economists don’t believe that in the near future we will see nations defaulting on their government debts. They say that it’s likely that rich nations and the International Monetary Fund would intervene with a bailout.

What does a country need to do in order to insure that it does not go bankrupt?

There is what economists call The Allan Greenspan and Pablo Guidotti rule, named for the former chairman of the Federal Reserve and former Argentinean deputy minister of finance. The rule, presented in 1999 in a G-33 seminar and in a speech at the World Bank, states that a country should maintain enough hard currency reserves equal to 100 percent of it s short-term (one year) foreign debt. In other words, countries should have enough reserves to resist a massive withdrawal of short-term foreign capital from their shores.

So how does America stack up? Does it have enough hard currency to back up a year’s worth of foreign debt?

The U.S. is the world’s largest holder of gold with 8,133.5 metric tones. At today’s prices that is a little over $300 billion. That’s not enough. If you throw in America’s petroleum reserves and its foreign currency holdings, that still won’t cover $2 trillions worth of debt that will mature in the next 12 months. Who will want to buy U.S. Treasury paper? India has already voted in favor of gold when it bought 200 tons of IMF gold last month.

In any case, we will be glad that we got into gold when we did, and even more glad that we got into silver. Moving on to the technical side of the market, this week, I will provide you with the analysis of the white metal, followed by comments on the current situation in the precious metals stocks.

The chart of silver is much clearer than the one featuring gold, as there has lately been no parabolic upswing in the white metal. Instead, we see that silver is getting very close to the next cyclical topping area (marked with red vertical lines). This, accompanied by the fact that silver is very reluctant to move above the thick blue resistance line creates a very high probability that silver will not move above its March 2008 high before the correction, and possibly not even above the July 2008 high.

Given the very high level of correlation between gold, silver, and PM stocks (after all, miner's profits depend on the prices of metals), the tops on these markets are likely to be formed either at the same time or at least close to each other.

Please take a look at the HUI Index chart for more details regarding timing.

The precious metals stocks have been moving higher very rapidly in the past weeks, but they are now reaching a super-strong resistance level - their 2008 high. The strength of the resistance level is even bigger because the HUI Index is also reaching the upper border of the trading channel, and the RSI indicator is very close to the "sell" zone.

Based on the historical performance, technical analysis, and my own experience, it is likely that this rally will be stopped at least very temporarily, before gold- and silver stocks are ready to move significantly higher. More clues come from the analysis of the GDX:SPY ratio, which features the way PM stocks have been outperforming the general stocks market.

The ratio has finally broken out of the consolidation pattern, but has now reached a critical resistance level just above 0.5. Therefore, we might expect some kind of consolidation. Since the breakout has been verified in a rather insignificant way, the ratio may once again move to the 0.45 level before heading north once again.

The analysis of volume confirms this. In the past the GDX:SPY ratio topped on a relatively high volume, and this is also what we have just seen. Moreover, the RSI indicator is at the level that marked a top in the past, so the odds of a sell-off from here are even higher.

The top in the above ratio is very likely to correspond to top in the PM stocks, and also to the top in the metals.

Summing up, the fundamental outlook remains positive for the precious metals market, and consequently, their prices are likely to rise on the long run. However, there are many factors pointing to a correction in the short term. The gold market is currently very hard to analyze because of the parabolic shape of the rise, but virtually all other markets suggest that a correction is either possible, or even very likely. Subscribe today for the full version of this essay, which includes much more detailed analysis, many additional charts, and rankings of top gold/silver juniors.

To make sure that you are notified once the new features (like the newly introduced Free Charts section) are implemented, and get immediate access to my free 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.

Thank you for reading. Have a happy Thanksgiving holiday weekend and a profitable week!

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