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
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy Government PANICs! Sterling Collapses! - 19th Mar 20
Coronavirus Market Crisis - Nowhere to Hide! - 19th Mar 20
Coronavirus Most Likely GDP Economic Outcome for Q1 and Q2 2020 - 19th Mar 20
How COVID-19 Leads to 2008-Style Bank Crisis - 19th Mar 20
Coronavirus Impact on Global Economic GDP Numbers - 19th Mar 20
Bticoin Crash Big Channel Review - 19th Mar 20
Gold is Doing Its Job…Silver Will Come Back as a Safe-Haven Asset - 19th Mar 20
The Chartology of Coronavirus Deflationary Event - 18th Mar 20
Fed Slashes Rates to Zero and Introduces QE in Response to COVID-19. Will Gold Rally Now? - 18th Mar 20
Coronavirus - Nothing to Fear but Fear Itself - 18th Mar 20
The Stocks Bear Market Is Upon Us... Or Not - 18th Mar 20
US and UK Coronavirus Containment Incompetence Resulting Catastrophic Trend Trajectories - 17th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Gold in High Risk Period, Could Test Support at $970

Commodities / Gold & Silver 2009 Dec 07, 2009 - 04:37 PM GMT

By: Ned_W_Schmidt

Commodities

Best Financial Markets Analysis ArticleChairman Bernanke is in the process of being reconfirmed in his role as Chairman of the Federal Reserve. While some criticism of the Federal Reserve was forthcoming at the Senate hearings, why were not true alternative candidates considered? Henny Penny, for one, comes to mind. One of the Three Blind Mice would also seem to be a good candidate. How about an ostrich that each time an asset price bubble seems possible, it puts its head in the sand?


Much talk is being made in the U.S. Congress that the Federal Reserve needs to be more transparent. But note, no one ever really wants to see how they make sausage. The same might be true for U.S. monetary policy. We might truly have a dollar rout if the world discovered how U.S. monetary policy is actually established. For example, do they use one dart, or best of three?

Congress could indeed improve the Federal Reserve. It could do so by passing a law giving the Federal Reserve one simple mandate. That mandate could be very easily stated: First, do no harm! From the economic results of the last decade a reasonable observer would conclude that the Federal Reserve has done more harm than good. They appear to be in the business of fixing windows that they themselves broke.


Many are mired in a near hopeless effort to assess the consequences of U.S. monetary policy. To be successful at that forecasting task one needs to understand what the Federal Reserve is actually doing, often a difficult task. What is their policy? Does the Federal Reserve truly have a policy? Consider out first chart for this week, above. What is the dominant policy evident in that chart? Viewing that chart is the equivalent of the three blind men attempting to describe an elephant.

The solid blue line in that chart, using the left axis, is of Federal Reserve Credit. That simply is the size of the Fed’s balance sheet. That red line, using the right axis, is the year-to-year percentage change in Federal Reserve Credit.

In the early part of the graph is the massive liquidity injection brought on by the collapse of the financial bubble created, bu not observed, by the Federal Reserve. A reasonable forecast built on that activity would have been for higher U.S. inflation. That inflation did not develop due to the deflationary impact of the financial collapse.

Second possible policy identifiable is that relatively flat period for Federal Reserve Credit. We assume that the Federal Reserve was resting during this period. Or, perhaps they were waiting to see what would happen as a consequence of their previous activities. They do seem clueless as to the consequences of their actions.

But note that low, or bottom,  in Federal Reserve Credit that occurred in March of this year. We put a circle around it. From then, as marked by the arrow, the Fed embarked on an irregular pattern of injecting reserves into the U.S. banking system. Measuring from that low, about $600 billion of reserves were pumped into the U.S. financial system. Not surprising is that the action in both the  equity markets and Gold seem to closely parallel this monetary activity.  

Turn now to the final period in the graph. There we find a marked divergence between the absolute size of Federal Reserve Credit and the percentage change in that measure. The absolute size of Federal Reserve Credit continued, until recent weeks, to expand. However, at the same time the percentage change has been plunging. That dramatic slowing of the growth rate of Federal Reserve Credit, regardless of the words issued by the Chairman, is an indication of a tightening of policy. Should that red line continue slowing, some rather negative short-term consequences for U.S. equity markets and the price of US$Gold would develop.

 

Our second chart, above, plots $Gold along with our overbought/oversold oscillator. The first important observation in that chart is the mini parabolic curve that has been fitted to the pricing. Such patterns are always a warning because they are almost universally resolved in a negative manner. The combination of U.S. monetary policy that is effectively tightening in nature and $Gold slipping through the parabolic curve suggests a high risk period for $Gold. The important area of support at US$970 could be tested.

In closing we note two indicators, of the many that exist. One is reliable and the other might be. Option traders reported this weekend that option sentiment had shifted on Gold and GLD away from calls and toward put options. Those trading the dollar index related derivatives also noted a shift to the bullish side of the dollar. Finally, a minor explosion of email suggested that this author is mentally deranged for not understanding that Gold was going straight up to $5,000. Will leave it to you to decide which is the reliable indicator.

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