Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Gold's Erstwhile Bull-Market Chums

Commodities / Gold and Silver 2010 Feb 05, 2010 - 06:47 PM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleGold is now more closely correlated with US stocks than with either the Euro or silver...

OKAY, this is getting weird. Too weird, in fact.


And weirder still, no one else has yet noticed...

It might just be me...if not my nicotine D-T's.

But every time I look, there they are. Gold and the S&P500. Right at the same level. Minute by minute, session by session...

What in the Simon Cowell can this mean?

"It is easy to see why the Euro fell [this week] and one could then say that the Dollar is the obvious alternative," writes Phillip Coggan in his Buttonwood blog for The Economist.

"But what about gold? Hasn't that been rising on fears that spendthrift governments would debase their currencies? Yet when these fears started to look real [with the Eurozone crisis], gold fell 4% on Thursday..."

Well, yes and no. Gold always rises on fears of default or debasement. Because that's what it's for – hiding out when everything else falls in value, not least money itself.

But as gold has tripled and more over the last decade or so, it has also been rising thanks to that very debasement itself. Or rather, it's risen on the leverage which debasement enabled. Any pause or reverse in that leverage thus means the gold price can slip, whether or not debasement unwinds.

To recap: Gold began rising last decade because a handful of people saw deep trouble ahead in the race to slash rates. Also known as debasement, that race – led by the Fed, which then feared deflation in the face of untold corporate-debt burdens – took the cost of money below the rate of inflation pretty much worldwide.

Thanks to those record-low rates, global stocks all found their floor by March 2003. Yet the Fed waited another two years before teasing rates higher...and by then, this historic flood of cheap money had found a new use in finance:

Paying for leveraged bets against the Dollar itself.

Hedge funds, prop' desks...even retail investors and the weekly financial press...everyone saw that the Dollar was falling, yet the Fed refused to step out and catch it. Because the falling Dollar was also funding go-go days for home-builders, plus 10% year-on-year gains in the Dow.

Gold, naturally, was a prime mover in this bear market for cash. But with everything rising, gold's singular value seemed to offer just one more "risk friendly" trade.

You selling Dollars or Yen...swapping them for Euros or crude...? Then get yourself long of gold futures! Because that stuff's the ultimate carry trade, mate – a pure speculation on repaying your finance with devalued cash.

"Gold's sharp run is a case of mistaken identity," wrote Tocqueville's John Hathaway in 2006. Barring what proved a blip in mid-summer that year, gold rose with everything else for 5 years ending in 2008. And it was never fuelled faster than when fresh "carry trade" dollars poured in thanks to the Bernanke Fed's record Dollar-rate cuts as the banking crisis broke...

See how the geared-gold position leapt ahead of the price in late 2007...? See how it sank when Lehmans went down?

That's what happens when prime brokers, i.e. investment banks, throw money at hedge funds, only to blow themselves up. But then note how gold found its floor sooner – one-third off its top – while the "net long" held by leveraged gold bulls shrank by more than one half.

Where did the gold price find this support? After all, at the margin, it's gold futures trading which sets the price of the stuff. A higher (or lower) bet on prices next month of course means a higher (or lower) gold price today.

But the global meltdown in stocks sparked by the meltdown in banking brought in a flood of unleveraged gold bugs, all demanding metal – not paper – and standing in line to buy coins and small bars as well as physical gold from safer, low-cost providers not a million miles from where I sit here at BullionVault.

Yes, gold ETF demand also shot higher, reversing the 12% drop of July to Sept. 2008 before swelling by more than three-fifths. But that trust-fund exposure was also cash paid, in full. Because leverage was dead...and didn't revive until the tail-end of last year, when it drove the gold price once more, up to new record highs even as coin sales flagged and the ETFs shrank.

To repeat: There was no palpable crisis driving new money to gold as 2009 ended. Yet the price jumped above $1200 an ounce – and hit new all-time records in Euros, Sterling and pretty much everything else – even as gold ETF demand barely touched its previous peak of six months before. That big move, very much like the spike of May 2006, came instead on leveraged bets, powered by the Fed's all-too cheap money, rather than because of it.

Might the "physical floor" rise up once more now that prices have sunk alongside gold's erstwhile bull-market chums? That weird daily lockstep with the S&P index runs deeper than the mere nominal price. In fact, gold's daily changes this week – on a rolling one-month basis – have been more tightly correlated with stocks than with either the Euro or silver.

I'd guess that connection will break, one way or other. It's hard to imagine a genuine Euro-currency crisis doing anything but sending new cash into gold.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


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


Comments

parag.rikhav@yahoo.com
08 Feb 10, 00:00
Bull and bear markets

Whether gold closed at $1052.80 or $1065 does not change the long term picture.It traded below the $1065 level and therefore triggered a bear signal from the long term perspective.


Post Comment

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

6 Critical Money Making Rules