Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

Research On the Central Fund of Canada Screams "Buy Precious Metals and Miners"!

Commodities / Gold & Silver Stocks Feb 21, 2010 - 06:33 PM GMT

By: Adam_Brochert

Commodities

Best Financial Markets Analysis ArticleI was doing some research on the Central Fund of Canada (ticker: CEF), which is a form of "paper" Gold and silver with a long track record and a much better counterparty risk profile than dangerous Gold ETFs like GLD. Now, CEF generally holds about 60% Gold and 40% silver, so it is not a "pure" Gold fund. I don't recommend paper Gold to anyone before they have established a physical position in Gold as an insurance policy that can always be cashed in when needed. I am not affiliated with nor am I recommending for or against CEF - you must due your own due diligence!


However, I discovered a potentially useful buy and sell signal in the precious metals markets using the premium/discount levels of CEF relative to the Gold price. There is no guarantee this will work in the future, but I found it fascinating and wanted to share it. It seems to actually work best with the silver price, but also works fairly well with Gold and the Gold mining indices.

There are times when CEF trades at a "premium" to the Gold price and times when it trades at a "discount" to the Gold price. When speculative juices and interest in the precious metals patch are running high, a premium tends to develop for silver relative to Gold (and CEF usually only holds around 60% Gold and the other 40% in silver). A lack of speculative interest in the precious metals sector tends to cause the opposite. In a way, then, this is a sort of silver:Gold ratio. However, there is also a component of "froth" or disinterest in the CEF built into this CEF:Gold ratio, as the fund can trade at a premium or discount to the NAV of the underlying metals held by this instrument. Other factors I haven't considered may also be important. Regardless of why it works, its record is impressive so far in this secular silver and Gold bull market.

As with most ratio charts or indicators, extreme measurements tend to have the most predictive value. Plotted below is an 8.5 year chart to encompass the entire silver bull market that began in late 2001. The blue area plot is the CEF divided by the Gold price (i.e. CEF:$GOLD ratio chart) and superimposed is a black linear price chart of silver ($SILVER).




And here's the CEF:$GOLD ratio chart (blue area plot) versus the $XAU Gold mining index (black linear plot) over the same time period:

Will the current signal, which is the 4th strongest of the ongoing secular silver bull market, be proven valid or will it fail here? Those who have read my rants lately know where I stand. I think we're set for another big bull run and I remain stubbornly bullish here. For more bullish data, look here. The breakout over $1000 was an historic psychological moment in the Gold secular bull market and the new psychological floor for the Gold price is $1000/oz.

People who say that silver has been lagging and thus the current Gold bull move is suspect don't understand silver at all and should be ignored. Silver makes big, fast moves at the end of a precious metals run and can play catch up quickly - VERY quickly. We haven't hit the CEF:$GOLD ratio levels that have ended previous big moves in silver or Gold. I think we will before this bull thrust completes.

After a breakout following an 18 month consolidation at and below the $1000/oz level, a 3 month rally of 20% in the Gold price ain't enough of a run. There's more to come in my opinion before a significant longer-term correction will occur. I predict new highs in Gold, Gold mining indices and silver before the spring is over. All surprises should be to the upside in the precious metals patch. Of course, I am all in on precious metals and mining shares from the long side and thus as biased as possible...

Visit Adam Brochert’s blog: http://goldversuspaper.blogspot.com/

Adam Brochert
abrochert@yahoo.com
http://goldversuspaper.blogspot.com

BIO: Markets and cycles are my new hobby. I've seen the writing on the wall for the U.S. and the global economy and I am seeking financial salvation for myself (and anyone else who cares to listen) while Rome burns around us.

© 2010 Copyright Adam Brochert - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 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