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
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold and Silver, Following Stock Market Indices or Moving Against Them?

Commodities / Gold and Silver 2010 Aug 09, 2010 - 12:26 PM GMT

By: Przemyslaw_Radomski


Best Financial Markets Analysis ArticleIn one of our previous essays entitled The Strength of Reaction and Precious Implications we have analyzed the general stock market and the way it could influence gold, silver, and mining stocks. We have summarized that we are likely to see a short-term bounce to the upside. Now - with gold over $40 higher - we would like to provide you with a follow-up of that particular essay.

In the following part of the article we will also provide you with our thoughts related to one of the questions that we've received from our Subscribers - how is gold likely to perform in deflationary environment.

Let's begin with the long-term SPY ETF chart (charts courtesy of that we often use as a proxy for the general stock market.

The long-term SPY ETF chart this week is not significantly different from what we presented in last week’s Premium Update.  We continue to monitor signs confirming that the bearish head-and-shoulders pattern has indeed been invalidated. This week’s signs do not support any continuation of this pattern, but we are still awaiting a decisive move above the $113 level to put away any thoughts about this pattern. The coming week will likely provide much more insight as to short-term market direction and a final decision on the status of the bearish head-and-shoulders pattern.

This week’s short-term chart clearly shows a period of sideways movement with low volume in recent days (since the beginning of August). This short consolidation period has, however, created a small flag formation in our chart. The movement from the $112 level to $113 is the specific area where this formation is seen. The possibility exists in that the next move will again be in the range of three dollars and could take the SPY from $113 to $116.

This possible local top at the $116 level will likely be followed by a correction back to $112 or $113. Verification of this as a support level would then be tested. Note, however, that this is pure speculation and we are not advising any move be made to profit at this time - gold, silver and mining stocks provide better opportunity for this.

Precious metals are clearly outperforming stocks at present. Any show of strength by the general stock market could result in further strength for the precious metals sector.  Furthermore, percentage gains for gold, silver and mining stocks may very well be greater than those in the general stock market. This is all dependent, of course, on the direction taken by the main stock indices in the coming days.

The XBD (Broker Dealer) Index checks the pulse of the financial sector. This week we see confirmation of stocks’ present critical level. The multi-month support/resistance level is an obvious factor and will play a strong role in days to come. Perhaps stock values will increase dramatically for the next weeks or even months. It is possible however; that we will first see a downswing in the general stock market and this will obviously have great impact on gold, silver and mining stocks. Constant monitoring is required in these uncertain times. Sunshine Profits is ready for the task. For more details, let's take a look at our precious metals correlation matrix.

This week’s correlation matrix shows only a small amount of critical information as the 10-day column to a considerable extent contradicts the 30-day one. Should this persist for several more days (meaning gold, silver and mining stocks rising along with the general stock market and against the USD Index, we could see the precious metals market top along with dollar's bottom.

Summing up, there has been a complete turnaround regarding the correlation recently between the gold, silver and mining stocks and the general stock market / USD Index. Further gains seem to be likely if the general stock market trends upward. The difficult call at this time is to project metals market trends in a period of general stock market decline. It is just too cloudy a situation to comment on at this time but, rest assured, Sunshine Profits will monitor this closely as the situation develops over the next week. Subscribers will be kept informed with a Market Alert when warranted. Our best guess here is that the way that the precious metals will respond to either breakout or breakdown on the general stock market is likely to mark the next big move in the sector.

At this point it seems that the precious metals market could become negatively correlated with the USD and then top when the dollar bottoms - just like it was many times in the past, especially prior to 2006 when gold was mainly USD-weakness-driven.

As mentioned at the beginning of this essay, we will also comment on gold's likely performance given the deflationary scenario. In fact, two of the questions that we've received in the past weeks were about gold's performance under deflationary scenario.

Generally, there are two opposing theories - one says that gold will fall just like every other asset during a deflation, while the second suggests that gold - being the ultimate form of cash - will thrive during a deflationary scenario. Let's begin by defining a deflation as a decrease in the general price level caused by a decrease in the money supply. The M3 money supply does indeed decline at this point.

In order to check arguments of both sides (is deflation bullish or bearish for gold) we should keep in mind the simple fact that we live in the world of fiat currencies - not backed by gold. Gold's value rose in the past during deflationary scenarios, as it was in fact cash. This is not the case right now, so this argument will not hold true under normal circumstances. However, it might become important during very serious financial turmoil periods, when the idea of fiat currency system will be widely questioned. We are far from this point in our opinion.

So, does gold go down in a big way? Not really. Given the current political environment, it seems that any deflationary scare will result in "stimulus packages", "quantitative easing" and other forms of injecting money into the economy, inevitably resulting in higher gold prices. Besides there can be other factors that could contribute to gold's rally - not only the increase in the money supply - for instance war tensions.

Of course, the negative M3 growth at this point may suggest temporarily lower prices, but that is in tune with what we've already written in this update. We don't think that it would mean the end of the current bull market in the precious metals - not until gold reaches $3000, or most likely $5-6000 or so (in today's dollars).

To make sure that you are notified once the new features 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 great and profitable week!

P. Radomski
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 Radomski Archive

© 2005-2019 - 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