Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18
Rising US Home Prices and Falling Sales - 8th Dec 18
Choosing Who the Autonomous Car Should Kill - 8th Dec 18
Stocks Selloff Boosting Gold - 8th Dec 18
Will Weak US Dollar Save Gold? - 7th Dec 18
This Is the End of Trump’s Economic Sugar High - 7th Dec 18
US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - 7th Dec 18
The Secret Weapon for Getting America 5G Ready - 7th Dec 18
These Oil Stocks Are a Ticking Time Bomb - 7th Dec 18
How Theresa May Put Britain on the Path Towards BrExit Civil War - 7th Dec 18
How easy is it to find a job in the UK iGaming industry? - 6th Dec 18
Curry's vs Jessops - Buying an Olympus TG-5 Tough Camera - 5th Dec 18
Yield Curve Harbinger of Stock Market Doom - 5th Dec 18
Stock Market Crashed While the Yield Curve Inverted - 5th Dec 18
Global Economic Outlook after Trump-Xi Trade War Timeout - 5th Dec 18
Stock Market Dow Plunge Following Fake US - China Trade War Truce - 5th Dec 18
Subverting BREXIT - British People vs Parliament Risks Revolution - 5th Dec 18
Profit from the Global Cannabis Boom by Investing in the Beverage Industry - 4th Dec 18
MP's Vote UK Government Behaving like a Dictatorship, in Contempt of Parliament - 4th Dec 18
Isn't It Amazing How The Fed Controls The Stock Market? - 4th Dec 18
Best Christmas LED String and Projector Lights for 2018 - Review - 4th Dec 18
The "Special 38" Markets You Should Trade ebook - 4th Dec 18
Subverting BrExit - AG Confirms May Backstop Deal Means UK Can NEVER LEAVE the EU! - 3rd Dec 18
The Bottled Water Bamboozle - 3rd Dec 18
Crude Oil After November’s Declines - 3rd Dec 18
Global Economic Perceptions Are Shifting - Asia China Markets Risks - 3rd Dec 18
Weekly Charts and Update on Equity Markets, FX Trades and Commodities - 3rd Dec 18
TICK TOCK, Counting Down to the Next Recession - 3rd Dec 18
Stock Market Key (Short-term) Support Holds - 3rd Dec 18
Stocks Bull Market Tops Are a Process - 3rd Dec 18
More Late-cycle Signs for the Stock Market and What’s Next - 3rd Dec 18
A Post-Powell View of USD, S&P 500 and Gold - 2nd Dec 18
Elliott Wave: SPX Decision Time Is Coming Soon - 2nd Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

What's the Impact on Gold Price of a Falling U.S. Dollar

Commodities / Gold and Silver 2010 Sep 12, 2010 - 12:25 PM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleIs it true that the dollar, the yen and Swiss franc may be better investments than gold if the world economy slips back into recession? That’s the claim of New York University Professor Nouriel Roubini, famous for having predicted the US housing bust and subsequent recession more than a year before they happened.


Roubini told European economic leaders at a recent conference in Italy that the “US has run out of bullets.” More quantitative easing (bond purchases) by the Federal Reserve is not going to make any difference. Treasury yields are already down to 2.5pc yet credit spreads are widening again. Monetary policy can boost liquidity but it can’t deal with solvency problems. During the conference Roubini said the dollar, the yen, and the Swiss franc may be better investments than gold if the world economy slips back into recession.

Gold will be one of the preferred safe haven investments in the case of a double dip recession,  "But in that situation, things like the dollar, the yen, the Swiss franc have more upside in a situation of rising risk aversion because they are much more liquid than the gold market", he said.

As evidence mounts that the U.S. rebound is running out of steam, we see evidence of investors rushing for bonds and other investments deemed to be secure. The price of gold has risen 14 percent this year. The Swiss franc rose to a record against the euro on Aug. 31 and the yen last month reached its strongest level against the dollar since 1995.

Roubini said:

I believe that gold is going to trade around current level. There are two extreme events that lead to a spike in gold. One is inflation, but we have no inflation in advanced economies. If anything, there is a risk of deflation. The other event in which gold prices go up is the risk of a global financial meltdown, and that tail risk has been reduced because we backstopped the financial system.

Without question Roubini was right about his predictions on the US housing bubble. That does not guarantee that he is right on gold. He doesn’t like gold. He got into a famous media fight with Jim Rogers last year when he said Rogers’ prediction that gold will reach at least $2,000 an ounce is “utter nonsense.” At that time he said maybe gold will reach $1,100.

In fact, in a 2007 video interview on TheStreet.com Roubini predicted gold prices will weaken. Roubini has been proved wrong on gold over several years. Now all we have to do is wait to see if Rogers, who predicted the start of the commodity rally in 1999, is right about this $2,000 target for gold.
 
In any case, it might turn out that Roubini will be right at some point about dollar, yen and Swiss france outperforming gold. But we believe that in a long range time frame, nothing will beat gold over the next few years. We don't think that gold would form the final top any lower than $5000, and silver any lower than $100.

For projections of what will happen in the near term in the precious metals market, let’s turn to the technical portion of the essay. This week the USD Index might be forming bearish head-and-shoulders formation and gold stocks are failing to break above the rising resistance line, just like gold is.

Let’s begin with analysis of the Euro Index (charts courtesy by http://stockcharts.com.)

As you may see on the chart below gold has recently moved more or less against the Euro.



At this point the odds favor the outcome that the correction has ended and we may see the rally in the euro resume very soon, which consequently could lead to lower values of gold, silver, and mining stocks.

In the long-term USD Index chart, there has been little excitement, much as was the case discussed previously in the Euro Index activity. Since the euro accounts for more than 50% of the USD Index activity, it is not surprising to see lackluster performance in both markets. A strong move in either direction normally has significant impact on the other index and, likewise, lack of direction breeds the same.

There has been somewhat sideways movement for some time now and from this perspective there is little evidence that any dramatic change will be seen soon. The local top may be already in. Should this not be the case, however, it is not likely that the index will move past the 86-level as the uncertainty across global markets appears to be contributing to minimal strength in the USD Index.

The precious metals sector has been somewhat in tune with the USD Index of late, taking weeks into account. For this reason, there is a possibility that any decline in the dollar’s value could negatively impact gold, silver, and mining stocks.

The short-term USD Index chart shows additional head-and-shoulders pattern development this week. Index levels moved slightly higher as for the fifth week in a row, the trend was the opposite of the previous week, perhaps forming second shoulder. Its completion could mean that USD Index is likely to move decisively below 82-level which is now the neck level.

Since the beginning of August, small declines have been seen with weekly increases sandwiched in between. In fact, Thursday’s closing index level was virtually identical to the close of both four and seven weeks ago. Additional declines at this time, especially if the index moves below the 82-level (the "neck" level of the head-and-shoulders formation) could indicate further declines as a continuation of that, which began in June.

Normally, (during most years of the current bull market) declines in the USD Index are positive news for precious metals since they are priced in US dollars. This has however, not been the case in the recent months as gold, silver and mining stocks seem to have been responding to the weakness in the euro rather than to the US dollar. The fact that especially in recent weeks, but generally the whole year, the precious metals have been euro weakness driven speaks volumes about the influence of the European investors on world-wide prices of gold, silver, and other precious metals.

The level of the USD Index is currently at its 50-day moving average, which proved to be a critical resistance/support level many times in the past. In addition, a likely turning point is at hand as indicated by the vertical black lines in the short-term chart.

The 50-day moving average has historically provided both support and resistance especially in recent several weeks. Given the positive relationship between the dollar and precious metals for the past month or so, there is a good possibility that a local top may soon emerge or actually be at hand in the metals markets.

With lackluster moves in both the Euro Index and USD Index continuing for yet another week, major impacts upon gold, silver and mining stocks have simply not been evident. The bearish head-and-shoulders pattern which continues to develop in the short-term USD Index chart may possibly begin to have a negative influence on the precious metal sector. For this reason, gold, silver and mining stocks must be closely watched to enable immediate identification of imminent local tops.

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
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 Radomski Archive

© 2005-2018 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