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 Seasonal Trend Analysis - 23rd Oct 19
Gold Prices Stand to Rally on Brexit Delay - 23rd Oct 19
US Stock Markets “Roll Over” On Earnings and Economic Data At Channel Highs - 23rd Oct 19
Yes, Gold “Just Sits There” and That’s Quite a Feat - 23rd Oct 19
Downsizing – What to Watch Out For - 23rd Oct 19
Gold Price Has Not Corrected Enough - 23rd Oct 19
U-Turn or Perfect Storm? Globalization at Crossroads - 22nd Oct 19
Stock Market Indexes Struggle and TRAN suggests a possible top - 22nd Oct 19
Fake Numbers Fueling the Wage War on Wealth - 22nd Oct 19
A Look at Peak Debt - 22nd Oct 19
The Coming Great Global Debt Reset - 22nd Oct 19
GamStop Became Mandatory - 22nd Oct 19
Learn to Spot Reliable Trading Setups: ANY Market, Any Market Time Frame - 21st Oct 19
How To Secure A Debt Consolidation Loan Even If You Have A Bad Credit Rating - 21st Oct 19
Kids Teepee Tent Fun from Amazon by Lavievert Review - 15% Discount! - 21st Oct 19
Stock Market Stalls: Caution Ahead - 21st Oct 19
Stock Market Crash Setup? - 21st Oct 19
More Stock Market Congestion (Distribution) - 21st Oct 19
Revisiting “Black Monday Stock Market Crash October 19 1987 - 21st Oct 19
Land Rover Discovery Sports Out of Warranty Top Money Saving Tips - 21st Oct 19
Investing lessons from the 1987 Stock Market Crash From Who Beat it - 20th Oct 19
Trade Wars: Facts And Fallacies - 20th Oct 19
The Gold Stocks Correction and What Lays Ahead - 19th Oct 19
Gold during Global Monetary Ease - 19th Oct 19
US Treasury Bonds Pause Near Resistance Before The Next Rally - 18th Oct 19
The Biggest Housing Boom in US History Has Just Begun - 18th Oct 19
British Pound Brexit Chaos GBP Trend Forecast - 18th Oct 19
Stocks Don’t Care About Trump Impeachment - 17th Oct 19
Currencies Show A Shift to Safety And Maturity – What Does It Mean? - 17th Oct 19
Stock Market Future Projected Cycles - 17th Oct 19
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
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

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Silver Consolidation and Monetary Reforms Give Gold Seal of Approval

Commodities / Gold and Silver 2010 Nov 12, 2010 - 12:49 PM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleNow it’s official! The yellow metal has gotten the golden seal of approval. This week none other than the President of the World Bank said leading economies should consider readopting a modified global gold standard to guide currency movements. Writing in the Financial Times, Robert Zoellick, the bank’s president since 2007, says we need a successor to what he calls the “Bretton Woods II” system of floating currencies. 


Zoellick is not exactly calling for currencies to be backed by hard assets again and what he is proposing seems vague, but it seems like this idea of using gold as a fixed reference point is a small step in that direction.

The press has seized on his gold comment with front-page banner headlines even though Zoellick mentioned gold almost in passing as his fifth and last proposal. But the world press has ignored those items focusing instead on his statement about gold.

What can we say? Gold is sexy.

What we find interesting is that a figure of the stature of the president of the World Bank is saying on the record that gold could play some role in a new global currency system. Gold is being spoken about in high places. This underscores an obvious need for discussions on monetary reforms at the highest levels.

Zoellick's views reflect the discomfort that exists with the international system, where China's intervention to hold down the renminbi is blamed by the US and others for contributing to global account imbalances. There is also a growing loss of confidence primarily in the U.S. dollar whose value is expected to fall, especially in the light of the Fed's QE2.

Doubts about the overall monetary system are being felt at all levels. Investors worry that the Fed’s move last week to pump $600 billion into the nation’s banking system, as well as a surge in borrowing around the world, will undermine paper currencies, making gold a refuge once again. Over the last two months, the dollar has declined 6 percent against its principal peers, but gold has jumped 17 percent.

Pointers from the USD Index and the Stock Market

The quantitative easing step taken last week seems to have had the opposite effect on the USD Index when compared to what was expected. One theory is that there is a belief other markets will follow and become more intensive. Another thought is that since the step was widely publicized, markets had already reacted prior to the actual official announcement.  Market bought (here: sold) on rumor and sold (here: bought) on fact.

The short-term chart this week shows that the dollar reached a local bottom precisely at the cyclical turning point. This was also the case last August. Since this rally has been ongoing, gold, silver and mining stocks saw their rally end but prices did not plunge.

Consequently, once the USD does decline, the rally in the metals could be resumed.  The area marked with the red ellipse on the above chart includes what we believe to be the next local top for the USD Index.

The USD Index is relatively close to its local top and therefore a local bottom should be seen soon for precious metals. This may very well provide a good buying opportunity for investors in gold, silver, and mining stocks - we are not there yet.

In this week’s long-term general stock market chart, we see that the key 61.8 Fibonacci retracement level has still not been surpassed. This is noteworthy and could impact how quickly stocks move higher from here.

Not much more is seen in this chart but our analysis will continue with the short-term chart.

The short-term chart this week shows that volume levels have been relatively low after the $120 level was surpassed. Low volume has accompanied small declines back towards this level although the $120 level has not yet been reached on the downswing.  At the same time, the volume was higher during the daily upswing on Wednesday. This leads us to be bullish at this time. Further consolidation is possible but it is likely that the $120 level will hold and provide support.

Breakout or Correction – Which Will Strike?

With the abovementioned influences that USD Index and the general stock market have on the precious metals sector, it is important to monitor the way they could relate to gold, silver and mining stocks' prices. For more details, let's take a look at our correlation matrix.

This week we unveil the new, interactive version of our correlation matrix. What you can see here is only a static screenshot, but when you check it out directly in the tools section, and put your cursor over virtually anything within the table, a description will appear at the bottom. An explanation providing definition, importance and implications of each value should make the matrix much more useful than it was previously. That's right - the description changes dynamically, which means that it tells you implications of a particular value of a given coefficient.

You might have noticed that we had put the circle around the correlation coefficient between gold and the general stock market in the 30 days column. This is because we wanted to indicate that the description visible below the table comes exactly from this field. Please note that if the value of the coefficient was much different (for instance it would amount to 0.2 or so), we would display a different comment below the table. It took a lot of work to cover all cases for all pairs of assets for all terms (columns) (it's about 800 combinations that can be displayed), but we believe it was worth it.

Moving to the analysis itself - precious metals continue to be negatively correlated with the USD Index, although to a lesser extent. Gold, silver and mining stocks have held much of their recent gains even as the dollar rallied. It appears that metals have been moving in tune with the general stock market more so than against the dollar and it seems that watching the stocks has become more important recently for precious metals Investors. Consequently, another strong rally appears likely for the metals sector, but a breather first appears likely as well.

The final chart for today is the very-long-term silver chart.

Our first very long-term chart for silver is useful for comparing similar strong rallies over the years for the white metal. It allows us to see the size and pace of past trends and this is quite useful in analyzing current developments. By extrapolating from these prior patterns, we can now profess that silver maybe somewhat ahead of itself. The red, dashed lines have been used to show you how this rally would look like if it was like the previous ones. If this is indeed the case, a period of correction will likely be seen before silver moves even higher.

Ideally a steadier pace is preferred. Silver’s volatility frequently leads to situations such as we see today. RSI levels and weekly closing prices confirm the premise that a pause is quite likely very soon as several past trends similar to recent price and volume moves have followed this path. The likelihood is that the local top is quite close and some consolidation will be beneficial to a further rally, which could take silver to new highs (we will leave details regarding the targets to our Subscribers.)

Summing up, the white metal recently tried to breakout above the rising trend channel and failed. This leads us to believe that a pullback is very possible, as the current move above this level has not yet been verified. When historical data is analyzed in conjunction with this current development, a strong case is made for a period of consolidation soon to follow. Similar can be said about other parts of the precious metals sector.

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

© 2005-2019 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