Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Dow Short-term Stock Market Trend Analysis - 6th Mar 21
Intel Rocket Lake EXPLODE on Launch - 11th Gen CPU's RUN VERY HOT Bad Cinebench R20 Scores - 6th Mar 21
US & UK Head for Post Coronavirus Pandemic Lockdown Inflationary Economic BOOM - 6th Mar 21
FED Balance Sheet Current State - 5th Mar 21
The Global Vaccine Race Against Time and Variants - 5th Mar 21
US Treasury Yields Rally May Trigger A Crazy Ivan Event (Again) In Stock Market - 5th Mar 21
After Gold’s Slide, What Happens to Miners? - 5th Mar 21
Racism Pandemic Why UK Black and Asians NOT Getting Vaccinated - NHS Covid-19 BAME - 5th Mar 21
Get Ready for Inflation Mega-trend to Surge 2021 - 4th Mar 21
Stocks, Gold – Rebound or Dead Cat Bounce? - 4th Mar 21
The Top Technologies That Are Transforming the Casino Industry - 4th Mar 21
How to Get RICH Crypto Mining Bitcoin, Ethereum With NiceHash - 4th Mar 21
Coronavirus Pandemic Vaccines Indicator Current State - 3rd Mar 21
AI Tech Stocks Investing 2021 Buy Ratings, Levels and Valuations Explained - 3rd Mar 21
Stock Market Bull Trend in Jeopardy - 3rd Mar 21
New Global Reserve Currency? - 3rd Mar 21
Gold To Monetary Base Ratio Says No Hyperinflation - 3rd Mar 21
US Fed Grilled about Its Unsound Currency, Digital Currency Schemes - 3rd Mar 21
The Case Against Inflation - 3rd Mar 21
How to Start Crypto Mining Bitcoins, Ethereum with Your Desktop PC, Laptop with NiceHash - 3rd Mar 21
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Three Things that Could Halt Gold’s Run

Commodities / Gold and Silver 2010 Dec 28, 2010 - 09:45 AM GMT

By: Jordan_Roy_Byrne

Commodities

Best Financial Markets Analysis ArticleNormally we write about the things and conditions that cause precious metals to rise. While these things may be obvious, the corresponding rise in the bull market will not always be consistent and linear. Small and large corrections will occur along the way. Some will be purely technical while some have real drivers. There are three things that can precede a deep correction or consolidation in the precious metals complex.


Other Markets Strengthen

Precious metals perform best when strongly outperforming most other markets. They are at times an “anti-investment.” In other words, when stocks and/or commodities are healthy, there is going to be less demand for precious metals. This doesn’t mean precious metals will decline, it just means they won’t rise or rise as much.

Remember, stocks performed especially well from 2003 to 2006. Precious metals still performed well but not as well as in 2001 to 2003 or in 2007. In early 2009, Gold neared $1000 but stocks were set to begin a huge bounce, which evolved into a cyclical bull market. The first six months of said bounce caused Gold to consolidate before it would eventually break $1000.

Currently, stocks are performing well as are commodities led by energy. As a result, some investors feel they won’t need to invest in Gold if the “conventional” options are performing well. I expect this to continue in the early part of Q1 in 2011. This is partly why the precious metals complex is consolidating or correcting.

The Economy Recovers

The biggest issue and driving force for the bull market in precious metals is the sovereign debt situation. Inflation results from excess money and credit growth while hyperinflation or severe inflation results from the inability to grow out of the debt burden. The latter is more tied to the economy. 

It happens very quickly in small countries with small borrowing power. They accumulate too much debt, their economy weakens and as the economy fails to grow quickly, the market demands higher interest rates which eventually leads to default or printing money. Monetizing the debt (also known as printing money or quantitative easing) is one way to forestall the rising rates. This is what we are doing and what Europe and Japan have done. We can do it because we have a massively huge bond market compared to Greece, Argentina, Iceland, etc. For those who can’t figure out why Gold is rising or why this is a bull market, there is your hint.

If the economy would grow fast enough then debt to gdp would start to come down and the budget would come under control. This would lead to lower interest rates. Problem is, the US economy is growing well below trend in this “recovery.” Debt and interest service costs continue to grow faster. We would need to see above trend growth sustained for several years. If you believe this is reasonably possible or likely anytime soon, then I guess you believe pigs can fly. 

Technical Selloff

Silver in 2004, 2006 and recently, provides the best examples. The market reached a level where it was well above the moving averages. There was little chance of the market avoiding a correction or consolidation. The same could be said of Gold in 2006 and Q2 of 2008.

Since late 2008, Gold has followed a different pattern. It has gained for three to four months then corrected for one or two. This action is far more sustainable then a vertical move for several quarters. However, silver has reached a technically overbought condition, so it will need to consolidate for at least several months. Gold is less vulnerable at present.

Conclusion

Presently, other markets are performing better and that is providing resistance against a rise to new highs in precious metals. Silver is also technically overbought. A consolidation is needed to digest the huge gains and bring the market back to more of an equilibrium.

These are some of the conditions we always look for and are thinking about as 2011 dawns. We are gold bulls but realize corrections and consolidations are inevitable. Our goal is to make subscribers money but help them make money in a timely fashion. If this interests you, we invite you to consider a free 14-day trial to our service.

Good luck ahead!

Jordan Roy-Byrne, CMT
Jordan@thedailygold.com
http://www.thedailygold.com/newsletter

Trendsman” is an affiliate member of the Market Technicians Association (MTA) and is enrolled in their CMT Program, which certifies professionals in the field of technical analysis. He will be taking the final exam in Spring 07. Trendsman focuses on technical analysis but analyzes fundamentals and investor psychology in tandem with the charts. He credits his success to an immense love of the markets and an insatiable thirst for knowledge and profits.


© 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