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, Exciting Times

Commodities / Gold and Silver 2011 Oct 02, 2011 - 10:29 AM GMT

By: Adam_Brochert


Best Financial Markets Analysis ArticleThe big picture is shaping up quite nicely now that we have ended another quarter. A nasty cyclical global equity bear market has begun, the third of the ongoing secular bear market for "advanced" Western economies that began in 2000. As an advanced economy, Japan is the odd man out, as they have been mired in a secular equity bear market for almost 22 years now. There are some interesting "big picture" nuances to this cyclical bear as they relate to precious metals that should provide phenomenal profit opportunities for those with cash on hand.

First up, the rally I have been expecting in the US Dollar Index ($USD) has begun. Unlike many Gold bulls, I don't subscribe at all to the "dollar to zero next year" theory. I think cash is a great position right now and I was the opposite of bullish on Gold when Gold hit $1900/ounce recently. I was also bearish on Gold stocks at that time and told my subscribers to avoid them completely, though I wasn't brave enough to short them. For now, when looking at the "big picture," the US Dollar Index rally is absolutely set to continue. Here's a 6.5 year monthly chart of $USD thru Friday's close with my thoughts:

I am not saying the US Dollar (or any fiat currency) is a good long-term investment. Far from it. But the US Dollar is rising based on the same thing that happened in 2008. Many continue to deny that we are going through another 2008 episode and yet it is starting to happen right in front of our eyes. No, it's not exactly the same, but the same principle applies: forced de-leveraging due to a liquidity crisis. This is US Dollar positive and equity and commodity negative. People scream that Bernanke and his interventionalist compatriots around the world would never let it happen, but this is naive at best. Not only are they not as smart as the markets, but they are often far behind the curve when the crunch hits. Additionally, a cynic (realist?) would point out that another crisis would give central bankstaz and governments cover to do what they love to do: print more money, bailout banks and other corporations that contribute the most money to political campaigns, and enact ridiculous new rules and regulations that only benefit their friends.

In the meantime, the S&P 500 US stock market has all the classic markings of a new bear market. And this is one of the healthiest advanced economy stock market charts out there! Stocks are dangerous here and should be avoided in my opinion. Here's a 12.5 year monthly chart of the S&P 500 ($SPX) thru Friday's close:

During this emerging period of turmoil, however, the fundamental fuel to fire the next leg higher in Gold stocks is evolving right on cue. I believe that physical Gold held outside the banking system is a safer and better long term buy and hold opportunity compared with Gold stocks. However, I like to trade the miners when I think they are going to provide leverage to the Gold price (note to Gold stock bulls: they often don't). We are fast approaching one of those good times to be long Gold stocks. The Gold to commodities ratio (or Gold to oil ratio if you wish) gives us an idea of whether the operating margins for producing Gold stocks are expanding or contracting, all other things being equal (and all other things are never equal, but this is a "macro" sector analysis data point). If the Gold price is rising faster than the variable costs of getting Gold out of the ground (e.g., energy), this is good for profit margins. When profit margins are expanding, it is rare that stock prices don't eventually follow suit, although the timing is the tricky part for traders.

In any case, here is a 6.5 month chart of the Gold ($GOLD) to commodities (using $CCI as a proxy) ratio using a monthly plot of $GOLD:$CCI:

The future's so bright for Gold miners that they've gotta wear shades according to this chart. And I don't think the move higher in this ratio is done yet. I see an explosive move off the bottom once it comes for Gold stocks, but I don't think we're there yet. However, soon we should see yet another epic buying opportunity (a la 2008) in the Gold mining sector. We may have already seen the bottom in the Gold price, but we will likely need to re-test it, whether the re-test ends up being slightly lower or higher than the recent low near $1550. The speculative fever in Gold has been broken for the short to intermediate term, a healthy thing. Trust me when I tell you that this fever will come back into the Gold market soon and eventually rage out of control. Are you buying Gold now while prices are low or will you wait until prices are higher again and then kick yourself for not buying while there was a sale?

The Dow to Gold ratio will hit 2 before this secular cycle ends, and we may well go below 1 before this mess is over. Specific trading recommendations reserved for subscribers.

Adam Brochert

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.

© 2011 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 - 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