Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Implications for Stock Market - Nadeem_Walayat
2.Odds of Winning Walkers Crisps Spell & Go olidays K, C and D Letters - Sami_Walayat
3.Massive Silver Price Rally During The Coming US Dollar Collapse - Hubert_Moolman
4.Pope Francis Calls For Worldwide Communist Government - Jeff_Berwick
5.EU Referendum Opinion Polls Neck and Neck Despite Operation Fear, Support BrExit Campaign - Nadeem_Walayat
6.David Morgan: There Will Soon Be a Run to Gold Like You've Never Seen Before - Mike Gleason
7.British Pound Soars on BrExit Hopes Despite Remain Establishment Fear Mongering - Nadeem_Walayat
8.Gold Price Possible $200 Rally - Bob_Loukas
9.The Federal Reserve is Not Going To Raise Interest Rates and Destroy Gold - Michael_Swanson
10.Silver Miners’ Q1’ 2016 Fundamentals - Zeal_LLC
Free Silver
Last 7 days
EU REMAIN Population Forecasts - England 4.1 million Explosion, London Migration Crisis - 28th May 16
A Guide to the Trump-Sanders Debate - 28th May 16
Gold And Silver – At Significant Support. New “Story” Developing - 28th May 16
The Next Systemic Lehman Event - New Scheiss Dollar & Gold Trade Standard - 27th May 16
Energy and Debt Crisis Point to Much Higher Silver, Metals Prices - 27th May 16
Gold Junior Stocks Q1 2016 Fundamentals - 27th May 16
These Crisis Markets Are Primed to Deliver Big Gains, Platinum Never Cheaper! - 27th May 16
Operation Black Vote BrExit Warning for the Wrong EU Referendum - 27th May 16
UK Immigration Crisis Hits New Extreme, Catastrophic ONS Migration Stats Ahead of EU Referendum - 27th May 16
Many of the World’s Best Investors Made Their Fortunes This Way…And You Can Too - 27th May 16
The Ugly Truth About Stock Market Manipulation and Gold Prices - 27th May 16
Gold Price Looking Vulnerable While Gold Stocks Correct - 27th May 16
The 5 Fatal Flaws of Trading - 27th May 16
The Next Big Crash Of The U.S. Economy Is Coming, Here’s Why - 27th May 16
A New Golden Bull or Has the Market Gone Too Far Too Fast? - 27th May 16
It Feels Like Inflation - 26th May 16
Negative Interest Rates Set to Propel the Dow Jones to the Stratosphere? - 26th May 16
S&P Significant Low has Occurred – Not Likely! - 26th May 16
Statistics for Funeral Planning in UK Grave - 26th May 16
Think Beyond Oil And Gold: Interview With Mike 'Mish' Shedlock - 26th May 16
Hard Times and False Mainstream Media Narratives - 26th May 16
Will The Swiss Guarantee 75,000 CHF For Every Family? - 26th May 16
Is There A Stocks Bear Market in Progress? - 26th May 16
Billionaires Are Wrong on Gold - 26th May 16
How NOT to Invest in the Gold Market - 26th May 16
The Black Swan Spotter...Which Saw the Oil-Crash coming; now says the “Invisible Hand” will push Brent to $85 by Christmas - 26th May 16
U.S. Household Debt Still Below 2008 Peak - 25th May 16
Brexit: Wrong Discussion, Wrong People, Wrong Arguments - 25th May 16
SPX is at Strong Resistance - 25th May 16
US Dollar, Back From the Grave? - 25th May 16
Gold : Just the Facts Ma’am - 25th May 16
The Worst Urban Crisis in History Could be Upon Us - 24th May 16
Death Crosses Across The Board Are IRREFUTABLE Stock Market Sell Signals - 24th May 16
Bitcoin Trading Alert: Bitcoin Price Stays below $450 - 24th May 16
Stock Market Crash Death Cross Doom Prevails - 23rd May 16
Did AMAT Chirp? Implications for the Economy and Gold - 23rd May 16
Stocks Extended Their Rebound On Friday - Will They Continue Higher? - 23rd May 16
UK Treasury Propaganda Warns of 3.6% Brexit Recession, the £64 Billion Question? - 23rd May 16
Stock Market Support Breached, But Not Broken! - 23rd May 16
George Osborne Warns of 18% Cheaper House Prices - BrExit for First Time Buyers - 22nd May 16
Gold Bull-Phase I Continues to Confound (The Trek to “Known Values”) - 22nd May 16 r
Avoiding a War in Space - 22nd May 16
Will Venezuela Be Forced to Embrace the US Dollar? - 21st May 16
Danish Central Bank Stumbles with Its Currency Peg to the Euro - 21st May 16
SPX Downtrend Underway - 21st May 16
George Osborne Warns of More Affordable UK Housing Market if BrExit Happens - 21st May 16
Gold And Silver 11th Hour: Globalists 10 v People 0 - 21st May 16
David Morgan: There Will Soon Be a Run to Gold Like You've Never Seen Before - 21st May 16
Gold Stocks Following Bull Analogs - 20th May 16
The Gold Chart That Has Central Banks Extremely Worried - 20th May 16
Silver Miners’ Q1’ 2016 Fundamentals - 20th May 16
Stock Market Rally At the End of the Road? - 20th May 16
British Pound Soars on BrExit Hopes Despite Remain Establishment Fear Mongering - 20th May 16
NASDAQ 100, FTSE, and British Pound - When Rare Market Data Screams, Listen  - 20th May 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

Gold and Silver Regaining Footing As Treasuries Make Bearish Reversal

Commodities / Gold and Silver 2012 Aug 03, 2012 - 12:07 PM GMT

By: Jeb_Handwerger

Commodities

Best Financial Markets Analysis ArticleWe have always regarded the markets as a grand casino subject to the manipulations of the Croupier and the House. This being said it is only rational to react in the face of the irrational. I remember speaking to a floor specialist who informed me that he reads the same price charts that most technicians do. This means we should be careful of any traps or head-feints at this critical juncture.

No doubt the patterns tell us that we are testing support levels and that technical damage has been inflicted on most stocks including the precious metals. The weak hands inform that the golden bubble may have been broken and the warning inscription written on the entrance to hell "abandon all hope, yea who enter here" may be applicable. We do not agree and may be considering this recent downward move in response to Bernanke and Draghi a fake out and that we may witness a reversal sooner rather than later.


Observe that in the midst of the carnage some positive notes are beginning to appear. We feel that this is a classical panic with all of the textbook characteristics of a selling capitulation. Bullish reversals may soon occur at oversold conditions and is providing long term gold and silver investors additional secondary buypoints.

Be not dismayed! The long range upward trajectory of the precious metals particularly gold is continuing higher and has considerably more to go. Factoring in inflation, gold and silver have yet to challenge inflation adjusted all time highs. Most industrial countries are trying to stimulate growth through accommodative easing and through record negative interest rates. Investors in five countries in Europe now face negative real rates. This means they are losing money with their savings in the bank. Many investors are holding the U.S. dollar which has one of the worst real interest rates. Do not forget behind the scenes M2 money supply has reached record levels. This historically leads to hyperinflation.

Global Money Supply Growth Highest in Over a Decade

While the amount of money in the economy has grown, the velocity is still weak as institutions are hoarding cash. One method to discourage this is through a devaluation or quantitative easing. Where will the cash go on the sidelines as investors try to exit? Just like in 2009 and 2010, cash went into precious metals and mining stocks. Gold Stock Trades believes that this may occur again in the second half of 2012.

That is why we are not encouraging investors to panic into the U.S. dollar at this time and sell their mining stocks and precious metals for pennies on the dollar. The media is trumpeting any bad news on precious metals that is fit to print. Let us take a deep breath and consider the long term picture before making any irrational moves.

The picture of gold and miners versus global currencies especially the Euro show that the long multi-year trends are still higher.

We have been told by some eminent pundits that there has been a meltdown below the 200 day moving average for the first time since early 2009 and that they are selling everything and are going short. We do not adhere to such actions. We believe the long term trend is being tested but we may find support for a reversal move higher.

A Pale Yellow - Gold Holdings Table

Instead, we note that investors are rattled and are raising cash, fleeing to U.S. dollars and treasuries, despite knowing that their investments will receive negative returns. Moreover, at times such as these, many nightmarish scenarios begin to haunt the markets. One is that European sovereign nations may sell their surprisingly substantial official gold holdings.

See the list published by the World Gold Council/International Monetary Fund to the right. Astonishingly, Spain has approximately four times the gold holdings as a share of GDP as the United States. Spain has 11.2% vs. The U.S. with 3.1%. The U.S. government debt is 94%, while Spain's government debt is 60%. Germany and France clock in at 5.8% and 5.3%. Are the dollar and U.S. treasuries such safe havens when looking at this table above?

This data may infer that gold may not be dumped by these countries helter-skelter, although investors may be led to believe that the sovereigns are selling. However, the troubled Eurozone nations may have been steadfast in not selling their gold holdings at this juncture.

We may doubt that the European's would resist pulling down the pillars of the temple and that Armageddon has not quite arrived. The Eurozone nations realize they are in need of cash, but still have not touched their precious metals. They realize just like we do that it is their only protection from the printing press. It is inevitable that the European nations and the U.S. will be forced to print to stimulate economic growth.

TLT (iShares Barclays 20+ Year Treasury Bond Fund) NYSE + BATS

The Euro may be the recipient of active shorting, which serves to drive down the Euro and benefit the U.S. dollar, which smells like a rose in comparison. We are witnessing dollar and U.S. debt strength because world currencies are weak. Eventually, precious metals will regain their footing as the ultimate currency, as treasuries and the U.S. dollar may be in the final stage of its record parabolic blowoff.

SLV Chart (iShares Silver Trust) NYSE + BATS

In the markets nothing lasts forever. Today's fashions become tomorrow's castoffs. The support for gold may be $1550 and $26 for silver, which is holding. Silver is still testing multi-year lows as well as the miners only to reverse higher. This is not a time to sell, when there is panic exacerbated by Central Bank misdirection combined with the summer doldrums.

It is not the first time that gold has had a number of drops from its long range upward trajectory. Undoubtedly, investors may question the fall from grace this year of gold and silver which saw highs of $1900 on gold and $50 on silver in 2011. Now they are trading near the lower parts of its yearly range.

Characteristically these metals have always been volatile and subject to breathtaking moves both upward and downward as they revert to their means. Do not forget the long term trend is moving higher and we must use this volatility to our advantage, rather than letting the irrational logic of the crowd divert us from our course.

There are enough reasons to explain these mercurial moves. Bernanke's reluctance to openly inject the markets with the benefits of quantitative easing in 2011, since the expiration of QE2 in April has knocked the wind out of most markets including precious metals.

However, let us look at a possible red flag . China which possesses many American dollars and is the largest single holder of U.S. Treasuries may be in danger of economic duress. All the more reason for the Federal Reserve to provide sanctuary for China, which according to the table published above has a limited amount of gold holdings, but at the same time is awash with greenbacks and U.S. paper. This may go a long way toward explaining the dominance of treasuries and dollars as temporary, liquid safe havens.

Note from the table above that China has the lowest gold holdings from the list of nations. Rather than feature the true value of precious metals in a shaky market, Bernanke is indeed trying to prevent an explosive move in precious metals by strengthening the U.S. dollar and long term treasuries at the same time. It remains to be seen whether Bernanke can stem the ebbs and flows of the precious metal tides.

In the past when precious metals and miners have exhibited the possibility of rising and breaking out in 2011 and the first half of 2012, Bernanke instead has squashed them and in fact strengthened the dollar and long term treasuries even when the rating agencies have downgraded the credit of the United States and may do so again shortly. How else can this parabolic move in bonds and dollars be explained when we have witnessed dramatic printing and money supply growth?

What the Fed is doing is to panic buyers into accepting low interest rates in the face of a possible hyperinflation. This is why there is no official "QE" announcement although aggressive printing is occurring behind the scenes. This play is far from the finale and we are not quitting on precious metals and miners.

Had Bernanke announced QE3, the markets would've put on a happier face. Instead, investors are left to rise in despair and get shot down in flames.

Nevertheless, the precious metals phoenix will emerge once again from its own embers. Remember, we are witnessing a perfect tsunami at this time. The smell of fear is in the air.

This is the summer doldrum selling season during which reason is thrown to the winds and stock prices descend below support. There is an old teaching that sometimes a chart will exceed support on the downside to shake out the weak hands as it reverses to the upside. Sooner rather than later, wounds may heal and present us with astonishing bargains to buy winter coats in the heat of the summer.

Subscribe to my free newsletter to get up to the minute updates on rare earths, uranium, gold and silver.

By Jeb Handwerger

http://goldstocktrades.com

© 2012 Copyright Jeb Handwerger- 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.


© 2005-2016 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

Catching a Falling Financial Knife