Best of the Week
Most Popular
1.Will UK Interest Rate Rises Crash House Prices? - Nadeem_Walayat
2.Full on Crash Alert for Major World Stock Markets... - Clive_Maund
3.Gold And Silver Market Bottoming? Big Rally Imminent? Reality Check Says NO - Michael_Noonan
4.The Coming Silver Price Rally Will Outperform All Previous Ones - Hubert_Moolman
5.The Trigger For The Upcoming Stock Crash - Harry_Dent
6.Imploding Department Store Results - James_Quinn
7.Dr. Copper is Speaking, are you Listening? ... - Rambus_Chartology
8.Pandemonium in the Stock Market, Dow falls 1,000 points in a week - EWI
9.Asia's Whirling Dervish of Devaluations Has Encircled China's Exports - Keith_Hilden
10.China Weakens the Yuan; Rattles Global Stock and Financial Markets - Gary_Dorsch
Last 5 days
OPEC Divorce And Self-Destruction Thanks To Saudi Crude Oil Strategy? - 1st Sept 15
The Beginning Of A New Financial / Stock Market Cycle - 1st Sept 15
Three Things Every Master Trader Knows About Trading Options - 1st Sept 15
Chinese Yuan Revolution? - 1st Sept 15
Take Advantage of Record-High Auto Sales… Before This Bubble Bursts - 1st Sept 15
Pondering Hitler's Legacy - 1st Sept 15
Mainstream Media Goes Berserk - 1st Sept 15
Your Decisive Stock Market Plan to Follow Whilst Most Investors Shiver With Fear - 1st Sept 15
Are There Stock and Financial Markets Investing Opportunities For The Remainder Of 2015 - 1st Sept 15
Crude Oil Price Forecast 2015 and 2016 - 1st Sept 15
REPO Window Hidden $Trillion QE Monthly Volume - 31st Aug 15
Silver and Warnings From Exponential Markets - 31st Aug 15
Stock Market Calls Fed’s Bluff - 31st Aug 15
Why Some ETFs Led the Stock Markets Down Last Week - 31st Aug 15
Stock Market Collapse - Take The Opportunity To Bail Before It’s Too Late! - 31st Aug 15
The Most Important Market Chart on The Planet - 31st Aug 15
Stock Market 50% Retracement - 31st Aug 15
Stock Market Crash Red Alert for 2nd Downwave... - 31st Aug 15
Independant Scotland 1 Year on, UK Civil War If the SNP Fanatics Had Succeeded - 30th Aug 15
Gold’s 7 Point Broadening Top - 30th Aug 15
The Day the Stock Market Shook the Earth: Takeaways From the Dow’s 1,000-Point Drop - 30th Aug 15
Gold Price Rally Marked by Short Covering - 30th Aug 15
Aging Stocks Bull Market - 29th Aug 15
Economic Destabilization, Financial Meltdown and the Rigging of the Shanghai Stock Market? - 29th Aug 15
The Stocks You Should Be Buying After the Market Drop - 29th Aug 15
How I Learned to Stop Worrying and Love Market Fluctuations - 28th Aug 15
China's Yuan Devaluation: Why It Was "Expected" - 28th Aug 15
Stocks Go Nuts But the Question Remains – Will the Rally Stick? - 28th Aug 15
Fed’s Stock Market Levitation is Failing - 28th Aug 15
The Eight Energy Systems Driving The Stock Market Rout - 28th Aug 15
Silver Sold, then Squeezed - 28th Aug 15
U.S. Economic Fundamentals 'Look Good' - Bullard of St. Louis Fed - 28th Aug 15
Stock Market Margin Calls Mount - 28th Aug 15
Einstein, Physics, Gold and The Formula To End Economic Decay - 28th Aug 15
The 10 Best Stocks for Options Trading Plays in This Market - 28th Aug 15
Economics of a Stock Market Crash - 28th Aug 15
Currency Wars Detonate; Gold Refuses to Budge - 28th Aug 15
UK Immigration Crisis Hits New Record, Trending Towards Becoming a Catastrophe - 28th Aug 15
The Ultimate Cash-Management Guide - 27th Aug 15
Why a Fed Rate Hike Could Be a Blessing for Gold Prices - 27th Aug 15
Why Devaluing the Yuan Won't Help China's Economy - 27th Aug 15
Stock Market Trend & Trade Signal Of the Decade - 27th Aug 15
Keep Your Eye On the Gold and Silver Bear - 27th Aug 15
Refugees Expose Europe’s Lack Of Decency - 27th Aug 15
How to Profit from China's Currency War - 27th Aug 15
How China's Currency Policies Will Change the World - 27th Aug 15
Chinese Medicine not Impressing Dr Copper - 27th Aug 15
Novel Biotech Novel Technology Platforms with Dramatic Growth Potential - 27th Aug 15
China Stocks Bear Market Crash, Are We Near the Bottom Yet? - 27th Aug 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Global Stocks Slide

What Gold's Relative Strength Means

Commodities / Gold and Silver 2012 Nov 15, 2012 - 04:36 AM GMT

By: Jordan_Roy_Byrne

Commodities

Best Financial Markets Analysis ArticleLongtime readers of our editorials know that we are big fans of intermarket analysis as well as ardent believers in the real price of gold (real POG) or relative Gold. No this has nothing to do with the paper market versus the physical market. The real POG is essentially the POG relative to other assets and markets. There are two reasons why we track this. First, Gold priced against the other currencies (specifically the Euro) has been a leading indicator for Gold in US$ terms. Second, Gold's performance against commodities (in general) is a leading indicator for margins of the miners. We discussed this a few weeks ago. Over the weekend, I reviewed Gold's performance in relative terms and it seems to have reasserted its uptrend.


In the chart below we graph Gold against six other markets (foreign currencies, equities, oil, industrial metals, and bonds). Note that Gold is in a steady uptrend against each market with the exception of bonds.

Gold priced in the inverse of the US$ basket is only 4% off its all time high while relative to oil and industrial metals, it just reached a one year high. Gold has turned down relative to bonds as they are close to testing their all-time high. Meanwhile, the yellow metal just matched a six-month high relative to the S&P 500.

So why should we care about all of this?

First, it tells us that Gold is in a healthy bullish position because its trending higher against all major markets with the exception of bonds. In other words, Gold is showing broad strength and is only being held back by the strength in bonds, which happens to be the largest market by a mile. Thus, when we see bonds soften, Gold should have a shot to retest its recent high.

The strength in the real POG usually reflects economic contraction or deceleration. After all, if things were going well we'd expect equities and economically sensitive commodities to outperform Gold. A rise in the real POG is a negative signal for the economy and asset markets. That in itself is a catalyst for central bank action which gives liftoff to precious metals and also explains why the real POG is a trusty leading indicator.

The current interpretation of the real POG bodes well for the underlying cyclical or intermediate term trend which turned bullish in May. While we are here, here are a few quick thoughts on the gold and silver shares. In the chart below we plot the two support lines for GDX, GDXJ and SIL. It appears these markets will test the lower support line.

GDX Market Vectors Gold Miners NYSE

Short term breadth indicators (courtesy of sentimentrader.com) show only 15% of gold stocks trading above their 10-day moving average and only 23% trading above their 50-day moving average. The last time both these ratios were beneath 20% was July, in which a tremendous rebound began.

To conclude, the real price of gold is trending bullish which implies good times ahead for precious metals in the coming months. The poor outlook for oil and industrial prices is a good thing for gold and silver producers as their margins could expand even further in the quarters ahead. The correction that began at the end of September is likely within days of ending. Now, with mining equities trading off their highs is the time to do your research and find the companies that will lead the next leg higher and outperform the gold stock sector.

If you'd be interested in professional guidance in this endeavor, then we invite you to learn more about our service.

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2011 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.

© 2005-2015 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

Biggest Debt Bomb in History