Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16
Vauxhall Zafira Fires - Second Recall Issued - Inspection Before Bursting into Flames? - 21st Aug 16
Will the Stock Market Bubble Pop Regardless if the FED Never Raises Rates? - 21st Aug 16
US Government Spending - 3 Big Stories Not Being Covered – Part III - 21st Aug 16
Silver Analysis - 20th Aug 16
SPX New Highs, Correction Next? - 20th Aug 16
Housing Bubble - The Marginal Buyer Holds The Pin That Pops Every Asset Bubble - 20th Aug 16
Gold Miners Q2 2016 Fundamentals - 19th Aug 16
Which Price Ratio Matters Most in a Fiat Ponzi? - 19th Aug 16
Big Policies, Bigger Failures - 19th Aug 16
Higher Crude Oil’s Prices and USD/CAD - 19th Aug 16
Here’s Why You Should Look for Dividend Stocks and How - 19th Aug 16
Deglobalization Already Underway — 4 Technologies That Will Speed It Up - 19th Aug 16
These 6 Charts Show Why the Average American Is Fed Up - 18th Aug 16
SPX Easing Lower - 18th Aug 16
Low / Negative Interst Rate’s Legacy - 18th Aug 16
The 45th Anniversary of The Most Destructive Event In Modern Monetary History - 18th Aug 16
USDU - An Important Perspective on the US Dollar - 17th Aug 16
SPX Completes Wave 1 Decline - 17th Aug 16
How to Quickly Spot Common Fibonacci Ratios on a Chart - 17th Aug 16
When Does a Forecast Become a Trade? - 17th Aug 16
Kondratiev Wave - The Financial Winter Is Nearing! - 17th Aug 16
Learn "The 4 Best Elliott Waves to Trade -- and How to Trade Them" - 16th Aug 16
Stock Market Bears Turning Bullish At New All Time Highs - Time to Get Worried? - 15th Aug 16
Job Seekers Sacrificed to the Inflation Gods - 15th Aug 16
A Look At Commodities and Financial Markets Trading Week Ahead - 15th Aug 16
Stock Market New Top Forming? - 15th Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

How to Trade Elliott Waves

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.

© 2005-2016 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