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
Try The “Compounding Capital Gains” Strategy Today - 26th Oct 20
UK Coronavirus Broken Test and Trace System, 5 Days for Covid-19 Results! - 26th Oct 20
How the Coronavirus is Exacerbating Global Inequality, Hunger - 26th Oct 20
The Top Gold Stock for 2021 - 26th Oct 20
Corporate Earnings Season: Here's What Stock Investors Need to Know - 25th Oct 20
�� Halloween 2020 TESCO Supermarkes Shoppers Covid Panic Buying! �� - 25th Oct 20
Three Unstoppable Forces Set to Drive Silver Prices - 25th Oct 20
Car Insurance And Insurance Claims and Options - 25th Oct 20
Best Pressure Washer Review - Karcher K7 Full Control Unboxing - 25th Oct 20
Further Gold Price Pressure as the USDX Is About to Rally - 23rd Oct 20
Nasdaq Retests 11,735 Support - 23rd Oct 20
America’s Political and Financial Institutions Are Broken - 23rd Oct 20
Sayonara U.S.A. - 23rd Oct 20
Economic Contractions Overshadow ASEAN-6 Recovery - 23rd Oct 20
Doji Clusters Show Clear Support Ranges for Stock Market S&P500 Index - 23rd Oct 20
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

DELEVERAGING- Gold and Commodities Teetering on the Brink of a Bear Market?

Commodities / Financial Markets Mar 20, 2008 - 02:57 AM GMT

By: Nadeem_Walayat

Commodities

Best Financial Markets Analysis ArticleGold and other commodities plunged below key short-term support levels following Tuesdays US Interest rate cut to 2.25%. The consensus seems to see this as a healthy correction or is this a signal for a potential end of the commodities bull market?

My view for some months has been that the west will move from a period of stagflation (the present) to a period of deflation towards the end of this year. Therefore at some point during this year the commodities bull markets would be expected to recognise this change in fundamentals and peak well before deflation makes itself evident. The major trend expectations are illustrated in the below graph from an earlier article on the current stagflation and future deflation prospects.


Back to Gold and other Commodities

Gold bug fever has been building up during the latest run up from $770 to new time highs above $1020. News headlines of gold breaking $1000 has seen many, many people across the world cashing in their jewelry much as occurred during the Jan 1980 peak in commodities in the lead up to the 1980 election as the US Fed raised interest rates to bring inflation under control. My current expectation is for the Fed to raise rates following the US election but the rate rises are expected to be muted and not longstanding as inflation is much less of a problem this time around as we have the ongoing escalating deflationary impact of the Great Deleveraging of the Derivatives Market of 2008.

Gold and Commodities are NOT immune to the impact of deleveraging, as evident by the sharp drop in Gold yesterday. Given the amount of volatility and uncertainty on a day to day basis, as we witnessed by the Bear Stearns Bust last week and the attack on HBOS by hedge funds this week that apparently tried to take out Britain's biggest mortgage bank. The FSA (UK regulator) launched an investigation into the banks trading and those responsible for starting the rumours ..rumours? I would have thought that acting on market moving rumours is part and parcel of day trading ??? So I don't completely understand what the FSA is hoping to achieve through its investigation into 'rumours'.

The deflationary impact of the deleveraging may be to such an extent by November 08 that I could scrap the prospects for US interest rate rises during 2009 , especially if US CPI inflation has started to fall by then.

Gold Current Technical Picture

The gold price plunge to $940 (and I have to say uncannily called by Mike Paulenoff just before the US Interest rate cut on Tuesday) on my reading of the charts signals the start of a significant multi-month downtrend which is inline with my earlier expectations of a bearish trend in commodities into Mid 2008 from an March peak. The chart shows a trend targeting a significant decline towards the $850 zone. On making a base around $850 gold should resume its up trend towards the new highs set above $1000. Its behavior at that point will determine whether gold will make a blow off top well above $1000 or a double top pattern before commencing upon an anticipated deflationary multi-year bear market.

Agricultural Commodities

I have bought into the impact of climate change, population growth and emerging markets middle classes that support the view for strongly bullish agricultural commodities for many years. Though the run ups to date in the soft commodities do require some speculative unwinding which is now starting to take place. So I view any significant downturn in the agricultural commodities sector as an opportunity to accumulate good food growing stocks.

Crude Oil and Oil & Natural Gas Companies

Peak Oil is real, its not a case of speculative opinion so there is no doubt in my mind that investments in Oil companies remain good long-term investments, despite what the crude oil price does in the immediate future. Companies such as Shell and BP are trading on P/E ratios of less than 10 ! That's not indicative of being bid up to $110 bull market mania levels as the crude oil price has, this despite the Pseudo Democratic Russian Government changing the Russian Oil contract rules as it goes along which tends to hit oil companies that have invested billions in Russia's energy resources.

Yes crude is headed higher in the long run, but a run up of over 40% over mere months is not a sustainable trend. So expect crude oil to follow gold lower to back towards $90 from the current $103. The key here to weathering downturns in the commodities sector is to focus on high dividend paying companies that have a good track record of sticking to the dividend payments. The same goes for Natural Gas companies i.e. long-term investments in high dividend paying companies.

US Dollar Bottom?

The implications of a forward deflationary scenario are that the US dollar will make a bottom this year and rally .Technically the USDX has fallen to new all time lows and thus there is no pre-existing support that can be referred to, therefore this requires the US dollar to develop an upward trend before a bottom can be called. A bullish scenario would require the USD to rally all the way to above USDX 78 from the current level of 72. After it breaches above 78, the dollar needs to make a base on the subsequent decline as indicated in the above chart to give it any chance of signaling a major change in trend.

Emerging Market Stock Markets

Still tumbling and unwinding their over valued and over-leveraged state. I am eager to accumulate emerging markets at apparently knock down prices, but need to await better technical charting pictures. The downturns to date have fulfilled earlier targets for the asian indices, which in Japan's case 'a basket case investment' having fallen out of its bottom, is not surprising!

China - I sold out of China in October due to ridiculous valuations, and see very little reason to get back in, about 2 weeks ago I wrote that investors in China need to watch out for the dictatorship sending in the tanks to quash any dissent amongst the populous, this is exactly what happened this week! This coupled with high market valuations still makes china an avoid, though having declined through its 4000 target, it is now no longer 'You would have to be MAD to buy into this market' investment. Watch for a major update on the global stock markets in the coming week as the emerging markets are now moving into sustainable up trend territories.

Your deleveraged analyst

By Nadeem Walayat

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 120 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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 trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Attention Editors and Publishers! - You have permission to republish THIS article if published in its entirety, including attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Dominic
20 Mar 08, 04:27
FSA rumour action is easy

In the UK, its illegal to spread misinformation in an attempt to distort the market.

Its also illegal to tell anyone anything you know that shouldnt be public knowledge yet, like HBOS needing a BoE bailout.

So, either the people who started the rumour broke insider trading laws, or they broke trading laws.


Don W
23 Mar 08, 12:47
DELEVERAGING- Gold and Commodities-Alice In Wonderland

We are seeing a doom in fiat currency as expressed in oil and food comodity prices which is always expressed in precious metals prices. What praytell will reverse that trend?

With a flight to quality as fiat fails to dominate energy prices or food prices, the metals markets will go simply ballistic and the writer will suffer great humilation.

Count On It.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules