Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

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

Gold Dramatic Correction Back into Buying Territory

Commodities / Gold & Silver Mar 24, 2008 - 08:14 AM GMT

By: Clive_Maund

Commodities

Best Financial Markets Analysis ArticleGold is back in buying territory after its dramatic correction back to key intermediate trendline support.

In the last update we were looking for gold to break out above the $1,000 level. It did and briefly got to about $1030 before it turned tail and dropped precipitously. Interestingly, the short-lived run at $1030 occurred last Sunday at the time of the Bear Stearns emergency, and the time when the crisis was at its most acute was the point at which gold topped out, which is what one would expect.


The action in both gold and silver early last week was short-term bearish, with gold backing off rapidly after its run at about $1030, leaving behind a bearish “gravestone doji” candlestick on its chart, and silver backed off from a run at its highs early this month, thus marking out a small Double Top. These bearish omens were noted and a warning that a possibly heavy reaction was imminent was posted on the site .

The size of the drop last week appears to have been due to the market suddenly becoming aware of the Fed taking action over a period of time to curtail money supply growth behind the highly publicized façade of big interest rate cuts. If they were and are in fact doing this, it would of course have deflationary implications and deflation is the kiss of death for commodity bull markets. This issue several very important questions. If they have been and are continuing to do this, then a tug-of-war situation must surely exist between deflationary and inflationary forces, for into the foreseeable future boatloads of new electronically created money are going to have to be created for the line of dominoes of collapsing major banks and other financial institutions, in addition to which other countries and trading blocs are likely to continue their policies of competitive devaluation, and even if the Fed succeeds in curtailing the rate of growth of liquidity it would be a Pyrrhic victory, for the current mess and mayhem in the global financial system DEMANDS rapid liquidity growth, and if it doesn't get it the result would be an almost instant credit gridlock leading to a deflationary implosion.

This brings us to the next important point, which is just how much control the Fed actually has in the present situation. One thing is clear and that is that if the Fed does have control of the situation, it has done a decidedly poor job of showing it these past 6 months or so. The Fed is thought to have about as much control of the current situation as a trucker does whose brakes have failed halfway down a steep canyon - he doesn't have control, he has influence. The truck is going to go over the cliff, we know that, but by skillful handling, he can significantly delay the point at which it hurtles over the cliff. So let's stand back and review the 2 main scenarios; the Fed succeeds in curtailing liquidity, which inevitably leads to a credit freeze and deflationary implosion.

The Fed obliges all comers and goes all out to save the big banks, brokerage houses and mortgage institutions from going under by manufacturing as much electronically created money as they need to avoid insolvency. This, given the gravity of the crisis, would lead to hyperinflation. However, there is a third route, which is a highly unsavory and prolonged period of stagflation, that would involve recession coupled with high inflation. This is essentially a muddle through situation in which deflation and inflation exist side by side - we have already seen this with house prices collapsing even as gasoline prices rise. This would be a situation in which most everyone loses. At this point it is of course not at all clear which of these scenarios will play out, and everyone involved in this giant mess appears to be taking it one day at a time, but what is clear is that gold is certainly set to continue to advance in both the hyperinflation and stagflation scenarios, and even in the deflationary implosion scenario, after a possible initial shock drop when most everything goes into the tank, it should then ascend as it would be “the only game in town”.

While the correction in gold and silver was an accident waiting to happen, on account of their being extremely overbought with record levels of bullish sentiment, it appears to have been exacerbated, as we have already noted, due to the deflationary implications of the recent liquidity drain that has caught the market's attention and led to the vicious sell-off this past week. It is the Catch 22 situation with regard to the money supply and the eventual chaos that will result, which should ensure an ongoing bull market in gold and silver as safe haven investments, even if commodities as a whole tank due to a global recession/depression. Let's not forget that gold and silver are REAL MONEY, despite the comprehensive and largely successful campaign over many years by the mainstream financial press to relegate them to the status of mere commodities in the minds of investors.

The 1-year chart for gold is most interesting at this time, as it reveals that despite the ferocity of the plunge last week, gold dropped back to - but not below on a closing basis - the support of the lower intermediate uptrend channel that we had delineated some weeks back, and it also fell into a zone of strong support arising from earlier sellers around the $900 level, and closed off its lows on Friday. What this means is that gold is back in buying territory, even if we see further modest retreat in coming days/weeks that results in a trendline break. A trendline break would be unlikely to lead to further significant losses - instead a trading range would likely form for a while probably above the upper support level shown on the chart centered on and above $900. Right now the RSI indicator shown at the top of the chart has dropped to a level which indicates that gold is deeply oversold short-term and due an immediate bounce.

The turnaround in the dollar last week after a severe and prolonged downtrend was of course another factor behind the savage correction in gold and silver. We had been monitoring the critically oversold condition of the dollar for some time, which almost guaranteed the emergence of a snapback rally. Although there is scope for the dollar to rally further back to the underside of the lower resistance level shown and the vicinity of its falling 50-day moving average, it is thought unlikely that it will get that far, on account of the dire fundamentals.

There has been some speculation in recent days that the reason why gold and silver fell so heavily last week was that a part of the rapidly dismembered carcass of Bear Sterns was a large gold position that got dumped onto the market. This may be possible but it seems far-fetched. What is more believable is that Bear Sterns may have been scapegoated because it went its own way and didn't play ball with the other big players on the block and is believed to have been heavily shorting the dollar.

So it was scuttled and JP Morgan, a major shareholder in a private corporation called the Federal Reserve, which just happens to have a lot of influence on the US economy, was granted first rights of salvage, the name of the game being to cherry pick the assets and farm the debts and trash off onto the taxpayer. The JP Morgan elite must feel like the islanders on that Scottish island Eriskay when a boat crammed full with crates of whisky was shipwrecked and washed onto the rocks, which story inspired a highly amusing film called Whisky Galore .

By Clive Maund
CliveMaund.com

© 2008 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2019 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

6 Critical Money Making Rules