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
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 Remains Weak In This Disinflationary Environment

Commodities / Gold and Silver 2016 Jan 26, 2016 - 06:47 AM GMT

By: InvestingHaven

Commodities

Gold is struggling. Gold bulls will tell you that the yellow metal is doing great, as it has gone up since the start of the year, while stocks and most other commodities have come down. That is obviously only part of the story. As fear among investors has exploded in recent weeks, one would expect gold’s fear trade character to manifest itself. So far, the fear trade has been contained.


Gold’s trend is still down, until proven otherwise. Our chart tells a clear story: after a consolidation period in 2012 and a trend change (see in red on the chart below), gold has been moving in a clear trend channel. Since last January, the yellow metal has failed to even test its resistance line.

So the question really is what we can derive from the leading indicators in the precious metals complex.

One of the indicators, according to our methodology, is the futures market structure, particularly the short positions of commercial traders. In order to understand the underlying dynamics, we use an analogy: the faster commercial net short positions increase, the more stopping power they create to cap a rally. In that context, one can clearly see in the lower pane of the next chart how commercial traders are capping rallies as every time gold’s price nears resistance (since 2012). Readers can do the exercise by comparing the peaks since 2013 on the chart above, and see how that coincides with peaks in net short positions of commercial traders on the chart below (blue bars, lower pane).

Today’s futures positions are still relatively low, and the rate of change is low as well, as indicated with the green rectangle. We interpret this as ‘there is sufficient upside potential’ but probably within the boundaries of the downtrend. We will not get excited about gold until it proves able to break out of its trend channel.

One sidenote: it could be an encouraging sign for gold bulls that commercial traders need increasingly more stopping power (read: higher short positions) to cap the rallies, a trend started in the summer of 2013. We don’t read too much in that trend, at least not yet, but we keep a close eye on it.

It is hard to imagine that gold could perform well after such a huge performance of the U.S. dollar. It is no understatement to say that the dollar has recently confirmed its secular breakout. Since August of 2014, the dollar has put enormous pressure on markets, and, particularly, crude oil, after a monster rally of 30% in less than a year. That has only happened before in 1997, and we know from that time period that pressure eased after the dollar’s first leg up. If history is any guide, we will see a continuation of the bull market in the U.S. dollar but with less pressure on other segments on the market.

A strong dollar, however, is deflationary (or disinflationary at best). And this is a key concern for precious metals. Low inflation expectations are THE key driver for precious metals, period.

The head of the European and U.S. central banks are struggling with ‘their inflation target’. The Financial Times wrote earlier this month that the ECB has missed its inflation policy target of 2 pct for four consecutive years. “The target has lost credibility. Once people have lost confidence in an inflation target, it becomes very hard for the central bank to persuade them to trust the target again.”

Mrs. Yellen has also difficulties achieving the 2 pct inflation rate, a key objective of U.S. monetary policy. Bloomberg notes that the inflation rate could have risen with 11 pct year-on-year (which is a relative increase), but “the latest advance will curb already slowing economic growth and put downward pressure on an inflation rate that the Fed judges is too low as it is.”

For clarity, we are not saying that we agree with any of these objectives, or policies. We are simply looking for leading indicators for the precious metals complex, and inflation expectations is known to be one of them.

A third indicator is the gold mining sector. Gold miners are consolidating around their lows since last summer. The charts of gold mining indexes like the HUI or GDX are so boring we even do not include them here. The message from the gold mining sector is one of weakness, even with a crashing crude oil price (one of the key input costs for mines).

A chart worth including, however, is the stocks to gold miners ratio, not only because intermarket dynamics are a fundamental aspect in our methodology, but also because stocks have been weak in recent months. Even in that context the ratio has not been able to reverse its trend, as seen on the next chart. In our own words: gold miners confirm what the other indicators are telegraphing.

CONCLUSION:

Gold remains weak, and its leading indicators do not signal any strength. We closely watch the rate of change of net shorts position of commercial traders, as well as strength in the U.S. dollar (read: disinflationary pressure). Gold miners should rise sharply with a break out of gold’s trend channel, before even thinking of a trend reversal.

http://investinghaven.com

Analyst Team
The team has +15 years of experience in global markets. Their methodology is unique and effective, yet easy to understand; it is based on chart analysis combined with intermarket / fundamental / sentiment analysis. The work of the team appeared on major financial outlets like FinancialSense, SeekingAlpha, MarketWatch, ...

Copyright © 2016 Investing Haven - 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.


© 2005-2019 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