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
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelertoing Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

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

Is the Gold Price Correction Over?

Commodities / Gold and Silver 2017 May 23, 2017 - 12:12 PM GMT

By: The_Gold_Report

Commodities

With confidence in the post-election "Trump inflation trade" waning, Rudi Fronk and Jim Anthony, cofounders of Seabridge Gold, set out their thesis for the end of the current correction in the gold market.



On balance, we think the gold correction is over. There are still some small flies in the ointment; the gold stocks are underperforming gold. . .a negative divergence that is often a sign of weakness. . .and the speculative positioning on Comex is neutral rather than bullish. Silver is underperforming when it usually leads to the upside.

On the plus side, the spot gold chart looks good at this point. The price is now above both the 50 dma (50-day moving average) and the 200 dma. The 50 dma crossed above the 200 dma last Wednesday for the first time since falling below it back in November. The long-term downtrend line since 2011 is just $25 away at this point, at around $1,280.

But to understand why the current correction may be over, it is important to understand what drove it in the first place. Gold was in the middle of a standard, run-of-the-mill correction prior to the U.S. election. Comex positioning and sentiment readings were very bullish, and the market was in the process of working off the excesses when the election hit. Within days, a curious new narrative emerged called the reflation trade. The reasoning went like this: President Trump will follow through quickly on his promises of large tax cuts and higher spending on infrastructure and defense, thereby pumping up corporate profits; inflation will accelerate; the Fed will raise rates faster than inflation; and the dollar will soar. The bottom line of this narrative: Buy stocks and industrial commodities, and sell gold. The standard gold correction morphed into something worse.

There are some obvious logical problems with this chain of "logic." First, the Fed has never pre-emptively raised interest rates faster than inflation. Second, a higher dollar depresses export earnings and reduces inflation by undercutting commodity prices and the cost of imports. We also thought from the very beginning that there was almost no chance such a program could actually pass. It seems we were right about that.

Confidence in the Trump inflation trade is now fading. While it has taken longer than we had thought, the dollar is now weakening as uncertainties over Trump policies and Fed rate hikes have begun to assert themselves. The CME Fedwatch chart (above) is showing that the market now places the odds of a 25 basis point June rate hike (the grey line) at 73.8%, still high but down from 90% a little more than a week ago. The percentage expecting no rate hike in June (the blue line) has nearly tripled in that same time period to almost 36%.

This morning, the Fed's Jim Bullard stated in prepared remarks for a speech in St. Louis that "financial market readings since the March decision have moved in the opposite direction" of what would normally occur after a rate hike, adding "this may suggest that the FOMC's contemplated policy rate path is overly aggressive relative to actual incoming data on U.S. macroeconomic performance." Bullard admitted that U.S. macroeconomic data have been relatively weak, on balance, since the Federal Open Market Committee (FOMC) met in March and raised the Fed Funds Rate. He said that economic growth is unlikely "to move meaningfully" this year, noting that "tracking estimates for second-quarter real GDP growth suggest some improvement from the first quarter, but not enough to move the U.S. economy away from a regime characterized by 2 percent trend growth."

Bullard also said that inflation and inflation expectations "have surprised to the downside," noting that "even if the U.S. unemployment rate declines substantially further, the effects on inflation are likely to be small" and that "labor market improvement has been slowing, perhaps close to a trend pace, given the current labor productivity growth regime."

Bullard has played the role of leading spokesman before. Back in 2014, as the market was plunging, he famously stopped the bleeding when, in a Bloomberg interview, he said that a "logical response" to the tumbling market, would be to "delay the end of QE" and he strongly suggested that "QE4" would be considered to prevent further market losses. The S&Ps exploded.

The turn down in the data Bullard alludes to is easily seen in Citigroup's Economic Surprise Index, which nets out the economic reports that exceed expectations and those that fall short. Below is the evidence. Note that the S&P 500 price-earnings ratio has diverged sharply from the economic data.

In our view, Bullard has signaled the approaching demise of the Trump inflation trade. The equity markets have not yet got the memo. In the midst of a manic bubble, all news is still good news. . .rate hikes or no rate hikes, inflation or no inflation, accelerated economic growth or not. But the prop under the run up in stocks and the narrative behind the correction in gold are fading. Wile E. Coyote has sprinted out over the edge of the cliff; he just hasn't looked down yet, in our opinion. When he does, we think equities and gold will begin to change places.

This article is the collaboration of Rudi Fronk and Jim Anthony, cofounders of Seabridge Gold, and reflects the thinking that has helped make them successful gold investors. Rudi is the current Chairman and CEO of Seabridge and Jim is one of its largest shareholders. The authors are not registered or accredited as investment advisors. Information contained herein has been obtained from sources believed reliable but is not necessarily complete and accuracy is not guaranteed. Any securities mentioned on this site are not to be construed as investment or trading recommendations specifically for you. You must consult your own advisor for investment or trading advice. This article is for informational purposes only.

Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Disclosures:
1) Statements and opinions expressed are the opinions of Rudi Fronk and Jim Anthony and not of Streetwise Reports or its officers. The authors are wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the content preparation. The authors were not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the authors to publish or syndicate this article.
2) Seabridge Gold is a billboard sponsor of Streetwise Reports. Streetwise Reports does not accept stock in exchange for its services. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.


© 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