Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Is Gold Market 2019 Like 2016?

Commodities / Gold & Silver 2019 Feb 15, 2019 - 12:38 PM GMT

By: Arkadiusz_Sieron

Commodities

Have you even wanted to travel in time? You can, at least when reading about the gold market. Many analysts claim that this year is like 2016 for the gold market. We invite you to read our today’s article about the similarities and differences between the precious metals market then and today and find out what do they imply for the gold prices.

Finally, the scientists have invented the time machine! This is at least what we hear from many people: that we went back in time to 2016. Indeed, there are certain similarities between the precious metals market then and today. What are they – and what do they imply for the gold prices?

Let’s look at the chart below, which shows the price of the yellow metal since December 2015. As one can see, gold has rallied since December 2018, just like three years earlier.


Chart 1: Gold prices (London P.M. Fix, in $) from December 2015 to January 2019.


However, the bullion also rallied at the beginning of 2017 and 2018, so why this year would be similar particularly to 2016? The next two charts should provide the answer.

Chart 2: S&P 500 Index from December 2015 to January 2019.

Chart 3: Effective Federal Funds Rate from December 2015 to January 2019.

As one can see, at the turn of 2015 and 2016, the global stock markets tumbled. The S&P 500 Index fell about 11 percent from December 2015 to February 2016, amid the poor Chinese economic data and following China’s stock collapse. As a consequence, the Fed paused its tightening cycle after the first hike in December 2015, raising interest rates not earlier than in December 2016. So, it lifted the federal funds rate only once in the whole year, although it forecasted four hikes. Under these conditions, gold soared about 20 percent between December 2015 and March 2016.

The similarities to 2015/2016 should now be obvious. The S&P 500 Index plunged about 16 percent in December 2018 (however, it partially rebounded since then). The Fed hiked interest rates that month, but it sent a clear dovish message, suggesting that it could be patient with further hawkish moves. So far, the price of the yellow metal jumped about 5 percent since December 2018.

We can therefore expect further increases, right? Not so fast. Similarities are great, but investors should not forget about differences. First of all, in 2015, the price of gold started its rally only after the FOMC meeting, in line with the “sell the rumor, buy the fact” strategy. Three years later, gold entered its upward trend already in November. It might suggests that gold may run out of steam earlier this time. In fact, this may have already happened.

Second, in 2016, the stock market plunge took the Fed by surprise, while this time, the Fed fully acknowledged the decline in stock prices by its December meeting – and acted accordingly, calming the financial markets. It’s not good for gold, which thrives when investors are afraid.

Third, in January 2016, the Bank of Japan introduced negative interest rates, amplifying investors’ worries in the marketplace. This time, nothing like that happened. It implies that the risk-on sentiment may return sooner in 2019, hitting the safe-haven assets, such as gold.

Fourth, as Przemysław Radomski, CFA showed in the Gold & Silver Trading Alerts, three years ago,

(…) miners lead the way and they continued to outperform and soar for weeks. The reality now is completely different – we have miners that are clearly underperforming (…) That’s simply a counter-trend, zig-zag-shaped correction – not the beginning of a major new uptrend.

Fifth, in early 2016 gold was after a multi-year decline and now it’s after a few months of price increases and within a few-year long consolidation, close to its upper border. While gold might have been oversold on a medium-term basis in early 2016, it’s definitely not the case right now.

To sum up, making analogies is tempting, as this is how we learn about the world. However, investors should watch out for false analogies, as they could result in losses. True, in 2016, there was a strong rally in precious metals, but it was triggered by the fear trade. Surely, both the stock market volatility and credit spreads also increased at the end of 2018, as the chart below shows.

Chart 8: The CBOE Volatily Index (green line, right axis) and BofA Merrill Lynch US High Yield CCC or Below Option-Adjusted Spread (red line, left axis) from December 2015 to January 2019.


However, as one can see, both the indices actually corrected, suggesting that the biggest fears are actually behind us. And please note that, although the VIX spiked higher, the credit spreads increased much more modestly this time. But what is the most important is that gold can sometimes rise because of fear, but for the long-term bull market to begin, we have to see the sustained decline in the US dollar. Also, spikes in the VIX tend to accompany tops in gold, not bottoms, therefore – as odd as it may sound – when the stocks are after severe volatility jump, it’s time to consider getting out of the gold market, not entering it.

Will we see a fall in the greenback? Well, the American currency seems to be overvalued according to several measures (such as the Big Mac Index). If the Fed pauses, trade wars end, and we see uptick in the Eurozone’s economic growth and yields, then the US dollar should weaken, supporting the yellow metal. The key word here, however, is “if”.

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron

Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron 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