Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Gold Short-term Overbought, Against Strong Longterm Bullish Trend

Commodities / Gold & Silver 2009 Jan 06, 2009 - 03:35 PM GMT

By: Ned_W_Schmidt

Commodities Best Financial Markets Analysis ArticleThe Era of Simple Solutions continues to unfold. For every complex problem, as the wise man once said, there is a simple solution, that is wrong. Into the abyss of collapsing financial institutions rode the Federal Reserve, with a check book in each hand. The crowd went wild over this simple solution. And in response to the fundamental failure of U.S. auto companies, welfare checks were mailed to them. But yet, that is not enough. As a remedy for the economic ills brought on by the housing debt bubble, the Obama government will borrow about $2.5 trillion dollars in the coming year. One of those trillion dollars will be frittered away on Congressional pork and mailing checks to voters.


The question is simple. If debt is the solution to economic ills, why is the U.S. economy plunging into recession? Or, is the reason the U.S. economy is plunging into recession because of too much debt?

In this week's first chart is plotted the year-to-year change in the size of the Federal Reserve's balance sheet. In particular, it is the asset side of the balance sheet. That is where so much of the questionable debt created in recent years now resides. Federal Reserve has now purchased or taken as collateral assets in such quantity that its balance sheet, adjusted, is almost a 130% larger than a year ago . Never in the history of any major nation has so much questionable debt been monetized by the central bank.

General consensus among main stream economists is that if the Federal Reserve had acted aggressively, as it is now doing, the Great Depression might have been voided or avoided, your choice. Few, if any, of the advocates for this policy were critical of the previous policies of the central banks which were the root cause of the current economic mess. If any immediate criticism might exist, it is the assumption that all unintended or unexpected consequences of this “banana republic” monetary policy will be positive.

Our second chart, considers one consequence of a central bank balance sheet growing without restraint. Plotted in that chart is the annualized growth rate for the U.S. money supply, M-1 and M-2. These measures are calculated from the approximate start of Federal Reserve intervention. M-1, NSA, is growing at an annualized rate of more than 40%. We are led to believe that this plethora of money can only have positive consequences. Only good is presumed to come about from a “printing press” in maximum on mode. And note, these measures do not yet fully reflect the growth of the balance sheet of the Federal Reserve. This is only the beginning!

If a 120+% growth rate for Federal Reserve assets and a 40+% growth rate for the U.S. money supply are good, only great may yet to come. What if the U.S. money supply should double, or rise by 100%. Will only positive economic consequences follow from that? Is some skepticism unreasonable?

One consequence of these developments is shown in the last chart of our dollar index, one not distorted as the popularly used measure. The shortage of U.S. dollars has been remedied, and the value of the dollar has topped . That topping of the dollar has been paralleled by a rise in the dollar price of Gold. While moving into a new down trend, the U.S.$ is over sold. A bounce, such as that which developed on Monday, is likely. It should then move into a negatively sloped channel. A reasonable target for the dollar's fall is 50%.

While all of this is extremely positive for the price of Gold, none of it really a secret. Gold has moved higher in part due to the developing deluge of U.S. dollars. Year end window dressing by portfolio managers and buying by momentum players have also helped Gold rise. However, $Gold does seem to be somewhat over bought as this week opened. A resting period is possible that should allow the over bought condition to dissipate. Investors should prepare to buy Gold if any price weakness develops as new year giddiness and Obama euphoria unfold.

By Ned W Schmidt CFA, CEBS

Copyright © 2008 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html

Ned W Schmidt 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