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
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold, Metals and US Dollar Analysis : Sailing the Seas of Liquidity

Commodities / Gold & Silver Apr 22, 2007 - 08:04 PM GMT

By: Dominick


Oroborean writes “A corrective dollar rally, as short-lived as it might be, could become a hurdle for metals going forward … When support finally kicks in, as it may have on Friday, there could be some correction and consolidation in metals. ”

~ Precious Points: Got Discipline? , April 14, 2007

Everywhere you turn, economists and commentators are talking up the benefit of the weak dollar – how it's good for exports, how it will boost the profit margins of multinational corporations. What you don't hear quite as much of is how it makes your cash savings worse less and less and how your wealth would be more than keeping pace with inflation if it was stored in metals.

Gold and silver have surged on a steep decline in the dollar index over recent weeks, but the last update warned that a relief rally might be due. In fact, the dollar did find an ounce of strength last week, causing the metals to briefly stumble. Core CPI was modest, but, even worse, this fed the lingering perception from two weeks ago that inflation in general is moderating. As a result, there was downward pressure on the long end of the yield curve, an overall decrease in TIPS spreads, and some recovery in the greenback.

But though traders might seize on the moment, the Federal Reserve is unlikely to have been soothed much by the single data set, especially considering the forces responsible for the mild inflation figures will probably dissipate by next month. What doesn't seen to be dissipating is the rate of increase in M2, expanding by an additional $18.7 billion last week alone.

Domestic liquidity is a concern for some, but the capital market is still showing no signs of a “credit crunch”, even though banks are restricting their home mortgage lending. The balance has been made up in business loans, which is apparent in the drop in corporate paper issuance. Corporate bonds have the requirement of being spent on business purposes, and last week's corporate paper data were consistent with the anemic capital expenditure recently lamented by economic optimists. Instead of investing in new production capacity, companies have preferred to spend their cash on stock buybacks and dividends, probably because they still see weakness for the economy in the short term. The important fact for metals, though, is that domestic liquidity remains intact.

Globally, where economic growth is robust and profound, liquidity is also quite adequate despite the upward trend of interest rates in Europe , the U.K. , and Japan , and now the expectation of rate hikes in China . In fact, whereas stock markets responded negatively in February to China 's attempts to dampen the pace of its growth, they seem to have now come to the position always held by this update. A bubble-like collapse of China 's economy is virtually inevitable if their growth is not managed responsibly. They have the positive example of their neighbors in Tokyo , who through strict regulations on banks, see low inflation even with very low lending rates. The Chinese seem committed to sustaining the viability of their economy, even if only for their own domestic political benefit. And, of course, a growing consumer class in China will only create new demand for all commodities, including precious metals.

Therefore, the long term outlook for metals remains bullish as the tide of liquidity stays high. But it also seems certain volatility will continue as the woes of the domestic housing market continue play out and the structural changes to China 's economy are integrated into the global market. New money continues to flow into stock markets, even though economists expect consumers will draw liquidity from stocks as their home equity diminishes. February's shakedown clearly wasn't enough to kickstart new investment in real estate. Another correction, maybe not as sharp, but for longer, could actually mark the bottom for housing, and if it does occur, metals will probably not escape unscathed. In the meanwhile, rising interest rates abroad work to make rates in the U.S. more accommodative, weakening the dollar and seeming to virtually preclude the Fed from lowering interest rates.

Short term, metals will continue to benefit from economic optimism and strong corporate earnings. Essentially, metals are neither at support or resistance and, in the absence of significant economic data early in the week, will be subject to the mood of the markets. Despite a minor struggle last week, the trend continues to be up until it's not. Weaker consumer confidence and existing home data could be the start of that reversal unless earnings keep investors buying at last week's fevered pitch.

Two key pieces of economic data released late next week, GDP and PCE, could also be important factors. GDP is forecast to come in low, but the deflator could reasonably be expected to be cold given the recent data. Gold and silver are either nearing the apex of their respective rallies or are waiting to break out to new highs. The chart below shows gold at vulnerable technical target range and in need of a spike above $720 in order to challenge last Mays highs. Certainly a renewed decline in the dollar could be that catalyst.

(chart by Dominick)

Silver, though recently underperforming, could make back most of its lost ground on a good week. The RSI does not look exhausted yet, and silver closed with more net speculative long positions despite finishing lower for the week. Though earnings could easily overshadow the metals in the early part of the week, a slow creep upward could easily become a higher jumping-off point if the economic data and global events materialize favorably. A member in the forums has also noted the bullish rising triangle pattern in the silver chart, further indication that silver's break should be to the upside.


Metals have been sailing the seas of liquidity and all seas are subject to ups and downs. In 2006, metals jumped more than 30% in three months. After a steep correction they've fought their way back near those levels. Now, with investors inoculated against a falling dollar by all the talk about exports and multinationals, the dollar index could slide below 80 before anyone starts getting nervous again. And if the metals can hang on until the next round of inflation data proves that inflation is not gone, big waves can be on the horizon.

by Joe Nicholson (oroborean)

This update is provided as general information and is not an investment recommendation. TTC accepts no liability whatsoever for any losses resulting from action taken based on the contents of its charts, commentaries, or price data. Securities and commodities markets involve inherent risk and not all positions are suitable for each individual.  Check with your licensed financial advisor or broker prior to taking any action.

© 2005-2019 - 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