Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Analysis - Rumors of Metals' Demise are Greatly Exaggerated!

Commodities / Analysis & Strategy Jan 22, 2007 - 05:59 PM GMT

By: Dominick

Commodities

Even after last week's rally, there is still talk about the run in commodities being finished. If you watched CNBC, you heard over and over that money had rotated out of commodities and into tech and, later, into retail. But, as we proudly boasted last week, even in the midst of this so-called "collapse", gold and silver never broke their psychological $600 and $12 support levels. And the action since last weekend's update fit the proscription very closely. We said:

The daily charts below reveal that GLD is now very close to resistance at its 50-day moving average. A convincing move to $63 in the ETF would echo the signal that the spot market has cleared a path to $640 gold, but it will take more than technical impetus alone.


Gold and silver indeed got a lift off of Tuesday's PPI data, but with oil still heading lower, inflation concerns ebbed rather quickly and the dollar rallied back from early losses. GLD turned negative before spot gold could, as if traders were telling the physical market they were disinterested in the inflation number, and the spot price soon followed.

As was posted in the forums, the action on Tuesday illustrates exactly why the metals ETFs can be useful to gauge the speculative trading interest in gold and silver. The chart below shows that, while in the past GLD and IAU have made identical moves to gold futures, the ETFs are now less eager to follow the physical metal to its highs, and often extend its lows. Fast-moving fund managers are much more likely to buy the ETFs than venture into the futures markets, and their moves are the very stuff that fuels intraday volatility and ultimately produces parabolic spikes or breakdowns. The reduced confidence in the metals complex, as shown by the divergence on the left side of the chart, is at least partly attributable to the beating that the metals have taken in mainstream media.

Gold chart

The reaction to the CPI release was largely the same as Tuesday, though a bit more pronounced, with metals essentially bouncing off the resistance levels outlined last week and finding support without dramatic losses. GLD reached the heralded $63 mark briefly, only to reverse and arc back down. The rally on Friday, off a weak dollar, put the ETF right back at $63 and leaves us in roughly the same position as we ended last week, though, perhaps, a bit stronger technically. So, remember, we said a week ago:

In the short term, if next week's data continue to nourish the sentiment that the economy has rounded the bottom, a veritable soft landing, then metals have a realistic shot at overtaking resistance. The hotter the economy appears to become, the more willingness investors should have to get back into mining stocks and the greater the inflation concerns will become.

The same holds true for this week, and housing data in particular will likely continue to color perceptions of the economy's overall health. Technically, gold is poised to challenge $640 if the economic factors are right, and silver can take $13 and more if the environment is conducive to buying. The next chart shows gold poised to choose between the upper and lower channels of its multi-year uptrend. Remember, our most conservative estimate has the metal rejoining the lower trendline and, with an RSI in the upper 60's, any rally from here could soon see gold having fits and starts from bouts of profit-taking.

Gold long-term chart

As we look ahead, it's also important to remember there are always many factors affecting the dollar value of precious metals, and that they don't always act equally. In other words, sometimes gold trades with stocks, sometimes against them. Sometimes it moves opposite the dollar, but sometimes it can go with the dollar if a growing economy is causing higher inflation and demand for hard commodities. The latter has been the case recently and, as the chart below shows, gold has moved over the past week in lockstep with short term bond yields. This is not enough evidence to say that money is moving directly between treasuries and precious metals, but, over the past five days, gold has risen concurrently with buyers abandoning the 2-year note and dropped as they rushed back in.

s affecting the dollar value of precious metals

The next chart juxtaposes the major averages to show gold's outperformance as further evidence that the demise of precious metals is well overstated, and at least a suggestion of where bond market dollars may have been moving.

show gold's outperformance as further evidence that the demise of precious metals

BullionVault.com is currently giving a FREE gram of Swiss vaulted gold bullion to everyone who registers (worth $24)- to try the service and learn how to trade. Sign-up is easy, fast and credits you immediately

This update continues to be spot on about Fed expectations, after having boldly announced months ago that rate cut expectations were unjustified. This past week finally saw the fed funds futures price odds of a rate hike, even if it was a modest 2%. Unless there is calamity in the mortgage industry or some other exogenous terrorist or geopolitical event, it continues to appear the economy will grow and produce inflation until the Fed is ultimately forced to raise rates and soak up excess liquidity. Refer to last October's update titled “Gold and Goldilocks” for an examination of the metals complex's potential in an environment of rising interest rates.

Our opinions are on the record, but we should reiterate our caveats, nonetheless, that contained inflation expectations and a relatively buoyant dollar are exactly the preconditions the Fed would need to suddenly cut should a significant economic emergency begin to emerge from behind the curtain of easy credit and questionable economic data. And, along those lines, metals traders should be wary of contractions in the monetary base, the behind-the-scenes open market activities of which we've steadily cautioned, which could already be underway even now to offset the dramatic swelling in the fourth quarter of 2006 that appeared concurrent with a rally in both metals and equities.

Finally, thanks go out to everyone who's recently participated in the metals forum and shared their charts and thoughtful insight. Keep up the good work! And, if you're not part of the discussion yet, maybe you should be!

by Joe (oroborean)

www.tradingthecharts.com

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Clive
21 Sep 08, 16:58
Good content!

Hi all!

Very good web forum, great work and thank you for your service.

Excellent forum with fantastic references and reading.... well done indeed...


Post Comment

Only logged in users are allowed to post comments. Register/ Log in