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
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
Why Tether USDT, Stable Scam Coins Could COLLAPSE the Crypto Markets - Black Swan 2021 - 6th Jun 21
Stock Market: 4 Tips for Investing in Gold - 6th Jun 21
Apple (AAPL) Summer Correction Stock Trend Analysis - 5th Jun 21
Stock Market Sentiment Speaks: I 'Believe' We Rally Into A June Swoon - 5th Jun 21
Stock Market Russell 2000 After Reaching A Trend Channel High Flags Out - 5th Jun 21
Money Is Cheap, Own Gold - 5th Jun 21
Bitcoin and Ravencoin Cryptos CRASH Bear Market Buying Levels Price Targets - 4th Jun 21
Scan Computers - How to Test New Systems CPU, GPU and Hard Drive Stability With Free Software - 4th Jun 21
Hedge Funds Getting Bullish on Gold - 4th Jun 21
THERE ARE NO SOLUTIONS When the Media is the VIRUS - 4th Jun 21
Investors Who Blindly Trust the ‘Experts’ Will Get Left Behind - 4th Jun 21
US Stock Market Indexes Consolidate Into Flagging Pattern – Watch For Aggressive Trending Soon - 4th Jun 21
Microsoft (MSFT) Stock Trend Analysis - 3rd Jun 21
No More Market Bloodbath – Beyond Cryptos - 3rd Jun 21
Bank run, or run from the banks? - 3rd Jun 21
This Chart Shows When Gold Stocks Will Explode - 3rd Jun 21
The Meaning Behind Gold’s Triple Top - 2nd Jun 21
Stock Market Breakout Or Breakdown – What Does The Next Big Trend Look Like? - 2nd Jun 21
Biden’s Alternate Inflation Universe - 2nd Jun 21
What You Should Know Before Buying Car Insurance - 2nd Jun 21
Amazon (AMZN) Stock Summer Prime Day Discount Sale - 1st Jun 21
Gold Investor's Survival Guide - 1st Jun 21
Silver and Copper to Benefit from Global Electrification Push - 1st Jun 21
Will Gold Shine Under Bidenomics? - 1st Jun 21
Stock Market Buy the Dip, Again?! - 1st Jun 21
Stock Market Consolidation Ahead - 1st Jun 21
Stock Market Summer Correction Review, Crypto CRASH, Bitcoin Bear Market Initial Targets - 31st May 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

S&P500 May Hold Clues to Gold and Silver Peak

Commodities / Gold and Silver 2011 May 03, 2011 - 01:10 AM GMT

By: J_W_Jones

Commodities

Best Financial Markets Analysis ArticleThe single biggest news event this week besides the Royal Wedding (who actually cares) was Federal Reserve Chairman Ben Bernanke’s televised press conference. The Federal Reserve is attempting to appear more transparent after coming under pressure from the United States Congress because of their obscure and potentially nefarious operation. For most Americans, Ben Bernanke is someone they likely have never even heard of, but on Wednesday Mr. Bernanke got to bask in the sunlight that is generally only reserved for public elites such as celebrities, pro athletes, and the President of the United States.


While Chairman Bernanke had his brief moment of publicity, his answers to seemingly pre-screened questions were vague, misleading, and rather contrived. He answered questions using very long responses which generally obfuscated rather than clarified the situation. In my estimation, Mr. Bernanke solidified what many market participants already believed; he is nothing more than an academic.

Mr. Bernanke and the Federal Reserve have based every decision they seemingly make on antiquated models and algorithms which work in a classroom and fail in real time. To the average man (myself included), he blathered on speaking about things that most people do not even understand. It is almost as if he did this to prove his intelligence and ability.

For long time readers, my disdain for the Federal Reserve is relatively easy to recognize. While the U.S. Congress is nothing more than charlatans, the Federal Reserve is the greatest thief in American history. Through the debasement of the U.S. Dollar and a long time track record of reacting too late or not at all to economic events, the Federal Reserve has stolen purchasing power from the American people. The inflation that has been unleashed over the past 10 years has been tremendous and the long term impact on the standard of living in the United States has been negatively altered. In essence, the Federal Reserve took from everyone and “we the people” got nothing tangible in return.

Mr. Bernanke made comments about the U.S. Dollar including “that it fluctuates.” The only direction it has fluctuated since he has been in charge at the Federal Reserve is lower. If lower and fluctuation are synonyms, I wish my weight would fluctuate!

Where were the hard questions from reporters? Where were questions about gold and silver rallying to new highs nearly every day? Where was the question about the Fed’s credibility when it totally missed the sub-prime crisis and referred to it as a contained event? What has the Federal Reserve done a good job at besides causing inflation based bubbles immediately followed by nasty busts. However, the real question still remains, what does the future hold for financial markets?

What I’m about to say may surprise readers, but history supports my thought process. If the Federal Reserve continues on the same path it is possible that the U.S. Dollar could go through a real currency crisis. The potential for such an event is intensified by the fact that Asia and Europe are raising interest rates due to inflationary pressures. Time will tell, but gold and silver remain strong, however I would not fall in love with either commodity, or any commodity for that matter. Whether we have a currency crisis or not, there is going to be one nasty sell off in commodities in the future, specifically in silver.

I agree with many market prognosticators in that we are in a commodity bubble. The weekly chart of silver futures below illustrates just how parabolic the move has been:



At some point the U.S. Dollar will bottom, and when it does a significant rally will take shape. When the U.S. Dollar rallies it has the potential to be sharp and fast. Silver would be hit hardest as the chart above shows the parabolic move higher that has transpired over the past few months. The timing of the U.S. Dollar’s bottom is difficult to quantify, and picking bottoms is a fool’s game. Nevertheless, the commodity charts will tell us when it’s time for the rally to unfold, but for right now prices will likely continue higher for commodities and equities.

While I think longer term precious metals investors might be able to withstand the impending selloff, the other side of that selloff will likely see gold and silver work higher still. Longer term gold and silver will likely perform well, but traders must be aware that a sharp pullback is not only likely, but would be considered healthy by many market participants. The Dollar Index weekly chart illustrates the sharp selloff in the U.S. Dollar the past few months.



While several articles have been proffered by authors I respect deeply, they have not offered a means to determine when the Dollar has bottomed. While nothing is full proof, the longer term SPX chart may be a guide as to when the U.S. Dollar will begin to bottom. The SPX weekly chart shown below illustrates the long term ascending channel that the S&P 500 has been trading in for some time.



My “educated guess” as to when the Dollar will begin to bottom will likely coincide with a test of the ascending trend line. In previous articles, I opined that I thought we would see the S&P 500 rally and we are in that process now. My guess is that about the time the S&P 500 tests the rising channel, we will see the U.S. Dollar begin to bottom. The short opportunities that will be presented from a risk / reward perspective could be outstanding. Cycles typically line up, particularly when one particular asset, in this case the U.S. Dollar, are driving markets in one particular direction for a long period of time.

Typically business cycles end when commodities and commodity based stocks such Exxon or Barrick Gold rally. We are in that stage of the business cycle right now, and typically when that stage has been reached it is indicative that the economy is starting to overheat. Cyclicality in financial markets has been discussed for years, but often times technical analysis will align with the business cycle. While I may not be exactly right as to the timing, it certainly gives a solid framework for risk-based decisions going forward.

Conclusion

I believe that the actions taken by the Federal Reserve for the past 2-3 years are going to result in additional selling pressure in the future for the U.S. Dollar which will propel commodity prices and equity futures prices higher than what many will expect. While the selloff may occur within the confines of a short to intermediate term time frame, the U.S. Dollar will eventually bottom and a nasty selloff in commodities and stocks will transpire and the next leg of the secular bear market will begin. The business cycle and the technicals are aligned at this point, the question is really how long it is going to take to get there.

The end game will likely result in the Federal Reserve looking foolish while the American people and the global economy will suffer from the Fed’s ineptitude. The possibility that the Federal Reserve is forced to raise interest rates to slow down inflation at the same time the U.S. Dollar bottoms is a recipe for a potential economic disaster.

Slowing economic conditions based on higher oil prices and inflationary pressures paired with higher interest rates will result in another recession fueled by the Federal Reserve’s Keynes based economic models and decision making. Ben Bernanke was right about one thing, the Federal Reserve uses educated guesses based on their models when setting monetary policy. I posit to readers, what happens if the Federal Reserve Chairman and Governors’ price models and educated guesses are completely false?

Get My Trade Ideas Here: http://www.optionstradingsignals.com/profitable-options-solutions.php
J.W. Jones is an independent options trader using multiple forms of analysis to guide his option trading strategies. Jones has an extensive background in portfolio analysis and analytics as well as risk analysis. J.W. strives to reach traders that are missing opportunities trading options and commits to writing content which is not only educational, but entertaining as well. Regular readers will develop the knowledge and skills to trade options competently over time. Jones focuses on writing spreads in situations where risk is clearly defined and high potential returns can be realized. 

This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.


© 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