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Gold and Stock Market Volatility

Commodities / Gold and Silver 2011 Aug 06, 2011 - 10:31 AM GMT

By: Clif_Droke

Commodities

Best Financial Markets Analysis ArticleThe one constant this year has been market volatility. Stock market volatility, including for the mining stocks, has waxed and waned throughout 2011 but has been recurrent more this year than in the previous two years. After a brief period of dormancy, volatility has once again been on the rise. We'll discuss the implications of this volatility increase for stocks as well as the gold price in this report.


The CBOE Volatility Index (VIX) shows the recurring theme of volatility throughout the year to date. The VIX, which measures the so-called "fear premium" and is a good indication of increased fear among options traders, has recently spiked as you can see in the following chart. This VIX "rally" was in response to the pronounced fear over the U.S. debt debate as well as debt fears in the euro zone. Traders were visibly spooked by the high-profile media discussion of the consequences of the failure of Congress to raise the debt ceiling and of a possible U.S. bond downgrade. These fears were averted but until now volatility continues to dominate the equities market as the currently high level of fear has yet to recede.

Aside from the latest flow of bearish news headlines pertaining to the debt problem, market volatility is both a cyclical as well as a structural problem. Volatility has increased in recent years as we've gotten closer to the bottom of the 120-year Kress Cycle, which is the master long-term financial/economic cycle of inflation/deflation. As we head closer to the fateful year 2014, when the cycle finally bottoms, we've witnessed at least two key cyclical events: the 12-year cycle peak in 2008, which exacerbated the credit crisis, and the 10-year cycle peak of late 2009. The 6-year cycle component of the 120-year cycle, which is the last of the long-term cycles currently up, is scheduled to peak in late September/early October this year.

The downward force of the 120-year cycle is converging with central bank attempts at fighting deflation through increasing money and credit. This is what is creating much of the volatility as the cyclical downward force of the Kress cycle is converging with the counter-cyclical force of quantitative easing (QE), et al, to create a massive cross-current in the financial market. Eventually, though, the downward force of the 120-year Kress cycle will simply overwhelm any and all attempts at government intervention in the financial market economy. In the end, the forces of nature always prevail against human efforts at reversing nature's force.

Another reason for the increased volatility of recent years can be found in the structure and make up of today's financial marketplace. Consider these comments from Samuel Kress, the namesake of the Kress cycle series. In the July 25 issue of his SineScope advisory he writes, "Market alpha has been waning and is being augmented with beta. Hedge fund managers are pressed for returns and are enhancing beta, which is reflected in increased volatility. Unfortunately, too many of the managers are young, inexperienced and reactionary. This has resulted in the increased volatility not only on a weekly basis but sometimes [on a] daily [basis]."

Volatility is a manifestation of fear among market participants. Fear is a reaction to the unknown. Fear and uncertainty are major drivers of the gold price from a long term standpoint. Investors have a visceral instinct to run to gold as a financial safe haven during times of uncertainty. When fear surpasses greed as the dominant emotion among investors, as it has since about 2001, it serves as a powerful negative force against equities, but also as a strong driver in favor of gold. The run-up in the gold price since volatility first began manifesting is one testament to this.

Indeed, the yellow metal has benefited for the most part from the extreme fear that is plaguing investors. Gold has risen to a series of new all-time highs in just the last few days, even making a new intraday high on Thursday, Aug. 4, before closing with a small loss. Gold has overstretched from its key short-term and interim trend lines, however, and could use a correction before continuing its main upward trend. The main consideration for gold is that it is a fear hedge and with all the fear that continues to dominate the economic headlines, gold should continue to have plenty of fuel for its long-term bull market.

Gold & Gold Stock Trading Simplified

With the long-term bull market in gold and mining stocks in full swing, there exist several fantastic opportunities for capturing profits and maximizing gains in the precious metals arena. Yet a common complaint is that small-to-medium sized traders have a hard time knowing when to buy and when to take profits. It doesn't matter when so many pundits dispense conflicting advice in the financial media. This amounts to "analysis into paralysis" and results in the typical investor being unable to "pull the trigger" on a trade when the right time comes to buy.

Not surprisingly, many traders and investors are looking for a reliable and easy-to-follow system for participating in the precious metals bull market. They want a system that allows them to enter without guesswork and one that gets them out at the appropriate time and without any undue risks. They also want a system that automatically takes profits at precise points along the way while adjusting the stop loss continuously so as to lock in gains and minimize potential losses from whipsaws.

In my latest book, "Gold & Gold Stock Trading Simplified," I remove the mystique behind gold and gold stock trading and reveal a completely simple and reliable system that allows the small-to-mid-size trader to profit from both up and down moves in the mining stock market. It's the same system that I use each day in the Gold & Silver Stock Report - the same system which has consistently generated profits for my subscribers and has kept them on the correct side of the gold and mining stock market for years. You won't find a more straight forward and easy-to-follow system that actually works than the one explained in "Gold & Gold Stock Trading Simplified."

The technical trading system revealed in "Gold & Gold Stock Trading Simplified" by itself is worth its weight in gold. Additionally, the book reveals several useful indicators that will increase your chances of scoring big profits in the mining stock sector. You'll learn when to use reliable leading indicators for predicting when the mining stocks are about o break out. After all, nothing beats being on the right side of a market move before the move gets underway.

The methods revealed in "Gold & Gold Stock Trading Simplified" are the product of several year's worth of writing, research and real time market trading/testing. It also contains the benefit of my 14 years worth of experience as a professional in the precious metals and PM mining share sector. The trading techniques discussed in the book have been carefully calibrated to match today's fast moving and volatile market environment. You won't find a more timely and useful book than this for capturing profits in today's gold and gold stock market.

The book is now available for sale at: http://www.clifdroke.com/books/trading_simplified.html

Order today to receive your autographed copy and a FREE 1-month trial subscription to the Gold & Silver Stock Report newsletter. Published twice each week, the newsletter uses the method described in this book for making profitable trades among the actively traded gold mining shares.

By Clif Droke
www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com


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