Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold False Break Lower to Spook Traders Before Resumption of Bull Market

Commodities / Gold & Silver Dec 18, 2007 - 01:57 AM GMT

By: Clive_Maund

Commodities

Best Financial Markets Analysis ArticleWe don't normally look at fundamentals in these Gold Market updates, but it is worth stopping for a moment to consider the implications of the latest stroke of genius announced last week by the Fed in its desperate attempts to prevent a credit crunch, as it has important implications for the price of gold.

Like a magician pulling a rabbit out of a hat, the Fed and foreign central banks announced that they will conjure up $50 billion to inject into the system, which they will generate by selling low interest rate loans for those who like throwing good money after bad, or have no choice but to.


The point to grasp though is this - the Fed will ultimately be liable for these loans - and we all know what the Fed does when it needs money, with a few simple keystrokes it creates it out of thin air - so why stop at a paltry $50 billion, which with respect to the liquidity problem is like approaching a guy who has just had his arm chopped off and is gushing blood all over the place with a drugstore plaster for a minor cut - why not really get serious and create $100 billion, a trillion, or, inspired by early 20's Weimar Germany, ten or a hundred trillion?

While it only takes a few keystrokes to create endless trillions, so that the guys at the Fed can lay down in a sea of money and make whooping noises as they throw handfuls of it into the air, in the real world outside the perimeter fence, there is, as ever, a finite supply of goods and services that this money, so easily created, is going to end up chasing and competing for. So the result of this endlessly expanding creation of liquidity must be more and more inflation - if they succeed in staving off a credit crunch and deflationary implosion, that is, and because a deflationary implosion would be catastrophic, they MUST succeed.

So you see how they have finally painted themselves into a corner where they have to continue to ramp the money supply exponentially, a “catch 22” situation which could easily runaway into hyperinflation. Once you understand this, you will immediately realize why they stopped reporting the M3 money supply figures several years ago, which have since gone off the scale. The only caveat to all of this is the possibility that they actually want to see a credit crunch and deflationary implosion, for reasons set out in the No Way Back article last week.

So, faced with accelerating inflation what do investors do to preserve their wealth? They do what they did in the 70's, buy tangibles - hard assets, gold and silver, paintings, coins, stamps etc - anything with a scarcity value which those desperate to get out of cash will flock to buy. Last weeks' announcement by the Fed of another liquidity boost was just another staging post on the road to hyperinflation and has provided yet another reason to buy gold, as if there aren't enough already. Now we will examine gold on the charts to see how it is shaping up.

On the 3-year chart we can see that gold has actually held up well since the last update about 2 weeks ago, given the dollar strength which was predicted at that time. We were looking for it to react back to the $765 area, give or take $10, which would have involved a minor break of the 50-day moving average, and this is still regarded as a possibility in coming days, or perhaps over the next week or two. Even if we see such a reaction, however, as was the case in the last update, the current trading range continues to be regarded as a consolidation pattern - a Pennant - and therefore any short-term dip will be viewed as a buying opportunity. The situation is of course rather different with Precious Metals stocks, which are subject to the vagaries of the stockmarket.

The following paragraph is lifted from the last update, as with gold still in the trading range it remains relevant…

“The first and most important point to make is that the strong advance by gold throughout September and October and into early November involved a breakout from a consolidation pattern lasting approximately 15 months, and is regarded as the FIRST UPLEG of a major uptrend. This being so the current retreat is viewed as a reaction, not a top, so the only question is how far it runs before gold takes off again to the upside. As with the major uptrend of late 2005 - early 2006, the price should at intervals test support in the vicinity of its 50-day moving, as it is doing now, and this average can be expected to maintain a fairly large gap with the 200-day until the advance has run its course, which is believed to be a long way out yet.

So, bearing in mind what was written about the dollar above, and gold's propensity to “telegraph” action in the dollar, how much further is it likely to react before the advance resumes? The answer is about $765, with $10 leeway either way, and it will have to be watched closely because once it reverses to the upside it is likely to be fast. If gold does drop back to the $765 area there is likely to be a sharp but brief shakeout in Precious Metals stocks, which should prove to be a significant buying opportunity.”

With respect to the last sentence of the above paragraph, the HUI index broke down from an intermediate Head-and-Shoulders top late last week, which may be telegraphing a short, sharp drop by gold in the near future back to the $765 area, which, as stated above, will be viewed as presenting a buying opportunity.

On the 6-month gold chart we can see that with the triangular Pennant that has formed in recent weeks appearing to be close to completion, we are likely to see a sharp break one way or the other soon. The most likely scenario as made clear above is thought to be a drop to the $765 area that spooks a lot of traders, followed by a resumption of the larger uptrend.

On the 6-month dollar index chart we can see that the dollar has continued its powerful snapback rally, exactly as predicted in the last update, and it had its strongest day for a long time on Friday, no doubt fuelled by those who were impressed by the Fed's largesse last week. The following paragraph, related to how far the dollar rally is likely to get, is also taken from the last update…

“However, we can be reasonably sure that any rally won't get above 79 - 81 on the index, which is the important multi-year support level that the dollar broke decisively below 2 to 3 months ago, and which is now a strong resistance level. Furthermore, all rally attempts so far this year have stalled out in the vicinity of the 100-day moving average, which is now below 79, so taking both these key factors into consideration, it seems most unlikely that the current rally will get any higher than 79. It is important to remember that this is viewed as the MAXIMUM that the dollar can achieve over the short to medium-term, and that the overall picture remains very bearish, with all moving averages falling, and key multi-year support having failed. Thus this rally, which in any case will only be due to a bout of panic short-covering following a period of extreme bearishness, can be expected to be followed by renewed decline which should take the dollar to new lows.”

With regard to the above paragraph, the one modification that we need to make is that as the 100-day moving average has now dropped to about 78.3, we should lower our upside target for the dollar from approximately 79 to about 78.5.

By Clive Maund
CliveMaund.com

© 2007 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund 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