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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Possibility of a Bounce Up in Gold and Silver

Commodities / Gold and Silver 2012 Mar 09, 2012 - 12:53 PM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleOn Tuesday gold prices continued to break down, falling for a fifth consecutive day breaking below the 200-day moving average. On February 6th we suggested getting out of the speculative long positions, and reiterated it yet once again just a day before the crash. But this week on Tuesday, our SP Gold Bottom Indicator flashed a long-term buy signal. The indicator is just one of the unique proprietary investment tools developed by Sunshine Profits, available only to our subscribers. We tend to take this particular signal seriously since it has proved to be uncannily accurate in the past (you can click the chart to enlarge it if you’re reading this essay on sunshineprofits.com).


In 2011, for example, it flashed a buy signal five times on:

  • January 24th , right before a major bottom,
  • June 29th , a few days before a major bottom,
  • August 26th , followed by a $200 rally,
  • September 27th , followed by a $150 rally
  • Dec 19th, a few days before a major bottom

All in all - 5 out of the last 5 times this signal flashed, a substantial rally followed - either immediately, or a few days later. Consequently, the situation in gold is now bullish for the medium term.

To see if our SP Gold Bottom Indicator will hit the mark yet again, let's take a closer look at the markets that can at times drive the prices of precious metals. We will start with the USD Index (charts courtesy by http://stockcharts.com.)

There has been no real change this week as the index rallied a bit early in the week and then declined. Thursday’s closing level is a bit more than a point higher than a week ago, so the overall change for the week is quite minimal so far.

The index level is still quite close to the long-term resistance line and no breakout has been seen. At this point, the odds appear to favor a continuation of a downtrend here in the USD Index.

In the short-term USD Index chart, a small rally began after the cyclical turning point was reached, and the USD index approached the 80 level, reaching 79.92 only to decline thereafter. It is unclear whether the top is in or if higher index levels will be seen anytime soon.

The odds based on the long-term picture appear to favor a move to the downside with very limited upside potential from Thursday’s closing index level. The downside target levels at this time appear to be close to two important support lines in the range of 77 and 75 respectively.

The situation is the USD Index is tense and at this time appears slightly more bearish than not for both: long- and short-term.

The long-term S&P 500 Index chart provides us with bearish indications this week. Target levels based on this chart in previous weeks were not reached as the S&P 500 moved about half way between the previous top and our previous target of $1,320. This downside target level appears likely when comparing recent trading patterns with those seen at the end of 2010. The decline so far has been small, so more consolidation is possible before the rally resumes.

In this short-term SPY ETF chart, we see a correction to an important support line, followed by a move higher. This is a bullish indication and an immediate move to the upside is indeed possible from here.

The situation in the general stock market is mixed with small moves to the downside possible. The S&P 500 will likely go no lower than $1,320 and this appears to be about 65% to 70% probable.

We are not certain if the correction is over or if another move to the downside is coming; the long and short-term pictures are simply not clear at this time.

Our correlation analysis provides information that the coefficients between the precious metals sector and the general stock market weakened this week. The uncertainty in the stock market picture is therefore not as important for the precious metals, though it is a bit more important for silver than gold. The correlation between the USD Index and the precious metals remains in place and negative.

Please note that our general outlook on the precious metals market has changed from a bearish one, to a bullish one. If you recall what we wrote in our last essay on precious metals and manipulation (March 6th, 2012):

The situation (…) is normal once again (metals move along with stocks and in the opposite way to the USD Index). Consequently, what’s bullish for USD and bearish for stocks is bearish also for the precious metals market.

The picture has changed now – the rally in the dollar seems to be over and, therefore, the general short-term outlook for precious metals is more bullish than not. However, we would be far from suggesting that an immediate move up is a sure thing now.

Summing up, as the short-term outlook for the dollar is rather bearish and the greenback continues to trade in the opposite direction that precious metals do, the implications are more bullish than not for gold, silver and gold and silver mining stocks. The medium-term trend is up.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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