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
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Potential Catalyst for Gold and Silver Stocks

Commodities / Gold and Silver Stocks 2014 May 16, 2014 - 05:33 AM GMT

By: Jordan_Roy_Byrne

Commodities

Precious Metals continue to be in a long bottoming process that began last summer. Though many quality juniors have already bottomed and while GDX, GDXJ and SIL probably won’t see new lows, the broad sector as a whole is struggling to push out of this long bottoming process. Traders always say price is all that matters and who cares about fundamentals or the why. However, the most astute traders and investors look beyond a simple tool or single sphere of analysis. With respect to precious metals, negative real rates and the direction of inflation are the driving forces. Deflation is a catalyst for precious metals because policy makers react by suppressing real rates. Rising inflation is a catalyst and especially when it causes real rates to go negative or more negative. I will explain why this could be the catalyst for the revival of precious metals sector.


Commodities generally move together but some lead and some lag. In a deflationary catalyst situation, precious metals and gold specifically lead the rest of the sector. Examples of this include but are not limited to 1931, 2000-2001 and 2008. Yet there are instances of precious metals lagging after major bottoms. The best example is 1976. A smaller example is during 2004 when precious metals corrected but commodities kept moving higher. We’ll get to 1976 later but first lets examine the present.     

The chart below plots the major commodity groups with the sector as a whole (CCI) at the bottom. Note how the CCI and all groups (except precious metals) peaked from the end of February 2011 to April 2011. Yet precious metals didn’t peak until around Labor Day 2011. Today we see that the CCI has clearly broken out of its downtrend and ended its bear market. Note how the 80-week moving average, formerly resistance has become support. It makes sense that because precious metals peaked last in 2011, they will lag the initial recovery of the commodity sector.  

This is something that occurred at during the 1976 bottom. This next chart plots gold and the CRB index, which is today’s CCI. The CRB peaked before gold in 1974 and bottomed not too long after gold peaked. When gold bottomed in summer 1976 the CRB was trading well off its bottom. After gold bottomed it quickly regained its leadership.

Circling back to the present, there are technical and fundamental reasons why precious metals are lagging and why that could continue until a final bottom is confirmed. Precious metals peaked months after the rest of the sector in 2011. Thus, they should lag the initial recovery. On the fundamental side, rising inflation appears more likely than deflation. CPI and PPI have ticked up in recent months. May’s PPI was at an 18-month high. In addition, credit growth in the US which declined from 5.7% in summer 2012 to below 2.0% at the end of 2013 has since increased to 4.0% and a one year high. Furthermore, Reuters reports that the Fed said banks eased their commercial lending standards in recent months and this resulted in higher demand for credit. Banks also eased lending standards on consumer credit and auto loans. Prices are starting to tick up, credit growth is picking up and banks may slowly be easing lending standards on consumers.

We can see a potential catalyst which could help drive a sustained recovery in precious metals. Over the near-term, the sector remains mired in a long and arduous bottoming process. Gold and Silver were firming to start this week but both were rejected at their declining 50-day moving averages. Meanwhile, the stocks haven’t done much of anything. The onus is on the bulls as the short-term prognosis continues to be bearish. Nevertheless, we are excited. First, we see a potential macro catalyst evolving which is supportive and gives us more confidence to buy. Second, we know that lower prices in the coming weeks will provide a tremendous, low risk opportunity to put more money to work. As I wrote last week, I am looking at JNUG (3x long GDXJ) as well as several juniors I believe have exceedingly strong upside potential over the coming quarters and years. In any event, be patient over the coming weeks and let this final selloff run its course.

If you'd be interested in professional guidance in this endeavor, then we invite you to learn more about our service.

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2013 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.

Jordan Roy-Byrne 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