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
WESTERN DIGITAL WDC Stock Trend Analysis - CHIA! - Risk 1 - 23rd Jun 21
AMC Is the Best-Performing Stock in America: Don’t Buy It - 23rd Jun 21
Stock Market Calling the Fed‘s Bluff - 23rd Jun 21
Could Bitcoin Price CRASH Target A Bottom Below $7500? - 23rd Jun 21
Bitcoin and cryptos: Your 'long-term investment'? - 23rd Jun 21
Unlocking The Next Stage Of The Hydrogen Boom - 23rd Jun 21
USDT Ponzi Scheme FINAL WARNING To EXIT Before Tether Collapses Crypto Exchange Markets - 22nd Jun 21
Stock Market Correction Starting - 22nd Jun 21
This Green SuperFuel Could Change Everything For the $14 Trillion Shipping Industry - 22nd Jun 21
Virgin Media Fibre Broadband Installation - What to Expect, Quality of Wiring, Service etc. - 21st Jun 21
Feel the Inflationary Heartbeat - 21st Jun 21
The Green Superfuel That Could Disrupt Global Energy Markers - 21st Jun 21
How Binance SCAMs Crypto Traders with UP DOWN Coins, Futures, Options and Leverage - Don't Get Bogdanoffed! - 20th Jun 21
Smart Money Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 - 20th Jun 21
Rambling Fed Triggers Gold/Silver Correction: Are Investors Being Duped? - 20th Jun 21
Gold: The Fed Wreaked Havoc on the Precious Metals - 20th Jun 21
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
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

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and HUI Short-term Strength Is a Strong Call to Action

Commodities / Gold & Silver 2019 Jun 07, 2019 - 01:47 PM GMT

By: P_Radomski_CFA

Commodities

One surprising news was followed by another surprising news. First, Trump told the world about his plan to keep increasing tariffs on Mexico, defying his own party. Then, no hint of relief had come regarding the China trade dispute. Finally, we have got the Fed discussing potential interest rate cuts. Investors have aggressively increased their bets on such monetary policy easing. Gold definitely welcomed that idea. Is its breakout to new 2019 highs inevitable?

It's not a sure bet, but a move to these highs just became more likely. Are the above-mentioned changes in investors’ expectations well founded? Not necessarily.

Typically, gold prices are believed to be inversely related to the interest rates. As a result, the interest rate cut should be positive for the gold prices. However, the cut in the federal funds rate by September is widely expected by the markets, so it should be already priced in. Hence, a lot of will depend on the signal sent by the Fed about the future stance of the monetary policy accompanying that move. But, frankly speaking, we do not see why the Fed should cut the interest rates by September. Unless we see a recession, the cut remains unlikely. The Fed should telegraph it earlier, but so far it only announced a pause in the tightening cycle, not its end. The wait-and-see mode does not necessarily imply a cut later in the future. In 2016, the Fed also paused for a year its tightening (from December 2015 to December 2016), but it did not cut the federal funds rate, it did not reverse the tightening move from the end of 2015.


Since the market was once again surprised yesterday, it may take a few extra days before the situation stabilizes and before the market can decline once again. If the Powers That Be keep on bombarding the markets with more news, it may take a few extra weeks. We don’t like the additional delay in the decline, and we’re more than certain that neither you do. But, some things don’t depend on us, for instance President’s Twitter account. Instead of focusing on what is beyond our control, let’s focus on what we can do within our circle of control. That’s one of the basic Stoic rules that is very useful in life in general, but particularly so in case of the markets.

Finally, and perhaps – most importantly – we need to check if what we’re seeing right now is or isn’t a repeat of what we saw in the first half of 2016. Gold and gold stocks are moving higher which makes both situations similar. That’s not enough, though, because there were also other cases when gold and gold stocks moved higher and it turned out to be just a corrective upswing that was followed by more declines.

Back in 2016, investors were also wrong about the interest rate cuts. It was the time when Janet Yellen just mentioned negative interest rate policy even though she had no intention of introducing it. It was only mentioned. Investors panicked anyway and gold soared. So, does it necessarily matter if investors are right or wrong about the interest rates, if their panic can result in a powerful rally anyway?

The markets didn’t move much yesterday, but their relative performance was quite important.

Insightful Comparative Assessment of PMs Sector

Gold miners closed the session higher once again, while silver didn’t outperform gold, even on a very short-term basis.

Gold stocks tend to outperform in the early part of the move while silver catches up at its end. The above may suggest that we are in the early part of the move. And even if it is not the case, it indicates that the move is not yet over.

The gold to silver ratio is after a major breakout – actually two breakouts. But, does it mean that the ratio can move only up in the short term? No.

The performance of the gold to silver ratio – it’s relentless rally – suggests that the medium-term remains intact. The metals are moving lower in the next several months. But, since we saw two breakouts – above the previous long-term highs, and above the rising red resistance line – we could see some kind of corrective action in the short term.

This action could easily translate into temporary silver outperformance that would confirm the end of the rally.

It’s not something that’s likely to change the medium-term outlook, though.

Let’s take a look at gold’s long-term chart.

How Far Can This Gold Rally Run?

Gold is approaching its long-term resistance created by the previous highs. There is one very interesting rule regarding this resistance. No matter how volatile or promising the rally above the red resistance line was, it was always (in the last couple of years) invalidated in the following week. Given today’s pre-market rally in gold, it seems that we might see a weekly close above it. This means that the next week would quite likely include the invalidation of the current breakout and the beginning of another slide lower.

However, let’s keep in mind that gold has been very volatile and that there are still 3 sessions to go until the end of the week, so it might rally in a more visible manner.

XAU’s – gold and silver stocks’ proxy’s – very long-term chart seems to confirm the above.

The powerful long-term resistance is just above the current levels – at about 75. However, earlier this year, we saw brief attempts to move above it before the decline continued. So, it could be the case that the precious metals mining stocks still move higher before turning south again.

Gold stocks to gold ratio moved substantially lower in the previous years, but let’s keep in mind that its downtrend was temporarily breached earlier this year. Since it happened once, it might happen again. Of course, that would likely take place only on a temporary basis, but this could easily mean a week or two of additional rallies.

On a medium-term basis, we see that the breakdown below the rising support lines was invalidated and the implications for the short-term are bullish.

The above chart shows that the HUI Index reversed right at its triangle-vertex-based reversal. The rally would have likely been much smaller if it wasn’t for the surprising news. Since the markets have to digest quite a few surprising developments, it may take additional several days before the situation calms down and the prices resume their downtrend. The 120 level still appears to be the quite likely downside target for the following months (the initial downside target that is), but it’s quite possible that miners will move even higher before reversing their course.

One of the most important short-term signs for gold is its relationship with the US dollar. And it currently has bullish implications.

The last couple of days were relatively normal in terms of the reaction, but it was already visible that gold is showing more strength than it used to do in early May. The USD Index is barely below its May lows, while gold is well above its May highs. This might have been accidental, but we are seeing a major confirmation of gold’s strength in today’s pre-market trading.

The USD Index is down by just 0.12 and gold futures contract is already up by about $14. This is a confirmation of gold’s short-term strength. We dive deep into the gold-USD charts, targets of their upcoming short-term moves and our sharpened game plan in the free articles section on our website. Drop by and have a look.

Before summarizing, we would like to quote yesterday’s section on dealing with market’s volatility that can be unpredictable at times. It definitely remains up-to-date.

Something in Addition to (Instead of?) Patience

(…) Patience is extremely rewarding while investing, but there is another way to deal with markets’ unpredictability.

It’s diversification.

For instance, those who diversified into silver are likely much calmer now than those who are trading only mining stocks (by the way, we give silver priority over gold in our managed futures service). But the diversification potential doesn’t end there. While the precious metals sector was impacted by the Trump’s trade comments in a bullish way, the impact on the crude oil market was very bearish. It was very positive for our short position in crude oil, which we had opened on April 23rd, right after crude oil closed at $65.55. Monday’s closing price is exactly $53.25. That’s over $10 in crude oil (about 15%) in less than 1.5 months. That’s way over 100% annualized. There were also multiple profitable trades in our forex trades. There are no trades open at the moment, but we are making this year’s currency analyses available for you to review. While an individual surprising news may be negative for one market, it can be positive for a different market. In other words, diversification allows to get profitable in a smoother, more predictable manner. It’s not as comfortable as investing in a fully managed fund, or a trading program, but it’s something that greatly helps along the path to profits on an individual basis.

Then, there are also time perspectives. The recent moves may be significant on a day-to-day basis, but either by zooming in or zooming out, this can be mitigated.

The long-term approach – naturally connected with patience – means focusing on the big price moves instead of the brief ones that take just a few days and viewing the latter as price noise. It’s not stressful, if one chooses to focus on different kind of moves. The downside here is that for longer periods, one may not have any positions at all, missing some good opportunities along the way.

Alternatively (or additionally), one could be zooming in – into day trading. It’s not everyone’s cup of tea as it requires more time and attention on a daily basis. But by making multiple tiny trades, no single big move is likely to have a particularly adverse effect. Surely, a single position could be closed unfavorably, but the stop-loss orders in such cases are very close and the single transaction barely changes anything. For instance, during the testing period of our Day Trading Signals, we had 42 trades and quite a few of them were not profitable, but despite these cases, overall (!) we managed to achieve the performance of 0.68% profit per trade (given no leverage for cryptocurrencies and 10x leverage for other assets).

So, both: patience and diversification can help to deal with markets’ unpredictability. It’s usually the case that the more patience and the more diversification one applies, the better the results and the greater the resulting peace of mind.

Summary

Summing up, the current upswing in gold, silver, and mining stocks continues to appear temporary, but – based i.a. on how strong gold is relative to the USD movement, and silver’s lack of strength – it seems that the precious metals market might move quite visibly higher before reversing (likely next week). Despite the change in short-term outlook, the medium- and long-term downside targets remain intact.

It's unclear how high gold will go, given the current strength relative to the USDX, but the previous highs of about $1,350 or even $1,370 are not out of the question. Neither price level would invalidate the bearish outlook for the medium term. With gold at about $1,370 and gold to silver ratio verifying its breakout at 89, silver could be at about $15.40 or so. The relative performance of gold, silver, mining stocks and the USD Index should give us key confirmations of that longer-timeframe outlook.

Today's article is a small sample of what our subscribers enjoy regularly. They know about both the market changes and our trading position changes exactly when they happen. Apart from the gold-USD Index implications, we've also shared with them which side of the argument Dr. Copper (the metal with PhD. in economics) is at. We encourage you to sign up for our daily newsletter, too - it's free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts to get a taste of all our care. Sign up for the free newsletter today!

Thank you.
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
Sunshine Profits - Effective Investments through Diligence and Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA 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, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, 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.

Przemyslaw Radomski 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