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
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
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Current Decline is a Correction, Opportunity to Add to Gold and Silver Investments

Commodities / Gold and Silver 2010 Dec 11, 2010 - 04:42 AM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleWe picked up the Asian addition of The Wall Street Journal this week and on the back page was an article titled “China reveals Huge Appetite for Gold.” The article states: Gold’s record rally has been attributed to everything from worries about inflation, the dollar and the emergence of exchange-traded funds. One big factor many may have missed: huge buying from China.

We haven't missed it. We have been writing about the rising Chinese demand for gold in many previous updates.


It used to be that America was the New World and Europe was Old. Now they both look frayed around the edges and the New World label seems to belong to China and other emerging market economies. This new growth has been accompanied by a voracious appetite for the yellow metal.     

Data cited last week by China's state-run Xinhua news agency showed that China imported 209.7 metric tons of gold in the first 10 months of the year, a fivefold increase compared with the same period last year. This is interesting. China is now the world’s biggest producer of gold and consumes all its own production. China's booming mining industry produced 277 metric tons of gold so far this year, up 8.8% from the same period last year. This means that in addition to buying up everything from local production, they are also importing a hefty chunk for a total of at least 486 metric tons so far. Without a doubt, a good portion of this gold is finding its way into the vaults of the People's Bank of China gold reserves. Keep in mind that in April 2009 the People's Bank of China announced that it had added 400 tons to its reserves for a total of 1,054 metric tons making China the world's fifth-largest holder of gold, just ahead of Switzerland, and among the six nations plus the International Monetary Fund that have reserves of more than 1,000 metric tons.

Over the past several years, China’s money supply expanded by over 50%, due to a massive lending boom that helped generate record GDP growth. That boils down to a lot renminbis searching for somewhere to go. The Chinese are just as worried about inflation and the erosion of the value of paper money as the rest of us. They have been looking for tangible safe investments in which to park their cash. Their problem is that as individuals they are limited in where they can invest. Capital controls restrict investment opportunities for individuals abroad. In China they can place it in a standard bank account and receive a negative rate of return, given an inflation rate running at about 3%. They can also invest in the stock market, but Chinese equities are much more volatile than those in developed markets, so that carries some risk. That leaves real estate, gold and other tangible assets.

Two things happened at about the same time recently. On the one hand the real estate market was beginning to look like a bubble and the government made all out efforts to slow it down, and on the other hand, the gold market opened up for Chinese citizens.

The WSJ notes that up until a few years ago China’s gold market was strictly controlled by the central bank, which bought all the gold mined domestically and then sold it to jewelry makers. Recently, the government loosened restrictions on buying, both by individual and institutional investors. Just this August China began allowing more banks to import and export gold, opening up the gold market to the institutions and their clients. Last week the Chinese approved the country's first gold fund designed to invest in overseas listed gold ETFs. This year many Chinese investors added gold to their portfolio and at the Shanghai Gold Exchange, trading volume rose 43% to 5,014 tons in the first 10 months of 2010.

The major trends in any market are caused by changes in the fundamentals, and since we have just seen an improvement in the latter, let's see if the long-term charts reflect that (charts courtesy by http://stockcharts.com.)

They do. The very-long-term chart that you can see above features the ratio of gold to corporate bonds. Here, we clearly see the distinction between long-term consolidation and long-term rallies. Once a consolidation has concluded, the breakout is generally quick and sharp to the upside. Of course, the rallies in the ratio correspond to the major rallies in gold itself, which is why it is important to analyze it today. We have seen the aforementioned rallies on two occasions both in 2005-2006 and again in 2007-2008.

Based on prior trends, if this ratio breaks out above the resistance line, a bigger rally is likely to be seen. It appears that we are in such a situation today. There is a strong likelihood that once the consolidation is over gold may very well rise to the $1,600 level.

Whether or not it's going to take place right away is a different story. Please take a look below for details.

Zooming in slightly provides us with an estimate of the probable downside target level if the decline is to continue. Based on recent price movement and historical trends, a decline here could possibly be seen to the $128 level. This would correspond to a spot gold price close to the $1,300 level.

Zooming further allows us to see that several support levels have together stopped a recent decline. This could be interesting phenomenon to those, who still doubt the usefulness of the analysis charts from the technical perspective. Volume levels have been higher on the downside and since the recent decline was quite small, it seems appropriate to wait for additional signals before any bullish sentiment surfaces.

There's more to the analysis of volume than the above statement (available in the full version of this essay), but the main point remains unchanged. Meanwhile, let's move to the analysis of the ratio that should be included in the arsenal of every Gold and Silver Trader - specifically because of its accuracy in predicting local tops.

The GDX:SPY is a measure of mining stocks performance relative to all other stocks. We have previously discussed the unique single spike in volume signal as one, which has been extremely reliable in finding local tops in the past. In last week’s Premium Update, we wrote about not seeing the single spike in this ratio. It did not appear that the local top was in. Soon after that, however, such a spike in volume was indeed seen, and a local top emerged.

Volume levels have been emphasized in the above chart. The high volume levels, which are noted by arrows, are very closely aligned with local tops. This is a clear indication of the importance of volume levels analysis with respect to prices. The suggestion here is for further weakness in the near-term.

Summing up, the major trend appears to be up, and it may not be long before the massive rally resumes. Still, in the short run, a corrective phase is still not out of the question. Should it materialize, it should be viewed as an opportunity to add to one's gold and silver investments.

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, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. 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.

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