Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Bull Market Opposing Forces

Commodities / Gold and Silver 2012 Oct 06, 2012 - 07:06 AM GMT

By: Clif_Droke

Commodities

Best Financial Markets Analysis ArticleWhat accounts for gold's strong performance since the initial rebound in July? That's the question that many analysts are (belatedly) trying to answer. The first and most obvious answer is stimulus; specifically the stimulus provided by the world's leading central bank in the U.S. The Federal Reserve's latest bond-buying scheme known as QE3 is to date the biggest stimulus aid that has had an impact in boosting the gold price.


As we all know, gold loves inflation and any increase in monetary liquidity in the global financial system will be reflected in an increasing gold price sooner or later. Analysts have noted that the gold price has recently increased in, Euro, Swiss Franc and Indian Rupee terms, which indicates monetary stimulus particularly benefits gold. As bullion broker Sharps Pixley observed, "This is not just a weak dollar story."

On a more technical level, the explanation you've heard me repeat since earlier this summer is that gold was oversold on a multi-year basis. According to the 10-month price oscillator for gold, gold reached its most sold out reading in at least 10 years a few months ago and this preceded the run-up in the gold price that has occurred since July. I've incorporated the 10-month oscillator in this report since at least 2003 and it has proven its merit as an intermediate-term gold price indicator time after time. Although it isn't used as a short-term turning point indicator, it has an unparalleled record for accuracy when it comes to predicting critical junctures in the gold price performance on a multi-month basis.

10-Month Gold Oscillator Chart

Another reason that some experts attribute to gold's strong performance lately involves China's economic outlook. According to Bloomberg, the August Chinese year-on-year industrial profit net income fell for the fifth month by 6.2 percent. As Sharps Pixley pointed out, "With the prospect of not hitting its 2012 growth target, the Chinese government may announce further stimulus and rate-cutting measures and IPO reforms to boost growth and rescue the stock market." The firm observed that such speculation has boosted gold prices in recent days.

It should also be pointed out that China, as a leading consumer of gold, would be likely to increase its gold consumption if its economy is revived through the monetary stimulus route. It's possible that gold's rally is, at least in part, an anticipation of this eventuality.

Despite all of this, gold's latest outperformance isn't merely a response to central bank stimulus. One of gold's primary roles in times of core economic deflation, which we've been experiencing in recent years, is that of a financial safe haven. Simply put, investors flock to gold in times of monetary chaos and economic uncertainty which gives gold a "fear premium." Gold feeds off fear in deflationary times since the "hot money" which flows from investors leaving the dollar helps to create sustained forward momentum on a longer-term basis for the yellow metal.

Gold - Daily OHLC Chart

The latest round of global fear has been sparked by Spain and its refusal (to date) of the terms for a sovereign bailout. The bailout that Europe seeks to impose upon Spain is intended to help solve the country's debt crisis. As it turns out, Spain's refusal to seek the bailout is holding up the stimulus for the rest of the troubled euro zone. European Central Bank President Mario Draghi stated recently that the ECB won't start intervening in bond markets until Spain requests a bailout and agrees to the conditions imposed by the central bank.

Moreover, an ECB news release stated that request for help is only one "necessary condition" for receiving a bailout, implying that other conditions might also need to be met before the ECB is ready to intervene. What this means is that the global financial system isn't fully benefiting from the promised stimulus yet. That's one reason why investors are still panicky about Europe and are still piling into gold in spite of the lack of a coordinated global stimulus.

The opposing forces of illiquidity, and the fear it's breeding in Europe, and the liquidity provided by QE3 has conspired to create the "perfect storm" for a gold price rally. Thus we find that gold is being driven by two contradictory forces, namely fear and greed. Regardless of which of these two motive forces ultimately prevails, gold should continue to benefit at least until the long-wave deflationary cycle bottoms in late 2014.

2014: America's Date With Destiny

Take a journey into the future with me as we discover what the future may unfold in the fateful period leading up to - and following - the 120-year cycle bottom in late 2014.

Picking up where I left off in my previous work, The Stock Market Cycles, I expand on the Kress cycle narrative and explain how the 120-year Mega cycle influences the market, the economy and other aspects of American life and culture. My latest book, 2014: America's Date With Destiny, examines the most vital issues facing America and the global economy in the 2-3 years ahead.

The new book explains that the credit crisis of 2008 was merely the prelude in an intensifying global credit storm. If the basis for my prediction continue true to form - namely the long-term Kress cycles - the worst part of the crisis lies ahead in the years 2013-2014. The book is now available for sale at: http://www.clifdroke.com/books/destiny.html

Order today to receive your autographed copy and a FREE 1-month trial subscription to the Gold & Silver Stock Report newsletter. Published twice each week, the newsletter uses the method described in this book for making profitable trades among the actively traded gold mining shares.

By Clif Droke
www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com

Clif Droke Archive

© 2005-2022 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