Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21
Investing in Google Deep Mind AI 2021 (Alphabet) - 6th Apr 21
Which ETFs Will Benefit As A Stronger US Dollar Reacts To Global Market Concerns - 6th Apr 21
Staying Out of the Red: Financial Tips for Kent Homeowners - 6th Apr 21
Stock Market Pushing Higher - 6th Apr 21
Inflation Fears Rise on Biden’s $3.9 TRILLION in Deficit Spending - 6th Apr 21
Editing and Rendering Videos Whilst Background Crypto Mining Bitcoins with NiceHash, Davinci Resolve - 5th Apr 21
Why the Financial Gurus Are WRONG About Gold - 5th Apr 21
Will Biden’s Infrastructure Plan Rebuild Gold? - 5th Apr 21
Stocks All Time Highs and Gold Double Bottom - 5th Apr 21
All Tech Stocks Revolve Around This Disruptor - 5th Apr 21
Silver $100 Price Ahead - 4th Apr 21
Is Astra Zeneca Vaccine Safe? Risk of Blood Clots and What Side Effects During 8 Days After Jab - 4th Apr 21
Are Premium Bonds A Good Investment in 2021 vs Savings, AI Stocks and Housing Alternatives - 4th Apr 21
Penny Stocks Hit $2 Trillion - The Real Story Behind This "Road to Riches" Scheme - 4th Apr 21
Should Stock Markets Fear Inflation or Deflation? - 4th Apr 21
Dow Stock Market Trend Forecast 2021 - 3rd Apr 21
Gold Price Just Can’t Seem to Breakout - 3rd Apr 21
Stocks, Gold and the Troubling Yields - 3rd Apr 21
What can you buy with cryptocurrencies?- 3rd Apr 21
What a Long and Not so Strange Trip it’s Been for the Gold Mining Stocks - 2nd Apr 21
WD My Book DUO 28tb Unboxing - What Drives Inside the Enclosure, Reds or Blues Review - 2nd Apr 21
Markets, Mayhem and Elliott Waves - 2nd Apr 21
Gold And US Dollar Hegemony - 2nd Apr 21
What Biden’s Big Infrastructure Push Means for Silver Price - 2nd Apr 21
Stock Market Support Near $14,358 On Transportation Index Suggests Rally Will Continue - 2nd Apr 21
Crypto Mine Bitcoin With Your Gaming PC - How Much Profit after 3 Weeks with NiceHash, RTX 3080 GPU - 2nd Apr 21
UK Lockdowns Ending As Europe Continues to Die, Sweet Child O' Mine 2021 Post Pandemic Hope - 2nd Apr 21
A Climbing USDX Means Gold Investors Should Care - 1st Apr 21
How To Spot Market Boom and Bust Cycles - 1st Apr 21
What Could Slay the Stock & Gold Bulls - 1st Apr 21
Precious Metals Mining Stocks Setting Up For A Breakout Rally – Wait For Confirmation - 1st Apr 21
Fed: “We’re Not Going to Take This Punchbowl Away” - 1st Apr 21
Mining Bitcoin On My Desktop PC For 3 Weeks - How Much Crypto Profit Using RTX 3080 on NiceHash - 31st Mar 21
INFLATION - Wage Slaves vs Gold Owners - 31st Mar 21
Why It‘s Reasonable to Be Bullish Stocks and Gold - 31st Mar 21
How To Be Eligible For An E-Transfer Payday Loan? - 31st Mar 21
eXcentral Review – Trade CFDs with a Customer-Centric Broker - 31st Mar 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold, Metals and US Dollar Analysis : Sailing the Seas of Liquidity

Commodities / Gold & Silver Apr 22, 2007 - 08:04 PM GMT

By: Dominick


Oroborean writes “A corrective dollar rally, as short-lived as it might be, could become a hurdle for metals going forward … When support finally kicks in, as it may have on Friday, there could be some correction and consolidation in metals. ”

~ Precious Points: Got Discipline? , April 14, 2007

Everywhere you turn, economists and commentators are talking up the benefit of the weak dollar – how it's good for exports, how it will boost the profit margins of multinational corporations. What you don't hear quite as much of is how it makes your cash savings worse less and less and how your wealth would be more than keeping pace with inflation if it was stored in metals.

Gold and silver have surged on a steep decline in the dollar index over recent weeks, but the last update warned that a relief rally might be due. In fact, the dollar did find an ounce of strength last week, causing the metals to briefly stumble. Core CPI was modest, but, even worse, this fed the lingering perception from two weeks ago that inflation in general is moderating. As a result, there was downward pressure on the long end of the yield curve, an overall decrease in TIPS spreads, and some recovery in the greenback.

But though traders might seize on the moment, the Federal Reserve is unlikely to have been soothed much by the single data set, especially considering the forces responsible for the mild inflation figures will probably dissipate by next month. What doesn't seen to be dissipating is the rate of increase in M2, expanding by an additional $18.7 billion last week alone.

Domestic liquidity is a concern for some, but the capital market is still showing no signs of a “credit crunch”, even though banks are restricting their home mortgage lending. The balance has been made up in business loans, which is apparent in the drop in corporate paper issuance. Corporate bonds have the requirement of being spent on business purposes, and last week's corporate paper data were consistent with the anemic capital expenditure recently lamented by economic optimists. Instead of investing in new production capacity, companies have preferred to spend their cash on stock buybacks and dividends, probably because they still see weakness for the economy in the short term. The important fact for metals, though, is that domestic liquidity remains intact.

Globally, where economic growth is robust and profound, liquidity is also quite adequate despite the upward trend of interest rates in Europe , the U.K. , and Japan , and now the expectation of rate hikes in China . In fact, whereas stock markets responded negatively in February to China 's attempts to dampen the pace of its growth, they seem to have now come to the position always held by this update. A bubble-like collapse of China 's economy is virtually inevitable if their growth is not managed responsibly. They have the positive example of their neighbors in Tokyo , who through strict regulations on banks, see low inflation even with very low lending rates. The Chinese seem committed to sustaining the viability of their economy, even if only for their own domestic political benefit. And, of course, a growing consumer class in China will only create new demand for all commodities, including precious metals.

Therefore, the long term outlook for metals remains bullish as the tide of liquidity stays high. But it also seems certain volatility will continue as the woes of the domestic housing market continue play out and the structural changes to China 's economy are integrated into the global market. New money continues to flow into stock markets, even though economists expect consumers will draw liquidity from stocks as their home equity diminishes. February's shakedown clearly wasn't enough to kickstart new investment in real estate. Another correction, maybe not as sharp, but for longer, could actually mark the bottom for housing, and if it does occur, metals will probably not escape unscathed. In the meanwhile, rising interest rates abroad work to make rates in the U.S. more accommodative, weakening the dollar and seeming to virtually preclude the Fed from lowering interest rates.

Short term, metals will continue to benefit from economic optimism and strong corporate earnings. Essentially, metals are neither at support or resistance and, in the absence of significant economic data early in the week, will be subject to the mood of the markets. Despite a minor struggle last week, the trend continues to be up until it's not. Weaker consumer confidence and existing home data could be the start of that reversal unless earnings keep investors buying at last week's fevered pitch.

Two key pieces of economic data released late next week, GDP and PCE, could also be important factors. GDP is forecast to come in low, but the deflator could reasonably be expected to be cold given the recent data. Gold and silver are either nearing the apex of their respective rallies or are waiting to break out to new highs. The chart below shows gold at vulnerable technical target range and in need of a spike above $720 in order to challenge last Mays highs. Certainly a renewed decline in the dollar could be that catalyst.

(chart by Dominick)

Silver, though recently underperforming, could make back most of its lost ground on a good week. The RSI does not look exhausted yet, and silver closed with more net speculative long positions despite finishing lower for the week. Though earnings could easily overshadow the metals in the early part of the week, a slow creep upward could easily become a higher jumping-off point if the economic data and global events materialize favorably. A member in the forums has also noted the bullish rising triangle pattern in the silver chart, further indication that silver's break should be to the upside.


Metals have been sailing the seas of liquidity and all seas are subject to ups and downs. In 2006, metals jumped more than 30% in three months. After a steep correction they've fought their way back near those levels. Now, with investors inoculated against a falling dollar by all the talk about exports and multinationals, the dollar index could slide below 80 before anyone starts getting nervous again. And if the metals can hang on until the next round of inflation data proves that inflation is not gone, big waves can be on the horizon.

by Joe Nicholson (oroborean)

This update is provided as general information and is not an investment recommendation. TTC accepts no liability whatsoever for any losses resulting from action taken based on the contents of its charts, commentaries, or price data. Securities and commodities markets involve inherent risk and not all positions are suitable for each individual.  Check with your licensed financial advisor or broker prior to taking any action.

© 2005-2019 - 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

6 Critical Money Making Rules