Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Why PEAK INFLATION is a RED HERRING! Prepare for a Decade Long Cost of Living Crisis - 9th Aug 22
FREETRADE Want to LEND My Shares to Short Sellers! - 8th Aug 22
Stock Market Unclosed Gap - 8th Aug 22
The End Game for Silver Shenanigans... - 8th Aug 22er
WARNING Corsair MP600 NVME2 M2 SSD Are Prone to Failure Can Prevent Systems From Booting - 8th Aug 22
Elliott Waves: Your "Rhyme & Reason" to Mainstream Stock Market Opinions - 6th Aug 22
COST OF LIVING CRISIS NIGHTMARE - Expect High INFLATION for whole of this DECADE! - 6th Aug 22
WHY PEAK INFLATION RED HERRING - 5th Aug 22
Recession Is Good for Gold, but a Crisis Would Be Even Better - 5th Aug 22
Stock Market Rallying On Slowly Thinning Air - 5th Aug 22
SILVER’S BAD BREAK - 5th Aug 22
Stock Market Trend Pattren 2022 Forecast Current State - 4th Aug 22
Should We Be Prepared For An Aggressive U.S. Fed In The Future? - 4th Aug 22
Will the S&P 500 Stock Market Index Go the Way of Meme Stocks? - 4th Aug 22
Stock Market Another Upswing Attempt - 4th Aug 22
What is our Real Economic and Financial Prognosis? - 4th Aug 22
The REAL Stocks Bear Market of 2022 - 3rd Aug 22
The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’ - 3rd Aug 22
Don’t Be Misled by Gold’s Recent Upswing - 3rd Aug 22
Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse" - 31st July 22
Gold Stocks’ Rally Autumn 2022 - 31st July 22
US Fed Is Battling Excess Global Capital – Which Is Creating Inflation - 31st July 22
What it's like at a Stocks Bear Market Bottom - 29th July 22
How to lock in a Guaranteed 9.6% return from Uncle Sam With I Bonds - 29th July 22
All You Need to Know About the Increase in Building Insurance Premiums for Flats - 29th July 22
The Challenges on the Horizon for UK Landlords - 29th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Ends 2010 in a Bullish Fashion – What’s Next?

Commodities / Gold and Silver 2011 Dec 31, 2010 - 08:51 AM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleIt's instructive to look at the end of the year financial magazines and see their analysis of the past year and their projections for the future. For example, the special issue of Fortune Magazine Investor's Guide 2011 had a glimmering stack of gold coins on the cover with a headline “Gold Gone Wild.”


The article noted that people are rummaging through their dressers for gold jewelry to sell and that gold vending machines are selling out in Abu Dhabi and Germany. Exchange traded funds have made it easier for average people to invest in gold. More people have come to realize this year that gold is not just a commodity, but also a currency.  The sole issuer of gold is Mother Nature and she follows a tightfisted policy. The article noted that all the gold ever mined would fill up fewer than four Olympic-size swimming pools.

As we all know, especially approaching the round of New Year's Eve parties, after an epic size binge comes an epic size hangover. The world is still reeling from an enormous headache caused by the real estate and subprime binge.

Things seemed stuck in 2010—the economy, Chilean miners, the accelerators of 2.3 million recalled Toyotas and 1.2 million European airline passengers stuck in airports by the eruption of the Icelandic volcano.

The Green shoots that Fed Chairman Ben Bernanke had promised never seemed to break through the hard ground. By May hopes for a quick recovery were dashed when the stock market tumbled 10 percent and unemployment did not improve, getting stuck at around 10 percent. The European Union bailed out Greece where workers retire at age 55, and in 2010, Irish eyes were not smiling. China's economy, by stark contrast, grew by an impressive 9.6 percent in the third quarter.

For ordinary Americans the rise of China is increasingly associated with job losses and a challenge to American wealth and power. During the more prosperous times there was a win-win world where the U.S. and the euro zone enjoyed prosperity and China, India and other emerging countries felt themselves getting richer. It is likely that 2011 will bring protectionism, anti-immigration sentiment and tensions in the European Union. There could be worsening relations between the U.S. and China over China's keeping the yuan undervalued against the dollar by as much as 40%.
     
In 2011, according to the Economist, investors will get a much clearer idea of the eventual outcome of the inflation/deflation dilemma. Either the economy will start returning to normal, in which case short-term interest rates will rise and the bond markets will suffer, or, it will become clear that the recovery is stalled and there will be talk of a Japan-like deflation. Governments will have to walk a tight-rope in 2011 trying to show enough budgetary austerity to reassure the markets without overdoing it and damaging their recovery.

The one thing we can safely predict is that 2011 will be unpredictable. Let's hope for the best and at the same time be prepared for the worst by holding our physical gold and silver holdings intact.

Meanwhile, let's take a look at the way the USD Index is ending the 2010.

In this week’s long-term USD Index chart (charts courtesy of http://stockcharts.com), we once again see that the index failed to move above the declining support line. And because of that any rally in the USD Index is still likely to be capped by this particular level.

The implications for precious metals seem to be rather nonexistent at this point. They have recently moved higher during both: USD Index rallies as well as consolidation periods. A move lower from here in the USD Index would seem to be only slightly more bullish for gold, silver and mining stocks as opposed to a move up.

The situation for the dollar is rather unclear at this time. The USD Index is approaching a cyclical turning point, which appears slightly more likely to be a local bottom. Until a breakdown is seen in the Euro Index, it is unlikely that any breakout for significant gain will be seen in the USD Index.

Since the USD Index is close to a resistance level, the uncertainty of its next move should be removed soon. Either a decline or a breakout will likely be seen fairly soon and the likely implications upon precious metals will likely also become more easily read.

With weak influence coming from the analysis of the U.S. Dollar, let's take a look at the situation on the general stock market for more meaningful clues.

In this week’s very long-term S&P 500 chart, a breakout above the key retracement level from a previous 2010 high can finally be clearly seen.

With the RSI close to 70, that is, near the overbought area, it is likely that a consolidation will be seen rather sooner than later. Verification of the previous breakout is therefore quite likely. This would be a decline to the level of the previous high followed by an additional rally.

The situation in the general stock market has turned slightly bullish. If and when the breakout above previous 2010 highs is verified and the 61.8% Fibonacci retracement level holds, great buying opportunities will be at hand for both stocks and precious metals.

Even though the economy is still rather weak, the stimulus money finds its way to the stock market, which helps pushing prices higher. This goes double for precious metals as investors find them particularly valuable during such inflationary periods.

Therefore, the recent move higher in stocks appears to be bullish for metals, but let's check it that is indeed the case. Please take a look at the correlation matrix below for details.

The coefficients between precious metals and stocks continue to weaken but are still significant. This means that for precious metals analysis, we must continue to take stocks into account. In addition, bullish sentiment for the general stock market likely implies the same for gold, silver and mining stocks. Consequently, it means that the fact that stocks are now visibly above their key support/resistance level is bullish also for precious metals.

The correlations with the dollar are mixed once again. The 10-day column indicates that the relationship between precious metals and the dollar is weakening further. Overall the influence from the currency sector upon precious metals is rather weak. It appears best at this time to independently analyze gold, silver and mining stocks and then check the correlation matrix. At this point, the implications from other markets are generally bullish for the precious metals sector.

Summing up, the situation for gold has moved from a slightly bearish sentiment to a bullish outlook for the near and medium term. Silver appears likely to take out previous highs and further increases are likely based on current signals. At this time, it seems best for investors to stay with current holdings and - again - perhaps open small speculative long positions.

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