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
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21
Bitcoin Halvings Price Forecast and Stock to Flow Analysis - 18th Jul 21
Dell S3220DGF Unboxing and Stand Assembly - 32 Inch 165hz Curved Gaming Monitor Amazon Discount - 18th Jul 21
What Does The Fed Mean By “Transitory Inflation” And Why Is It Important To Understand? - 18th Jul 21
Will the US stock market’s worsening breadth matter? - 18th Jul 21
Bitcoin Halving's Price Projection Forecasts Trend Trajectory - 18th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

What Happens to Gold if the Markets Crash?

Commodities / Gold and Silver 2011 Aug 08, 2011 - 04:06 AM GMT

By: Clive_Maund

Commodities

Best Financial Markets Analysis ArticleThis is the question that many would like an answer to, as it is looking rather likely after the announcement, conveniently made after the markets closed on Friday, that Standard and Poor were lowering their rating for US debt.


Actually the markets started to crash on Thursday, with major indices breaking down from a large Head-and-Shoulders top, as we can see on our 1-year chart for the S&P500 index chart below. By Friday's close the markets had become deeply oversold, and while this could lead to a technical rebound towards the neckline, it would very likely be followed by renewed decline, but because the breakdown was such a seriously negative technical development there may be no rebound at all - instead the markets could accelerate away to the downside. Banking and financial stocks in particular look truly awful with major support levels having just been breached and little but air beneath most of them.

To answer the question regarding the outlook for gold we will start by looking at the longer-term 6-year chart. On this chart we can see that gold is certainly not a bubble commodity as some like to claim. Instead it has been plodding steadily higher in response to the concerted worldwide attack on the value of fiat by politicians, which shows no signs of ending. The 2008 crash pushed gold lower sufficient to turn its 200-day moving average down, but notice that it did not result in gold breaching the zone of support at the top of the 2006 - 2007 consolidation pattern and gold certainly held up better than most asset classes. Could a general market crash result in it breaking down from its current orderly uptrend and entering a period of more severe decline as in 2008? Well, it could, and if it should break down from the channel it would constitute a trading sell signal, but remember, things are different this time round, as especially after the ratings downgrade on Friday, investors might be less keen to flee into Treasuries and the US dollar, although we should be careful not to underestimate their capacity for stupidity - it doesn't seem to cross the minds of most of them that they would be far better off in bear ETFs. Long-term the outlook for gold remains super bullish, especially as it is still a long way from being a bubble.

The shorter-term 4-month chart for gold certainly does give grounds for caution, especially for shorter-term traders. For on this chart we can see that it is definitely looking overbought after its strong run of the past 5 weeks or so that has taken it to new highs, and attracted the attention of the mainstream media (it's only taken them 10 years to start to cotton on to gold as an investment, better late than never I suppose). Gold has been running a critically overbought condition on its RSI indicator for a couple of weeks now and is very overbought on its MACD indicator, in addition to which it has opened up a significant gap with its moving averages, although it can get larger as we can see on the 6-year chart. The big move up last Tuesday looks like a blowoff move and it was followed by short-term bearish looking candlesticks. All of this suggests that a reaction is likely soon that could carry gold back to the channel support line shown on the 6-year chart, and possibly lower.

The contention that a reaction back soon by gold is likely is certainly supported by the latest COT chart which looks bearish for the near-term. On this chart we can see that the Large Specs have gotten themselves worked up again, and are foaming at the mouth, which usually happens at or near a top. Meanwhile the Commercials are running large short positions again.

Many PM stock investors are of course wondering if a market crash will drag down PM stocks. We got the answer to this question on Thursday when the HUI index plunged along with the broad market, although it has not yet broken down below the support at the bottom of the menacing potential Head-and-Shoulders top that we can see on the 3-year chart for this index shown below. If this support fails it will open the door to a brutal selloff as in 2008, so if it does fail it will be viewed as a general sell signal and investors in the sector will want to stand aside if this happens.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2011 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund 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