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
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 21
S&P 500 Rallies To New All-Time Highs – Are The Markets About To Break Higher? - 5th Sep 21
Bond Conundrum - Boom or Bust for Gold? - 5th Sep 21
How the sale of a Sting CD sparked an Entire Online Industry - 5th Sep 21
Three Years of Fresh Thinking With Scott Dylan and Dave Antrobus - 5th Sep 21
Bitcoin Bear Market Trend Forecast 2021 and Model Crypto Portfolio Buying Levels - 4th Sep 21
The Most Actively Traded Companies on the Toronto Stock Exchange - 4th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Will Gold Rollover Be Triggered by the Stock Market Rollercoaster?

Commodities / Gold and Silver 2011 Aug 13, 2011 - 03:42 AM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleThis is one of those weeks where it is truly difficult to know where to begin. This is August. Nothing is supposed to happen in August. But this week gold shot up when markets plummeted, and gold shot up when markets soared. It was one of those weeks when gold could do no wrong.


Do we begin with the downgrade by Standard & Poor rating agency of the U.S. that took place only last Friday but already seems like old news? (Like Jon Stewart said, you’d think that we would not take so seriously a company whose name literally translates to Average & Below Average.) The Democrats are calling it — the “Tea Party downgrade,” hoping blame for the fiasco will stick to the Republicans. Nobel Prize winning economist Paul Krugman, writing in his weekly column in the New York Times, called the downgrade “chutzpah.”

“If there’s a single word that best describes the rating agency’s decision to downgrade America, it’s chutzpah — traditionally defined by the example of the young man who kills his parents, then pleads for mercy because he’s an orphan.”

Perhaps we need to talk about the subsequent Wall Street bloodbath that took place on Monday when the Dow Jones industrial average fell 5.6 percent on the heels of a 5.75 percent drop the previous week. All this happened while President Obama was giving a televised speech to calm the markets. (It brings to mind Nero fiddling while Rome burns.) On Monday gold prices soared above the $1,700-an-ounce barrier and it was only three weeks ago when we were giddy about gold having crossed the $1,600-an-ounce barrier.

If ever there was a time in Washington for the three Rs, -- remorse, repentance and regret-- it should have been that Monday after the embarrassing downgrading of the nation’s credit rating. Poll numbers showed public support for Congress at record low of 14 percent.
 
Then we get to Tuesday when markets rallied with the Dow Jones industrial average up almost 430 points. The interesting thing is that gold prices continued to climb hitting yet another record slicing through the $1,750 milestone. Gold’s gains seem incongruous with huge market upsurge when normally gold tends to decline. However, this was after the Federal Reserve announced that it would keep interest rates low through mid-2013 in order to help the U.S. economy. Gold, which doesn’t pay dividends or interest and costs money to store, becomes more attractive when interest rates are low making Treasuries less attractive. Actually, with negative real interest rates, gold becomes the only sure bet there is (except other precious metals), as bonds provide you with negative return.

However, all of Tuesday’s gains were wiped out on Wednesday when at the end of trading, the Dow was down 520 points, or 4.6 percent, and the Standard & Poor’s 500-stock index was off 4.4 percent. Now it was worries about European banks that caused a frigid wind to blow on both sides of the Atlantic. But again gold was unstoppable. Gold futures rose to a record gaining $45.80, or 2.7% to $1,789 an ounce, benefiting from the U.S. Federal Reserve’s decision to keep ultra-low interest rates. Again, was it only three weeks ago that we were giddy about gold having passed the $1,600 mark? In our essay on the gold rally (July 22nd, 2011), we wrote the following:

Being technical analysts is one of our professions, so it is quite rarely when we feel any emotions regarding the market regardless if we’re making substantial gains or if we’re on the losing side. But, off the record, we will admit to a slight twinge of a thrill when gold broke the psychological barrier of $1,600 an ounce (…).

And here we are, three weeks later with gold having nicked the $1,800 mark? Pinch us.

With so much going on in the precious metals market, we hope that the rest of August will prove to be calm. We will now take you to this week's technical part. We will start with analysis of the S&P 500 Index (charts courtesy by http://stockcharts.com.)

In the long-term SPX S&P 500 Index chart, we see that this week’s move in stock prices has been quite profound and certainly the biggest decline of the current year. It was indeed significant and touched a few important support lines. The long-term 50% Fibonacci retracement level was touched and provided support as stocks reversed soon after reaching this level. The quick reversal created a weekly candlestick pattern, which looks like a bullish-hammer reversal pattern. This was also accompanied by strong volume and confirms the bullishness of the candlestick. Naturally, the week did not end yet, but the odds are that the pattern will hold.

In the medium-term S&P 500 Index chart this week, we see that the 38.2% Fibonacci retracement level, based on the 2009-2011 rallies was touched. This coincided with our target based on the 200-week moving average. At this point, the situation looks quite favorable for stocks.

Although, the general analysis of sentiment across the financial news portals has recently been scary and somewhat pessimistic, the pundits declare, often in the same breath, that Warren Buffet is buying. So given the latter, is it more likely we are at a local top or local bottom? Surely Mr. Buffet buys low, not high and it therefore seems obvious that we are close to or at a local bottom. The situation appears similar to what was seen last year (April-May) when stocks declined, moved back and forth a bit and then moved slightly lower before bottoming and beginning a significant five to six month rally.

In this week’s Correlation Matrix, we see that gold and the general stock market have a significant negative correlation in both the 30-day and 90-day columns. Therefore, if stocks rally, gold prices are likely to decline. Based on this and the bullish sentiment discussed previously for stocks, lower gold prices appear more likely than not for the near term.

Looking at gold from the perspective of the Japanese yen we have an extremely overbought situation based on the RSI level and a long-term resistance level also in play. In this chart (as well as in other gold charts featured in the full version of this essay), a local top appears to be upon us. It is important to note that when multiple perspectives and tools all point to the same general outlook, it greatly increases the odds of the outlook being right on.

On a side note, the reason that we feature the Japanese yen separately is that gold viewed from this perspective is particularly different than from other non-USD perspectives.

Summing up, the situation for stocks in general looks bullish in the short term. With the general stock market having significant negative correlation with gold, this implies lower prices of the yellow metal and analysis of gold itself confirms that. Based on the points made above, it does appear that we are quite close to a local top and long positions in gold at this point seem very risky, at least for the short term.

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, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. 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