Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Is Gold Bound to Rebound?

Commodities / Gold and Silver 2011 Oct 04, 2011 - 02:37 PM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleRecently, investors have suffered an average market decline of 6.5% in the equity portion of their investments, the largest fall since the dark days of October 2008, with $1 trillion of paper wealth evaporating in the process. Speaking of October 2008, it was then that gold prices tumbled 18% as turmoil in global financial markets led to losses in global equity and commodity markets. The precious metal rallied 23% in the next two months.


So why did precious metals take such a fall? As our correlation matrix showed, over the past few weeks gold had decoupled from stock markets and every time stock markets sold off, gold would rise as investors would seek it out as a safe haven. However, the Chicago Mercantile Exchange (CME) began raising the amount of margin it required to buy a gold future with three raises since July. In total, margins have risen by $5, 400. (You had to put more money down to invest.) If you recall, the same thing happened with silver when it went parabolic in the spring. The CME raised margin requirements four times, amounting to an 84% hike. At that time silver also sold off. Then again, historically, margin hikes are known to be much more important for silver than they are for gold, so it seems there must have been more to the bearish case than just margin hikes.

Another factor influencing the drop was selling by investors to meet margin calls on other losses, or by investors anxious to lock in some profits and gold and silver is where the profits were to be found. This effect was particularly strong since gold moved so high recently and so many momentum players were aboard. It is important to remember that violent sell-offs in equity and other asset markets can spill over into precious metals, but after an initial selling wave, gold tends to disassociate itself and rebound.

To see if this might be the case now we will now take you to this week's technical part. We will start with the analysis of the yellow metal (charts courtesy by http://stockcharts.com.)

Let’s take a look at the very long-term chart. Gold plunged very dramatically, but stopped close to the $1,600 target level. This level is based on two rising support lines. Clearly significant levels have been reached in both price and the RSI indicator (as seen in the upper part of the chart).

The long-term RSI, which is based on weekly closing prices, moved to the 50-level after being previously extremely overbought. Similar price actions where previously oversold RSI declined along gold prices have been seen eight times previously during this bull market. In seven of the eight times, gold’s decline stopped when the RSI reached the 50-level and a sizable rally soon followed. Each of these important local bottoms has been marked with a red ellipse in our chart.  In some cases, the bottom was final but even when an additional decline was seen a short time later, significant rallies ensued. The RSI is close to the 50 level and it appears likely that gold will rally from here.

This is very much consistent with what we wrote last Friday in our essay on a possible move up in precious metals:

There is no doubt that like everything else, the bull run in gold will eventually come to an end, but we’re still a long way off. We see the sharp decline as an opportunity rather than a warning. It is a good time, for those who wished all along that they had bought gold, to do it on dips. Nothing that has taken place over the past weeks lessens our long-term optimism about gold. The same fundamentals are still in place.

In the long-term chart for gold from a non-USD perspective, we also see that a strong support line has been reached. The previous breakout above the resistance line created by previous tops has been invalidated, but the technical damage has already been done and it seems that a rally from here is quite probable. 

Looking at gold from the perspective of the Japanese yen, we also see RSI levels now oversold. Recently we have seen a decline that was much sharper than in the past. Each time the upper border of the trading channel was surpassed, index levels quickly moved to the lower border and this marked an important bottom from the USD perspective as well. Such has been the case once again, as the index moved below the lower border of the trend channel and quickly reversed. It is now right at this level. Similar price action patterns have been seen in the past and a rally generally has followed. The implications are bullish for gold.

While we will leave the short-term details for our Subscribers, we would like to feature one more important factor that is currently in play - the SP Gold Stock Extreme Indicator.

The SP Gold Stock Extreme Indicator moved above the upper dashed line, which was very close to a local bottom each time (!) since 2008 and in most cases before this date. As we can see, not each and every bottom was indicated, but when we have actually seen SP Gold Stock Extreme Indicator flashing a buy signal, each time a short-term rally followed. What we have seen right now is a very strong buy signal.

Does it mean that gold / gold stocks are guaranteed to move up from here? Of course not - there are no sure bets in any market. However, it does mean that it's very likely. What price action precisely can you expect given this particular signal?

The best way to estimate the size of the move of any indicator (including our own) is to simply take a look at the chart and see what happened previously when analogous signals flashed.

In this case, we are looking for at least a 1-3 week rally that’s visible from the long-term perspective. Please take a look below for details (if you're reading this essay on our website, you can click this chart to enlarge it).

Summing up, based on multiple factors, including charts and indicators, it appears that we are close to or have already seen a major bottom in gold.

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