Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

This Summer May Prove Hot for Gold Prices Despite the Weak Seasonal Tendencies

Commodities / Gold & Silver 2009 Jun 29, 2009 - 09:04 AM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleI am often asked at this time whether it is a good idea to be in the precious metals market during the summer period known as the Summer Doldrums, in which demand for gold dries up temporarily while farmers in India plant crops and wait for the Monsoon rains. When they harvest in the early September, demand for gold picks up again as they are anxious to convert their profits into gold. After looking at the seasonal effects on gold one might think it prudent to wait through the summer in hopes of entering the market at lower prices.


However, after considering important fundamental factors such as the increase in the money supply, it is clear that it is not a good idea to wait until summer’s end to enter a market that rather sooner than later is heading higher. Naturally, there will be pullbacks along the way, but the potential cost of being completely out of the market is too steep.

The technical side of the market helps us estimate the most probable direction and range of the next move. This week we begin with gold.  (charts courtesy of http://stockcharts.com).

Gold

In the June 6th Premium Update I included a chart for my subscribers that featured non-USD gold. Several weeks have passed since then and I believe an update on this topic will be helpful, especially for those who cover their living expenses in currencies other than the dollar.

commentary_free_2009_06_27_1

This chart features the gold to the UDN ratio. The latter is the symbol for PowerShares DB US Dollar Index Bearish Fund, which moves in the exact opposite direction of the USD Index. Since the USD Index is a weighted average of the dollar's currency exchange rates with world's most important currencies, we may use the gold:UDN ratio to estimate the value of gold prices in "other currencies".

The June downleg in the precious metals is visible also in other currencies, but the price reversed very quickly once it briefly broke below the multi-month support level (ratio below 35) and touched its 200-day moving average. The very temporary breakdown and rapid comeback above the support level is a bullish development.

This means that the buying pressure was very strong indicating potent demand that will prevent gold from going much lower right now. Additionally, since the breakout above the previous highs (corresponds to the abovementioned 35 level) has been verified twice and took several months, it seems that we are now ready to advance further. (In the USD the price of gold did not break though its previous highs earlier this year.)

We need to zoom in to see more details.

commentary_free_2009_06_27_2

Using the GLD ETF as a proxy, medium-term gold looks bullish. The local bottom that I predicted in past updates has materialized, and both visible indicators (Relative Strength Index and the Stochastic Indicator) suggest higher prices are likely. The Stochastic Indicator has put in a bottom and the RSI is at levels that do not suggest a plunge. Therefore, anyone holding gold right now should sleep rather well.

The cup-and-handle formation, to which I referred several times in the past, seems to be completed, and the handle, which formed during June, is now clearly visible. Ideally, I would like to see the volume shaped similarly to the way price shaped during the mid-Feb to June time frame, as this would perfectly confirm this bullish formation. But this is not the case. The volume was much higher in the middle of the February top than it was at the beginning of June.

Still, the lowest values of volume were in the mid-April during the bottoming process, and the volume declined during the “handle“ phase, so I decided to include this formation in my analysis. Volume is not ideally confirming this bullish formation, but it is also not invalidating it.

Summing up, gold is likely to take a small pause here, which will also correspond to the summer doldrums, but based on the current charts, it seems that this move will be insignificant, so I do not plan to trade it for myself.

Silver

commentary_free_2009_06_27_3

The silver market appears to have bottomed as well. We saw the pattern in the Stochastic indicator, which is usually visible during bottoms, and we touched the support level on high volume. The silver chart confirms the points raised earlier – the most probable direction for price to go is up.

Correlations

commentary_free_2009_06_27_4

As I indicated a week earlier, the correlation between USD Index and the precious metals market has weakened recently and for the past few weeks they have been trading somewhat independently from each other. Since I first wrote about it, the correlation has become even weaker. Although that is a short period of time on which to base any conclusions, it might tell us that uncertainty about the short-term outcome in the USD market does not automatically need to translate into uncertainty in the gold market.

The precious metals sector is still in a favorably technical and fundamental situation and it does not “require“ the dollar to plunge in order to move higher.

Summary

Summing up, the historical tendencies favoring the summer doldrums scenario may not play out this year, as many significant developments, such as the tremendous increase in the money supply, suggest higher prices ahead. The traditional negative correlation between the dollar and precious metals has become barely visible in the past two weeks, but that does not seem to matter much, as gold, silver, and mining stocks are likely to rise even without significant influence from the USD Index. Still, we may experience a pause in rise of gold prices.

 To make sure that you get immediate access to my 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.

    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 RadomskiArchive

© 2005-2022 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