Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and Silver Analysis - Precious Points: Enjoy it While it Lasts?

Commodities / Gold & Silver Jun 17, 2007 - 08:03 PM GMT

By: Joe_Nicholson

Commodities

When it comes to the metals, bears hibernate for years, but bulls just retest the 5- and 50-day moving averages! This week's retail sales data will be critical… New figures for CPI and PPI will also be watched closely. Given the delicate balance of forces and the high level of emotion in this market, any surprise in these numbers is likely to set off a big move… Either way, metals have still not failed the support levels consistently outlined in this update over the past several weeks and highlighted … until they do, the outlook will remain decidedly bullish, even if a sustained rally is still always just over the horizon. ~ Precious Points, Don't Go Gentle Into That Goodnight , June 10, 2007

So Goldilocks is back, but where's gold? Stocks are sailing again, how about silver?


A few weeks ago this update proclaimed that to return to its glory days, gold would need a rebound in the U.S. economy and an uptick in inflation. The rebound happened, and aside from the consequences eventuated by a rapid adjustment in bond yields, precious metals appear to have their sites on higher price levels. The perpetual show of support at the 50-day moving average continues to be the pleasant manifestation of a positive fundamental picture, as well as a profitable trade ... but metals aren't out of the woods yet!

The charts below show that, despite the broad market rally, gold and silver failed to close above their 5-day moving averages, the key level watched by this update in recent weeks. This obvious resistance level will be the first obstacle to a sustained rally, followed by even stronger resistance further overhead if it's breached.

Gold and Silver Analysis - Precious Points: Enjoy it While it Lasts?

The addition of $6 billion by the NY Fed during another week of heavy maturation evidences the growing demand for base money, though the trend in supply of sloshing funds is still down for the month. Look for a reversal of this trend as an early indicator of a rally in the metals, though last week's tame inflation figures do not portend a surge to new highs in the short term.

What does appear to be coming in the future is higher interest rates. Alan Greenspan, one of the more high profile figures articulating this consensus recently played down concerns that the Chinese would dump U.S. Treasuries, which would obviously produce a catastrophic surge in bond yields. Much more insidious and highly likely is that, despite the dead cat bounce in bond prices, China and other sovereign holders of U.S. debt will buy fewer and fewer U.S. bonds going forward and this will create an upward bias in yields. Referring to the global liquidity boom which he traced back to the end of the Cold War, Greenspan was quoted to have said, "Enjoy it while it lasts."

Clearly the former head of the Fed is referring to the fact that even though domestic rates have held steady, the trend in global rates has certainly been higher. The news that China was a net seller of U.S. Treasuries in April was no surprise, as they'd already publicly announced the change in their foreign reserve strategy away from U.S. Treasuries and this lack of demand has already been a major contributing factor to weak Treasury auctions and higher interest rates. Syria and Kuwait ending their currency board pegs to the dollar didn't help matters. It used to be that countries raced to devalue their currencies to gain a short lived competitive trade advantage. It now seems we've moved to an era where countries compete for much needed foreign investment through strong currencies and higher returns for bond holders.

It certainly seems the Fed would like to raise rates to keep the dollar and U.S. securities competitive with the likes of Germany , Britain , and this is consistent with Bernanke's desire to foist responsibility for domestic housing on the NGO's. Maybe housing and subprime aren't bad enough to force a cut, but growth is not robust enough and inflation not rampant enough to force a hike – and those other problems would only become much worse in a rate hiking environment. Perhaps it is that the stronger dollar and higher rates coupled with the stronger data attracted some new buying from some of these parties. There's no denying, however, that the direction of the trend is away from financing the U.S. debt through purchase of Treasuries and that this is the main reason for the spike in interest rates and even though this has lately tended to support the dollar, will ultimately reverse and sink the greenback as deficits grow.

That the evaporation of rate cut expectations, as well as these other forces, are responsible for the ramping up of interest rates is consistent with the fact that TIPS spreads still do not indicate increased inflation concerns despite the rise. A potential threat to intermediate term metals prices is that an inflation surge now will cause a further spike in bond yields, resulting in an equity selloff and at least a soft patch in metals. Though current core inflation is hovering at the high end of the Fed's acceptable range, headline inflation, which is widely believed to more closely reflect reality than the Fed's cherry-picked data and focus on price inflation, suggests inflation is rampant and worsening. And ultimately, even the Fed, by its own admission, is committed to money supply inflation, just not too much, too fast.

So as we continue to tread water in what was expected to be a period of ennui in the metals markets, we'll continue to monitor key support and resistance levels, as well as moves in the bond markets and trends in the Fed's open market activities. Probably most valuable of all, however, are the trend cycle charts, forums, and realtime chatrooms available only to TTC members. The current subscription fee of $50/month is only available for two more weeks until prices go up … yet another sign of very real inflation!!

by Joe Nicholson (oroborean)

www.tradingthecharts.com

This update is provided as general information and is not an investment recommendation. TTC accepts no liability whatsoever for any losses resulting from action taken based on the contents of its charts,, commentaries, or price data. Securities and commodities markets involve inherent risk and not all positions are suitable for each individual.  Check with your licensed financial advisor or broker prior to taking any action.

Joe Nicholson Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

mike kauffman
18 Jun 07, 09:46
gold

if world tensions coutinue too esclate and the dollar falls we would then be in for an gold rise.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in