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
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24
Bitcoin Trend Forecast, Crypto's Exit Strategy - 31st May 24
Zimbabwe Officials Already Looking to Inflate New Gold-Backed Currency - 31st May 24
India Silver Imports Have Already Topped 2023 Total - 31st May 24
Gold Has Done Its Job – Isn’t That Enough? - 31st May 24
Gold Stocks Catching Up - 31st May 24
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and Silver Analysis - All's Well That Ends Well

Commodities / Gold & Silver Jul 08, 2007 - 01:29 AM GMT

By: Joe_Nicholson

Commodities Previous tests of the 50-week moving average have preceded significant rallies over the past year. Two consecutive weekly closes above the 5-week moving average constitute “confirmation” of a new upleg in the gold bull market… silver tends to exaggerate the trends in gold and… a tentative buying level is beginning to be described. ~ Precious Points: The Beauty of Bernanke's Machine , June 30, 2007


After bouncing decisively off the long-watched support at the 50-week moving average last Friday, the holiday-shortened week began with a move back above the 5-week moving average and ultimately closed there, a key level for the health of the current short term trend. Though it proved to be somewhat of a seesaw week, with gold retreating back to the 5-week average on Tuesday and breaking through on Thursday, the proprietary trend cycle charts gave us a buy reading Friday morning for a rally that took gold to a bullish weekly close. Recall that two weekly closes above the 5-week moving average is an extremely bullish trend signal.

Silver had been in somewhat more dire straits recently, its decline pushing through key support first at the 50-day moving average, eventually through the 50-week moving average as shown below. Notice the convergence of the 5- and 50-week averages in the silver chart, which has been characterized here as a warning sign for weeks, now points to strong resistance just under $13. Silver's advance rally Friday morning was further indication of a move back above the 50-week average in gold. Without another close above the 5-week average confirming a new up trend, gold faces a do-or-die convergence of its own.

For some, taking profits after Friday's rally will be enough, but for most, the positive week for metals begs the question whether this is a dead cat bounce after a breakdown, or a sustainable new trend. While stock markets await a new season of earnings and retail sales figures, the near term will probably continue to be dominated by the most recent hot topics.

Essentially, two, sometimes competing, forces are currently at work in the bond market that are also effecting the outlook for the precious metals. The first is the improving economic outlook, as illustrated most recently by Friday's employment data. This tends to raise yields positively for gold through the mechanism outlined last week whereby the Fed responds to increased demand for money by providing new funds to maintain its target (artificially low) rate. The decline of $2.25 billion in sloshing repo funds last week is negligible in light of the heavy maturation Thursday and Friday. Though the Fed's slightly less hawkish statement put a floor under the last bond selloff, the prospect of rising rates is alive again and is enough to extend, at least a little longer, the flurry of acquisitions and buyouts, and has probably prompted some home mortgage refinancing. Ultimately, these are all signs of an expanding money supply.

The Bank of England's hike last week emphasizes what's been stated in this update repeatedly and of which there's no longer any question: the global trend is towards higher interest rates. As seen over the past two weeks, this puts downward pressure on the dollar as it becomes increasingly less desirable for foreign investments. As if they needed any more reason to jump ship! Since the announcement of China 's sovereign investment fund, the writing's been on the wall for the U.S. currency and financing of U.S. debt. After the last Treasury auction proved somewhat anemic, there's now concern the August refinancing could be notably weaker, likely sending bond yields higher still, but probably not without further pressure on the greenback.

So, at the expense of the dollar, Bernanke's steady target rate provides abundant new money to the strengthening domestic economy while foreign central banks exacerbate the situation by raising their rates, even if they are still woefully low themselves. Unless a monkey-wrench is thrown in at Congressional hearings next week, the turning gears of Bernanke's beautiful machine continue to sound like music to the ears of precious metals investors!

Of course, it's prudent to understand the downside to the rising interest rates around the world, which is that eventually Japan will raise its overnight rate and the world will flirt with the risk that, no matter how gradual and transparent the move may be, currency traders and other arbitrageurs will unravel enough of the yen carry trade to have a negative impact on valuations across asset classes. There's also an unknown level where rising domestic yields will have a similarly negative effect in the U.S. Though there are certain risks ahead that threaten a rather ugly ending, these major potential obstacles are manageable and still out on the horizon. Given the repeated testing and holding of the 50-week average in gold on Friday, this will remain the important level to watch for confirmation of the short term rally. The overhead resistance is well established.

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.


Post Comment

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