Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19
The Unknown Tech Stock Transforming The Internet - 10th Sep 19
More Wall Street Propaganda - 10th Sep 19
Stock Market Price Structure Still Suggests We Are Within Volatile Rotation - 9th Sep 19
Stock Market Still Treading Water - 9th Sep 19
Buying Pullbacks in Silver & Gold - 9th Sep 19
Government Spending - The High Price of a "Free Lunch" - 9th Sep 19
Don't Worry About a Recession - 9th Sep 19
Large Drop in Stocks, Big Rally in Gold and Silver - 9th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

No Signs of a Gold and Silver Bubble Despite Record Advances in 2010

Commodities / Gold and Silver 2010 Dec 27, 2010 - 10:12 AM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleHistory has been peppered with financial bubbles and we’ll get to that, but first, is gold in a bubble?

So far it's been the amazing, runaway investment of the past decade. If you'd put your money into gold at the lows about 10 years ago, you'd have made approximately 400% return. That's left pretty much everything else—stocks, China, housing—in the dust, and we don’t mean gold dust.


We would be willing to bet that if you asked for a show of hands of how many people own gold in an audience of 100 seasoned investors, probably less than 10 might raise their hands. If you asked the same question in a room of average, random people probably one or two hands at the most might go up.

Gold is clearly not in the bubble stage yet.

What do tulips, Mississippi, Internet, Dot.Com, the South Seas and Florida housing have in common? They were all at one time bubbles that burst leaving financial ruin in their wake.

Although some of these bubble episodes happened centuries ago, the events are eerily similar to today’s bubbles and busts: low interest rates, easy credit terms, widespread public participation, bankrupt governments, price inflation, and frantic attempts by government to keep the booms going and government bailouts of companies after the crash – gold is not plagued by any of these problems.

Niall Ferguson in his book “The Ascent of Money,” distils the formation of bubbles into five stages:

1. Some change in economic circumstances creates new and profitable opportunities.
2. Euphoria sets in whereby rising expected profits lead to rapid growth in share prices.
3. The prospect of easy capital gains attracts fist time investors.
4. The insiders realize that the now exorbitant price is unsustainable and begin to take profits by selling.
5. As share prices fall, the outsiders stampede for the exits all together causing the bubble to burst.

If we look at the above analysis, then gold is probably only in stage one where changes in economic circumstances create profitable opportunities to buy the yellow metal. We are still far away from euphoria. Although gold has attracted some first time investors prompted by fear and searching for a safe haven for their capital, gold is far away from being a crowded trade. If you’re not sure, just ask your friends, acquaintances how many of them have bought gold. With crumbling infrastructure, runaway debt, paralyzed government, military bogged down in pointless faraway non-wars and troubles in the eurozone, there are plenty of motives to buy gold.

Gold will correct during its run up and we hope that it does. When it does, all the people shouting “bubble” will smirk and we will be out there buying more. We think that bubble is not in gold, it is in what is driving the price of gold—fiat money creation.

Moving to short to medium-term signals, let's take a look at the precious metals market through the perspective of currencies and the general stock market (charts courtesy of http://stockcharts.com). The Euro Index chart below highlights attempts to move below the medium-term support line. The head-and-shoulders pattern (which might be completed even though it appeared rather unlikely just a few days ago) formation is about to be signal a significant move lower.

Note that the breakout below the rising trend channel was verified a little over a week ago. Since that time, Euro Index levels have steadily declined with close to a 3% drop seen as of Tuesday. The outlook here remains quite bearish.

In this week’s long-term USD Index chart, we see trends, which are the exact opposite of those seen in the Euro Index - which is normally the case.

The resistance level (dashed declining line), which is now in play, is rather weak, having been formed from two highs, one of which was formed very recently. Please note that the upper border of the previous trend channel (thick blue line on the chart) was much stronger as it was based on two tops that were a few months apart from each other and also from the moment when the resistance was in play (in November) - please note that this level stopped the rally for a while.

The relationship between the USD Index and gold, silver, and mining stocks, however, is not as clear as it once was. This seems to be due to the changes seen in the Euro Zone, the euro being a very large part of the USD Index.

Overall, there appears to be a slightly greater chance that the USD Index level will move higher and the outlook for precious metals is therefore slightly bearish at this time.

The very long-term SPX S&P 500 chart is virtually unchanged from last week. The RSI level is now at 68.41 and this level has corresponded to local tops several times in the past. Perhaps stocks are near a local top also this time.

Summing up, the sentiment for the general stock market is now bearish as a local top appears to be very close and it seems that the breakout visible on the very long-term chart might turn out to be a fake-out. The implications are also slightly bearish for the precious metals sector as well.

However, long-term fundamentals are intact. Just because gold has been in a long-term advance does not mean it represents a bubble.  Neither does volatility as long as it is within a reasonable range and there are reasons other than demand from Traders that justify such a move. We don’t see any evidence of that in case of gold and silver.

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, 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.

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

6 Critical Money Making Rules