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

Why Buy Gold Now, Forecast $4,500

Commodities / Gold and Silver 2012 Dec 24, 2011 - 11:31 AM GMT

By: UnpuncturedCycle

Commodities

Diamond Rated - Best Financial Markets Analysis ArticleOn the economic front we see that for the month of October personal income had gained 0.4% while spending had increased 0.1%. For November, economists polled by MarketWatch had expected personal income to gain 0.2%, and for spending to also rise 0.2%. Meanwhile, there was no growth in November for the price index for personal consumption expenditures, though this inflation gauge is up 2.5% from the prior year. The core inflation reading, which excludes volatile food and energy costs, rose 0.1% in November, matching economists' expectations. Compared with the prior year, core inflation is up 1.7%. The personal-saving rate declined to 3.5% in November from 3.6% in October, and down considerably from the 7.1% rates we saw during the summer. Finally we see that credit card debt increased considerably during the month of October.


In an interesting note the National Association of Realtors (NAR) corrected its estimates of existing home sales today (December 21st), and 3.54 million previously reported home sales vanished, in revision, since January 2007. Put in perspective, the amount of sales wiped out was the total amount of seasonally adjusted existing home sales that previously had been reported in 2011, through October. Post-2006, 14.3% of existing home sales were eliminated, with sales in the Northeast taking a 30.9% hit, followed by a 14.2% reduction in the Midwest, 12.3% loss in the South and 5.3% loss in the West:

Corrected Existed Home Sales

Finally as you can see below the housing starts remain abysmal, well below the lowest levels going back to World War II:

Housing Starts

If we look overseas we can see the yields for sovereign debt in Spain, Portugal, Ireland and Italy are beginning to move higher once again, and this is just three days after the ECB burned 489 billion euros in a futile attempt to add liquidity to the EU banking system. The Italian 10-year bond yield crossed back above 7.00% this morning and that is considered by many to be the point of no return:

Italian 10-Year Yields

The current yield stands at 7.064% and is generally considered to be beyond the means of the Italian government. A reasonable level would be 5% or less!

In spite of the momentary flashes of economic growth the world economy continues to decline as deflationary pressures gradually increase. This is one of the reasons gold has floundered of late; that combined with the fact that it had rallied close to 50% by the time it reached the September high. If you want confirmation that the world's economy is slowing, you simply look at China, the exporter to the world. Here you can see that the Shanghai Exchange has been declining for more than two years:

Shanghai Stock Exchange Composite Index

What's more over the last couple of weeks it's made one new multi-year closing low after another! Finally, you can see that the decline is gaining strength, and that's an indication that deflation is gaining strength.

In spite of the problems gold has been grinding high over that same period as you can see below:

Gold

In spite of the recent and much publicized decline in the price of the yellow metal, it is still up 220.30 or 15.91% for the year, but no one ever mentions that. What's more that's almost double the gains in the Dow and it beats oil, cotton and copper by a wide margin. The only thing to produce a bigger gain was the US 30-year Treasury, up by close to 17%.

With respect to the short-term outlook for gold we can see that it is trading below the 200-dma, RSI recently fell as low as 29.00, and the MACD was at the low for 2011. These are points at which investors historically step in and buy the yellow metal:

Gold

After making an all-time high in September gold has traced out two lower highs and one lower closing low and became extremely oversold in the process. The final leg up to the all-time high began from 1,478.30 and ran 445.40 to the 1,923.70 top. The decline down to the September low of 1,535.00 retraced almost 87.50% of the leg up and then bounced. As I mentioned in a previous report it is not unusual to see a reaction retrace all, or almost all, of such a vertical move higher and you can see that the reaction stopped right at strong support from a trend line going back to an old high.

From the September low gold rallied 269.40 to 1,804.40 retracing 60% of the original decline. This is significant because gold retraced more than 50% of the decline thereby indicating that we would eventually see a retest of the September all-time high. Then of course gold did the opposite and fell back down to an intraday low of 1,562.50 earlier this month, a higher intraday low but a lower closing low. Since then gold has stumbled and fumbled its way back up to 1,607.00 but still under the 200-dma at 1,619.90. Many analysts mistakenly think that the break of the 200-dma marks the end of the bull market, but over the last ten years we've seen the 200-dma broken on four separate occasions and yet gold continued to move higher. This time around will be no different.

Strong Fibonacci support is found at 1,522.20, then down at the old low of 1,478.30, and then we have a trend line that comes in at 1,503.00 so we can say we have a range of support. Meanwhile Fibonacci resistance is at 1,671.50 and then again up at 1,756.20, but the real key will be posting a higher high above 1767.10.

Both the US and EU have made it abundantly clear that they have no intention of implementing an intelligent coherent plan. Instead they will print because it's the easiest thing for them to do, in droplets at first and then in torrents. That will destroy both the dollar and the Euro and it will ultimately drive gold higher than anyone anticipated just a couple of years ago. What's more the general public has yet to dip their toe into the gold bull market, but they will as they search for shelter from the storm. That phase of the bull market will drive gold to a minimum of US $4,500/ounce with relatively few interruptions along the way.

Finally a lot of people are convinced that we'll see inflation, but if deflation occurs a lot of people believe that gold must decline. It's worth remembering that during the 1930 -1932 deflationary depression gold rallied more than 60%. I am absolutely convinced that the debt bubble must burst and many of these insolvent countries will default as economies shrink and debt rises to unsustainable levels. Currencies will become worthless, and whether any potential deflationary effects are short-lived (like 2008) or long-term (Japan), I still want to own gold. Along with the debt bubble bursting will come a severe loss of confidence in the fiat system... and gold is a great hedge in this scenario. It is the only real asset that will rise in value. In a world where everyone is totally caught up in the here and now, no one expects or believes that such a thing is possible. "They will never allow that to happen" is the mantra that everyone repeats to himself or herself. Unfortunately the market is bigger than they are, a lot bigger, and when it rolls over all the printing presses in the world won't stop it. That's when you'll be glad you bought gold today.

Giuseppe L. Borrelli
www.unpuncturedcycle.com
theunpuncturedcycle@gmail.com

Copyright © 2011 Giuseppe L. Borrelli

- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 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