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
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
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

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Keys For the Next Gold Breakout

Commodities / Gold and Silver 2012 Jul 26, 2012 - 11:11 AM GMT

By: Clif_Droke

Commodities

Best Financial Markets Analysis ArticleGold's historic run-up from $250 to nearly $2,000 an ounce in the last 10 years has underlined the long-term value and intrinsic worth of a key asset. It has also provided a fabulous, once-in-a-lifetime investment opportunity for many individuals, not to mention a long-term momentum trade for both retail and institutional investors.


Gold has also provided investors with an important lesson in the past year: despite its distinctive safe haven value, the metal definitely has a speculative element which is critical to its price appreciation. In this regard at least, gold is no different than other assets. Gold's speculative element was nowhere more evident than in the series of margin requirement hikes last summer, which saw gold fall from an all-time high of just under $2,000 an ounce to a low of around $1,550.

GCQ12  - Gold - Daily Continuation OHLC Chart

From the bottom of the 2008 credit crisis, gold benefited from a combination of bullish factors. At the bottom of the crisis in late 2008 - and well before the smoke finally cleared from the financial market in March 2009 - gold got the benefit of relative strength versus the equity market. Hedge funds and institutional traders are constantly on the lookout for markets and investment opportunities that are outperforming the general equities market. Compared to the benchmark S&P 500, gold was a shining example of relative strength and it quickly caught the eye of big money traders in the latter part of 2008. Gold was really the ultimate relative strength play in the early stages of the 2009-2011 global recovery.

Aside from relative strength and valuation considerations, gold also benefited from successive quantitative easing initiatives undertaken by the Federal Reserve between 2009 and 2011. The gold market was a huge recipient of "hot money" inflows owing to the excessive liquidity generated by QE1 and QE2, and these programs helped propel gold to all-time highs.

Fast forward to the summer of 2012 and we find gold the opposite of the technical position it was in during the 2009-2011 period. It no longer had the benefit of relative strength and the residual effects of QE2 have long since faded. Worse still (from an intermediate-term perspective), gold doesn't even have the benefit of the leveraged, speculative traders prior to the CME Group's margin hikes last summer. Gold has been forced to undergo a long period of quiet consolidation as the trend trading crowd seeks opportunities in other markets.

What will change this situation and generate the return of the speculative element so critical for gold's success? One of two possibilities can be mentioned for the foreseeable interim outlook. The first possibility is the one being widely discussed by investors today, namely a third quantitative easing program (QE3). This is the least likely of the possibilities as far as fueling a near term gold breakout. A third QE program during an election year would be politically toxic and too controversial to be considered (barring a massive deterioration in the global economy and financial market between now and November). Moreover, Fed Chairman Bernanke isn't likely to prime the liquidity pump anytime soon given the relatively high levels of prices for both equities and consumer prices.

The second possibility for a gold turnaround is the one most likely by year end. A conspicuous increase in gold's relative strength would do much to attract the attention of market-moving hedge funds and institutional investors. This could easily be accomplished even if gold doesn't break out from its consolidation pattern anytime soon. Indeed, gold need only remain within its lateral trading range of the past few months during an equity market decline after the 4-year cycle peak this fall. This is essentially what happened in the latter part of 2008, which was the previous 4-year cycle peak. The fourth quarter of 2008 also provided gold with its opportunity to shine vis-à-vis equities, which could easily be repeated in Q4 2012.

Gold Relative Strength

If history repeats, by this fall gold will be poised to benefit from both a relative strength increase as well as an historic long-term "oversold" signal (discussed in previous commentaries, see chart below).

10-Month Gold Oscillator

There are several prominent trouble spots in the global economy which could easily metastasize and reach crisis proportions by 2013. I'm referring to the European debt problem, China's economic slowdown, and the coming U.S. tax increases of 2013-2014. Gold will once again resume its traditional safe haven role once the concern over these problems reaches the boiling point and morphs into full-fledged fear.

The two points along the 60-year economic cycle in which gold ownership is most desirable is during the peak phase of the cycle when runaway inflation reaches its apogee, and the trough of the cycle when extreme deflation is at its worse. We are about to arrive at the latter end of the cycle when the deflationary undercurrents which have damaged the economy in recent years will accelerate and become uncontainable. It's in just such a ravaging environment that gold will truly shine.

2014: America's Date With Destiny

Take a journey into the future with me as we discover what the future may unfold in the fateful period leading up to - and following - the 120-year cycle bottom in late 2014.

Picking up where I left off in my previous work, The Stock Market Cycles, I expand on the Kress cycle narrative and explain how the 120-year Mega cycle influences the market, the economy and other aspects of American life and culture. My latest book, 2014: America's Date With Destiny, examines the most vital issues facing America and the global economy in the 2-3 years ahead.

The new book explains that the credit crisis of 2008 was merely the prelude in an intensifying global credit storm. If the basis for my prediction continue true to form - namely the long-term Kress cycles - the worst part of the crisis lies ahead in the years 2013-2014. The book is now available for sale at: http://www.clifdroke.com/books/destiny.html

Order today to receive your autographed copy and a FREE 1-month trial subscription to the Gold & Silver Stock Report newsletter. Published twice each week, the newsletter uses the method described in this book for making profitable trades among the actively traded gold mining shares.

By Clif Droke
www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com


© 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