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

What Gold's Relative Strength Means

Commodities / Gold and Silver 2012 Nov 15, 2012 - 04:36 AM GMT

By: Jordan_Roy_Byrne

Commodities

Best Financial Markets Analysis ArticleLongtime readers of our editorials know that we are big fans of intermarket analysis as well as ardent believers in the real price of gold (real POG) or relative Gold. No this has nothing to do with the paper market versus the physical market. The real POG is essentially the POG relative to other assets and markets. There are two reasons why we track this. First, Gold priced against the other currencies (specifically the Euro) has been a leading indicator for Gold in US$ terms. Second, Gold's performance against commodities (in general) is a leading indicator for margins of the miners. We discussed this a few weeks ago. Over the weekend, I reviewed Gold's performance in relative terms and it seems to have reasserted its uptrend.


In the chart below we graph Gold against six other markets (foreign currencies, equities, oil, industrial metals, and bonds). Note that Gold is in a steady uptrend against each market with the exception of bonds.

Gold priced in the inverse of the US$ basket is only 4% off its all time high while relative to oil and industrial metals, it just reached a one year high. Gold has turned down relative to bonds as they are close to testing their all-time high. Meanwhile, the yellow metal just matched a six-month high relative to the S&P 500.

So why should we care about all of this?

First, it tells us that Gold is in a healthy bullish position because its trending higher against all major markets with the exception of bonds. In other words, Gold is showing broad strength and is only being held back by the strength in bonds, which happens to be the largest market by a mile. Thus, when we see bonds soften, Gold should have a shot to retest its recent high.

The strength in the real POG usually reflects economic contraction or deceleration. After all, if things were going well we'd expect equities and economically sensitive commodities to outperform Gold. A rise in the real POG is a negative signal for the economy and asset markets. That in itself is a catalyst for central bank action which gives liftoff to precious metals and also explains why the real POG is a trusty leading indicator.

The current interpretation of the real POG bodes well for the underlying cyclical or intermediate term trend which turned bullish in May. While we are here, here are a few quick thoughts on the gold and silver shares. In the chart below we plot the two support lines for GDX, GDXJ and SIL. It appears these markets will test the lower support line.

GDX Market Vectors Gold Miners NYSE

Short term breadth indicators (courtesy of sentimentrader.com) show only 15% of gold stocks trading above their 10-day moving average and only 23% trading above their 50-day moving average. The last time both these ratios were beneath 20% was July, in which a tremendous rebound began.

To conclude, the real price of gold is trending bullish which implies good times ahead for precious metals in the coming months. The poor outlook for oil and industrial prices is a good thing for gold and silver producers as their margins could expand even further in the quarters ahead. The correction that began at the end of September is likely within days of ending. Now, with mining equities trading off their highs is the time to do your research and find the companies that will lead the next leg higher and outperform the gold stock sector.

If you'd be interested in professional guidance in this endeavor, then we invite you to learn more about our service.

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2011 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.

© 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