Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
Will Biden’s Neo-Populist Economic Doctrine Support Gold? - 25th Sep 21
Markets Deflationary Winds Howling - 25th Sep 21
Crude Oil Price Piercing the Sky: Where Will We See the Black Gold by Xmas? - 25th Sep 21
Cryptocurrency policy choices and consequences - 25th Sep 21
The Next Emma Raducanu UK Tennis Star Pleasing the Crowds at Millhouses Park Sheffield - 25th Sep 21
Stock Market Rescued by the Fed Again? - 24th Sep 21
Are Amazon Best Cheap Memory Foam Mattresses Any good? Bedzonline £69 4ft Small Double ECO Example - 24th Sep 21
Evergrande not a Minsky Moment - 24th Sep 21
UK Energy Firms Scamming Customers Out of Their Best Fixed Rate Gas Tariffs - 23rd Sep 21
Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Should School Children be Jabbed with Pfizer Covid-19 Vaccine To Foster Herd Immunity? - UK - 23rd Sep 21
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21

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)

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

© 2005-2019 - 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