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
Bitcoin, Crypto Market Black Swans from Google to Obsolescence - 1st Aug 21
Gold Stocks Autumn Rally - 1st Aug 21
Earn Upto 6% Interest Rate on USD Cash Deposits with Binance Crypto Exchange USDC amd BUSD - 1st Aug 21
Vuze XR VR 3D Camera Takes Near 2 Minutes to Turn On, Buggy Firmware - 1st Aug 21
Sun EXPLODES! Goes SuperNova! Will Any planets Survive? Jupiter? Pluto? - 1st Aug 21
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Precious Metals' Fake Rally or Beginning of Another Strong Move Up?

Commodities / Gold and Silver 2010 Feb 19, 2010 - 02:59 PM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleInvesting your money in a long-term position can be likened to navigating a ship to port. The compass (fundamental and technical analysis) points you in the right direction as you head out to sea. Even if your ship is sturdy (you have made the right call and are heading in the right direction) every once in a while a big, unexpected wave seems to push you off course.

And without question, since the beginning of the economic crisis, the seas have become especially turbulent.


One such wave was the announcement this Wednesday by the IMF that it would begin phased open-market sales of the remaining 191.3 tons of gold it plans to sell under a program launched last year to raise money for lending. The price of gold dropped 1 percent on the news.

To remind you, this comes nearly four months after India purchased 200 tons from the IMF, news that helped push the price of gold up. So what is the difference?

The IMF had announced last year that it would sell 403.3 tons of gold, about one-eighth of its total stock. Until now, the gold has been made available only to central banks on a first-come-first-serve basis. So far, India -- the world's biggest consumer of gold -- Mauritius and Sri Lanka have purchased a total of 212 tons of IMF gold. The average price for the three sales was a little over $1,050 an ounce, generating about $7.2 billion in proceeds.

In a carefully worded press release, the IMF said that “in accordance with the priority of avoiding disruption of the gold market, the on-market sales will be conducted in a phased manner over time.”

The press release further noted that this does not preclude off-market sales directly to interested central banks.

It is well known that China is interested in increasing its gold reserves. China is sitting on top of a huge mountain of dollar reserves. In fact, a day before the IMF announcement, the US Treasury Department released data showing that Japan overtook China to become the world's biggest foreign holder of U.S. Treasury debt, reclaiming the title for the first time in more than a year. China shed more than $34 billion in long-and-short-term Treasury debt in December, while Japan added $11.5 billion, according to the monthly Treasury International Capital report.

So, it wouldn’t surprise anyone if China steps in and buys some of the IMF gold. Perhaps, as was mentioned in last week’s Premium Update, China is waiting for a better price. 

We believe that the IMF announcement will have a negligible effect on the long-term price of gold. The IMF said it would stagger the sales. But even if it were to dump all the tons at once, it seems that they would be almost immediately absorbed by China, Russia, Middle Eastern sovereign funds and other central banks.

In this case, it seems that we don’t need a confirmation that gold is still a very-long-term buy in the form of the news that George Soros charged into gold during the fourth quarter even despite the fact that gold prices had already run up substantially. He doubled the stake of his fund in the world's largest gold ETF, becoming the fourth- largest holder in the SPDR Gold Trust. As of December 31, gold is Soros’s largest single investment.

Moving back to the analogy from the beginning of this update - we have set our course and we will keep a close eye on the charts to get us safely to port. This week, we prepared two charts for you - one featuring gold, and the second one with one of our unique indicators. Let's begin with the gold market (charts courtesy of http://stockcharts.com.)

In the previous essay we wrote the following:

(…) we see that the similarity that was present during the latest decline is still present after gold bottomed. This time, however, it suggests that gold may soon need to consolidate for a week or so - just like it took place in the past. Please take a look at the areas marked with red rectangles - gold paused when it moved to the declining short-term resistance line (April 2009), or it broke above it and then verified it as support (October 2008, July 2009). Should history repeat once again, we can see a similar pattern also this time (…)

These comments are up-to-date also this week, only this time we already know that gold moved above the declining resistance line, just like it did in July 2009 and September 2008. This means that gold may need to form a temporary top here, which would take gold lower, most likely to the $105 - $107 area in the GLD ETF.

Is gold likely to have topped right now? Not necessarily, based on the situation in the RSI indicator. In the past this particular indicator needed to move to the level marked with the dashed red line before the temporary top was in. Currently, the RSI indicator is visibly below it, so we may see additional several days of higher prices before gold declines significantly.

The Stochastic indicator is above the 80 level, just like it was the case in the past during local tops, but it has also stayed there for some time before the top has been put, so it is a necessary factor, but not sufficient one. In other words, if Stochastic wasn't above 80 level, we would be reluctant to say that we may see a temporary top soon, but since it is above 80 it doesn't mean that the top is in. 

Given the historical performance of the yellow metal, we might expect the consecutive decline to be rather small (the preceding downswing is not even close to being as dramatic as the 2008 one), so it seems that it is not much of an opportunity for shorting the precious metals market, unless we see a confirmation that general stock market's decline can cause PMs to plunge.

The last chart that we would like to feature this week is the one featuring one of our own indicators - the SP Gold Bottom Indicator.


 
According to its name, the above indicator provides buy signals for gold. The buy signal is given, when indicator breaks down lower dashed line, or when it breaks up through the upper dashed line. Since it has just moved above the lower line, it means that it will move below it sooner or later, most likely during the coming small correction, thus generating a buy signal.

Summing up, the precious metals market has moved higher, and it appears that it will need to take a small breather relatively soon. Gold, silver, and PM stocks are currently following the general stock market more closely than the follow the USD Index. This is a positive factor in the very-short-term (main stock indices are rising), but negative in the long run because the situation on the general stock market is still bearish from the long-term point of view.

Meanwhile, one of our unique indicators is about to flash a buy signal. This is positive news for the whole precious metals market, not only for gold itself, but we still need to monitor the situation on the general stock market and check how gold corresponds. Several days of divergence between PMs and the main stock indices will most likely be enough to let us know that PMs are ready to rise once again. For now, we must remain cautious. Naturally, we will keep our Subscribers updated.

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