Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

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

6 Critical Money Making Rules