Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Economy Still on Shaky Foundations, Gold Targets $1600

Stock-Markets / Financial Markets 2010 Dec 14, 2010 - 10:08 AM GMT

By: Rosanne_Lim

Stock-Markets

Best Financial Markets Analysis ArticleIn an innovative TV commercial for Barclays Bank, a man walks down on Wall Street but discovers that nearly everything is a fake movie set. The huge investment houses and international banks are all made of paintings on cloth or Styrofoam while the people are mannequins. The nightmare ended with the man finding one real bank which is Barclays Bank.


While the institution claims to bit more substantial, the truth is that all banks have one commonality: they are built upon illusory paper wealth with an unstable foundation.
The financial crisis has made people aware of the vulnerabilities in institutions they trust with their life savings. There are a lot of developments that make these vulnerabilities even more apparent including the following:

  • Politicians and the media propagating economic recovery even as the unemployment rate remains stuck at around 10%. Meanwhile, underemployment is around 20%.
  • The US national debt is ballooning by $100,000 every three seconds. The once unimaginable debt load of $24 trillion can actually be exceeded in ten years.
  • China and Japan are the two biggest holders of US debt. Until now, they have covered the big-spending tab for US politicians. But as they encounter economic problems of their own, doubts about the United State’s ability to pay are increasing.

Given this situation, the inevitable outcome would be higher taxes and cost of living. The government-induced monetary inflation will reduce the value of the dollar. For some people, the answer lies in converting their dollars to other currencies while for others, it is turning to gold.

Investors are struggling to deal with ballooning US Treasury yields, which are supporting the dollar. The rise in yields acts as a stabilizer but there are inflation concerns. As Treasury rates rise, the dollar becomes more appealing to investors. This could damp the prices in dollar-denominated commodities such as silver and gold. On Tuesday, it can be observed that the bullion suffered swift profit-taking.

The jump in yields may also indicate a more worrying trend – that there are widespread concerns about the US’s fiscal position. According to Moody’s and Fitch, the nation’s budgetary outlook will suffer from adding $1,000 billion to the US deficit from tax cuts.

The dollar also continues to benefit from problems in the Euro-zone. Barclay’s economist said that Ireland’s austerity package is “likely to weigh on the euro” over the short term because the next general election would cause uncertainty over its final passage and form. Anxiety remains in the “peripheral” bond market.

Also in Europe, the FTSE Eurofirst 300 is up by 0.4% while London’s FTSE 100 fell 0.2% because of mineral sector losses. Germany’s Dax Index went down 0.4% because of news that the country’s exports fell in October.

In Asia-Pacific, shares were mixed in the region but it has a downward bias. The weak yen helped Japanese exporters and the Nikkei 225 hit its highest levels in seven months. It’s average rose by 0.9% but other major hubs are under pressure. China’s Shanghai Composite fell 1% while Hong Kong’s Hang Seng Index shed 1.4% on fears of new monetary tightening in Beijing. FTSE Asia-Pacific Index was down 0.8%.

According to Steven Major, the global head of fixed income research at HSBC, “you could argue that we are at a new stage where the global cost of capital goes higher and higher.” Yields on 10-year US Treasury bonds hit 3.33% which is up by 0.39 percentage points from Monday. It is also 1 percentage point higher than its October low. Meanwhile, the Japanese five-year yields likewise rose the most in two years. Germany’s hit 3%. David Ader of CRT Capital said that, “people are getting out of the market and moving to the sidelines, feeling shell-shocked at the speed of the rise in yields.”

Although yields remain relatively low when compared to long-term trends, investors are starting to worry that they might continue its sharp upward trend. Paul Marson of Lombard Odier, which is a Swiss private bank, “yields at this level are clearly unsustainable.”

These market movements came after President Obama agreed with Republicans in Congress that the Bush-era tax cuts should be extended. It will also be combined with $120 billion payroll tax holiday. However, investors remain divided as to whether these decisions are enough to explain the recent global increase in yields.

Among the reasons why growth expectations have increased include improved economic data as well as the “second stimulus” by the US government. But some argue that these movements may be due to fears that the Fed will not follow through on asset purchases or because of high government deficits. Mr. Major, for his part, said that “it’s probably all three.”

Speaking of the U.S. Economy, let's take a look at the very-long-term chart of the S&P 500 Index (charts courtesy of http://stockcharts.com).

The S&P 500 Index in Wall Street went up by 0.4%, which remains near its two-year high. The long-term chart above shows that the SPX S&P 500 is at a crucial resistance level. The 61.8% Fibonacci retracement level might provide a strong resistance. No bigger rally is projected unless a verified move above the 61.8% line becomes visible. At this point we have seen a small move higher but it was not significant enough to be considered as a true breakout.

The sharp increase in yields is crippling rally in other assets including commodities. The FTSE All-Would Equity Index was down by 0.4% as of December 8, 2010 and the traders’ favorite, gold, is now pulling back from its record highs. Last Wednesday, gold dropped to $1,381 an ounce while silver at $28.36 an ounce. As of December 13, 2010, gold has since rallied to $1,395 per ounce while silver closed at $29.55.

Gold’s very long-term chart is almost unchanged from last week. The consolidation period for the precious metal has been visible for nearly 2 months. It began in October after gold breached the upper border of the long-term trading channel. The $1,600 is still valid, however we don't expect a substantial rally to emerge until prices break about the multi-year resistance level marked above with the thick blue line.

If you are interested in knowing more on the market signals we analyze, we encourage you to subscribe to our Premium Updates to read the latest trading suggestions. We also have a free mailing list - if you sing up today, you'll get 7 days of full access to our website absolutely free. In other words, there's no risk, and you can unsubscribe anytime.

Thank you for reading.

Rosanne Lim
Sunshine Profits Contributing Author

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.


© 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