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
Ethereum EIP 1559 and Raven Coin - 21st Apr 21
Gold, USDX: The Board is Set, the Pieces are Moving - 21st Apr 21
World Economies Need to Find a Lot More COPPER! - 21st Apr 21
DogeCoin CRASH! Time to Start Mining BOODGIE Coin! Crypto Mania 2021 - 21st Apr 21
Pausing Stocks and Gold Fireworks - 21st Apr 21
Precious Metals and Miners Start of New Longer-Term Bullish Trend - P2 - 21st Apr 21
Looking For A Mortgage Broker? Here Is How To Hire One - 21st Apr 21
Amazon AMZN Stock PRIMEDAY SALE! Trend Analysis - 20th Apr 21
Stock Market Sentiment Speaks: You May Not Believe My 2021 Targets - 20th Apr 21
Stock Market Phase Two Projection - 20th Apr 21
Are Precious Metals & Miners Starting A New Longer-Term Bullish Trend? - 20th Apr 21
Inflation: First the Gain, Then the Pain… - 20th Apr 21
8 Stock Market Indicators in 1: Here's the Message of the Panic/Euphoria Model - 19th Apr 21
Gold - You Can Win a Battle, but Still Lose the War - 19th Apr 21
Will Interest Rates Rally Further Push Gold Price Down? - 19th Apr 21
Gold Fireworks Doubt the Official Inflation Story - 19th Apr 21
YuanPay Team Discuss The Process Of Crypto Diversification - 19th Apr 21
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Precious Metals Stocks update Gold, Silver : Follow the Money

Commodities / Forecasts & Technical Analysis Jan 27, 2007 - 07:37 PM GMT

By: Dominick


As we mentioned last week, there are numerous factors weighing on the spot price of precious metals and this fact can make it challenging from week to week to say exactly which forces will predominate and determine the next direction the market will take. The forces include sentiment, interest rates, speculative demand, but, of course, the bottom line is money. If you can follow the money, understanding where it's moving and why, then you'll know what's driving the metals markets. The operative words over the last two weeks have been:

"In the short term, if next week's data continue to nourish the sentiment that the economy has rounded the bottom, a veritable soft landing, then metals have a realistic shot at overtaking resistance. The hotter the economy appears to become, the more willingness investors should have to get back into mining stocks and the greater the inflation concerns will become."

Silver trust shares

With GLD outperforming spot gold this week, and GDX well outperforming the major indices, the road we've been paving here is starting to be traveled. Money was recently piling into stocks as the indices reached record-breaking levels, but now that it's the charts themselves breaking, the precious metals complex is again looking like a good place to put your money.

We also illustrated last week how precious metals seemed to be the major beneficiary of the recent bond market selloff, noting that the strong economy was heating inflation worries, but warned that rallies in gold would be particularly subject to profit-taking and selling on "overbought" technical factors. Of course, in a weekly update you can only get a handle on the prevailing trends, but members in the TTC forums receive daily briefings on relevant news and factors moving the metals market. For example, after recommending that buyers load up on Monday's weakness, the following message was posted to the forum before Tuesday's opening on Wall Street:

"the news turned negative for the dollar overnight, at least against the euro, but it's probably seen the full extent of its decline for today, so the question becomes whether gold can stay above $638 and GLD above $63.33.  remembering that gold can be reaching near term overbought levels, a move above $645 would be dangerous, but given that inflation concerns are starting to make a comeback as measured by TIPS spreads, and that the market has not yet priced in a rate hike, which is certainly the way the Fed is leaning, i'm starting to watch $650 for some time over the next two weeks.  with all it's inflation talk, the fed has been playing right into gold's hands !"

Of course, spot gold made a run towards $650 that very day. When it reversed as the dollar regained lost ground, members were tipped off to expect another near term rally in Wednesday morning's post. If you recall, Wednesday was the day spot gold peaked over $652 intraday.

The relationship we've been tracking between stocks, bonds, and metals, though, was disturbed a bit during Thursday's massive across-the-board selloff, where money seemed to flow out all three markets simultaneously. The biggest move of the week, however, though it probably won't make any headlines, was the jump in 30-year Treasury yields. The move signaled that markets are finally starting to take the Fed at their word and, with the January meeting right around the corner, have started pricing in a possible rate hike.

This interest rate development is particularly important because the economy is probably not as strong as the latest data has led traders to believe. In fact, with interest rates at recent highs, particularly as expressed by the 30-year bonds, there's growing concern the housing market will be unable to work off excess inventory this year as had been hoped. On top of that, there's new numbers out now suggesting that mortgage defaults in housing will continue to escalate over the coming months. These areas of the economy being what they are, it's almost impossible for the Fed to hike rates anytime soon, but the hawkish talk has done more to normalize the yield curve than most probably ever expected. If buyers now rush in to capitalize on the higher yields and return interest rates to more palatable levels for borrowers, the move may siphon dollars away from stocks and metals markets.

Indeed, as the effect of winter weather takes hold and begins to appear in the data, the optimism that led the concurrent rallies in stocks and metals appears to be unwinding. But, as we've been saying, many factors are at work in the metals sector and metals are now gaining strength from oil finally moving higher and from continued uncertainty surrounding what appears to be a potential broadening of the conflict in Iraq. As the gulf widens between public sentiment and the President's ongoing course of action, and with General Petraeus telling Congress this week the situation in Iraq is “dire”, the chances of a geopolitical catalyst for precious metals this year, and for a return of the "terror premium" are increasing.

Curious events are also unfolding around the dollar. We had suggested a few months back when Paulson and Bernanke traveled to China that, whatever the stated objectives or conclusions, work was probably being done to secure the future of the greenback. The dollar has had a significant rebound since that time, perhaps culminating in this week's announcement by China 's premier that the diversification of its foreign exchange holdings will not hurt the U.S. dollar and will be at least partly focused on increasing domestic consumption. It's a very nice sentiment for the premier to express, but with the specifics of the plan yet to be released, it's easy to conclude that diversification is diversification and will ultimately mean a drag on the U.S. dollar. Since the announcement, we've already seen the dollar reach fourteen year lows against the pound, which is rapidly becoming the central banker's new reserve currency of choice. While the dollar is likely to remain stable generally, this week's rebound against the Euro had more to do with swelling monetary supply of that foreign currency than any inherent strength in the greenback.

Unlike the dollar, the fundamentals for precious metals are bullish so that having the other relevant forces in balance produces a gentle, sustainable upward slope of rising value over time. Whatever the motivating cause, it's an unbalance of these forces that makes money move quickly into the sector at higher and higher prices, producing spikes and crashes. And so while this week brought our rally into the territory of $650 gold, the fact remains that, above this psychological level, gold starts to make headlines and physical demand starts to flag. With bond yields rising and the Fed looming, no one but the metals bulls want to hear about $700 gold right now. Though $700 is still an eventual upside target, a kind of move beyond that in the short term will require a powerful catalyst to produce a voracious speculative appetite for metals that's been unseen since last April, when GLD and IAU were pegged to physical prices. It's possible some of the divergence can be explained by fluctuations in the value of the ETF baskets due to lease or storage rates, though, since this exact variation is difficult to calculate and hardly common knowledge, it's unlikely the principle cause.  

Until Thursday, the markets seemed to be trading on the questionable notion that a strong economy would produce greater demand for precious metals as it has clearly been doing for steel. If some of the heat comes out of the economy very soon and lowers treasury yields, then it's possible that a return to that logic would see gold and silver suffer as a result. While $600, or just below, is the key support level, ideally, $640-$650 range will hold over the next week as gold continues to trend sideways toward the multiyear trendline we presented earlier in the month. But, if any of the numerous bullish factors kick up a little dust, and the picture looks bleaker than a mild slowdown so that fast money finds itself looking for a safehaven, metals will probably receive the benefit. The charts below show both metals ETFs well above support, with GLD very near to resistance but SLV having plenty of room to extend before the next major obstacle.

Steel tracks gold trust shares

To keep up with the evolving market forces described here, follow the money with us, up to the Fed meeting and beyond, in the TTC forums, where monthly membership costs less than 1/10 oz gold or a 10 oz bar of silver -- one of the best values on the web!

Joe Oroborean

© 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

6 Critical Money Making Rules