Gold & Precious Metals

What Do Other Commodities Tell Us About Gold’s Future Moves?

If you want to be an effective and profitable investor you should look at the situation from different perspectives and make sure that the actions that you are about to take is really justified.

In the precious metals market it turns out very often that if you take a look at the gold’s price chart only, the outlook might be incomplete or even unclear. For this reason, we usually complement the yellow metal’s analysis by the analysis of silver, mining stocks, the general stock market, important ratios and other related markets.

As you know, precious metals usually move together on a short-term basis, even though they may evolve into different formations in the medium- and long term. That’s why we decided to feature the palladium chart today. Does it provide us with interesting clues as to the next possible moves in the entire sector? Let’s take a closer look at the below chart and find out (charts courtesy by http://stockcharts.com).

radomski july312013 1

On the above chart we see that in recent weeks, palladium continued its rally and reached the declining resistance line based on the 2013 top and the May peak (in terms of weekly closing prices). This stopped buyers and we saw a decline, which took the price to the 70 level last week. Although we saw a pullback at the beginning of this week, buyers didn’t manage to push the prices above the above-mentioned resistance line. This might result in further declines.

What’s next? In the short term we might see some strength and a small move to the upside, but there is another declining resistance line based on the 2013 top and the May peak (on an intraday basis), which may trigger a correction.

Please note that when we saw a similar price action at the end of March and in late May, gold, silver and mining stocks didn’t move visibly higher. Therefore, even if palladium climbs up once again to the next declining resistance line, it will likely not trigger a significant increase in the rest of the precious metals sector.

But what could happen if the buyers fail? If palladium declines, it seems that it will move the rest of the sector lower.

The shape of this relationship is rather similar to the one between gold and crude oil. So,

let’s move on to the “black gold” chart and check if this commodity is still quite useful in analyzing the precious metals market.

radomski july312013 2

On the above chart we see that the situation has deteriorated slightly. In the recent weeks the situation was overbought on a short-term basis (the RSI indicator was above 70) and that a short-term correction was quite likely. In recent days, the RSI has dropped below 70 and generated a sell signal. This circumstance encouraged the oil bears to go short and triggered a corrective move. Although the price of crude oil still remains above the broken long-term declining resistance line, the recent correction took it below $105 per barrel.

At this point, we would like to draw your attention to the fact that in the past we saw the yellow metal’s price move higher along with the price of crude oil (there are periods when this relationship worked, but it was not always the case).

The current rally in gold took place along with a rally in crude oil. From this point of view, if oil corrects, this could trigger another move lower in gold as well.

Once we know the current situation in the commodities discussed before, and its implications for the precious metals sector, let’s turn to our final chart. Today, we would like to present you the gold chart from the perspective of the Australian dollar once again. In our opinion this is a very interesting chart which may provides important clues as to further gold’s price movements.

Click HERE or on image for larger view

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On the above chart, we see that the price of gold in Australian dollars hasn’t changed much. Although gold climbed up above the declining resistance line, the breakout was invalidated very quickly, and the price came back below this declining resistance line (currently close to 14.5).

We saw similar price action in June. After the invalidation of the breakout above the above-mentioned declining support/resistance line, there was a pullback to this resistance line. The buyers, however, didn’t manage to push gold above it. This resulted in strong declines, which took the price all the way back down to the April bottom area.

As we wrote in our essay on gold, silver and mining stocks on July 24:

If we see similar price action here, gold priced in Australian dollars will likely decline once again. Such a triple-bottom, in this case, would likely mean a breakdown below the previous lows in the price of gold seen from our regular USD perspective, a price action similar to what was seen in June.

So, from this point of view, the recent moves up haven’t changed much and the current outlook and the implications remain bearish.

Summing up, both palladium and crude oil are in medium-term uptrends whereas gold, silver and mining stocks remain in a downtrend. The implications of the palladium chart for the whole precious metals sector are rather bearish for the short term, as the chart indicates that the current move to the upside is over or might be over soon. The short term picture for crude oil is also bearish which may translate into lower precious metals prices in the near future.

Thank you for reading. Have a great and profitable week!

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Gold Investment & Silver Investment Website – SunshineProfits.com

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Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA 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, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, 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.

 

Gold has reacted negatively to a mostly upbeat GDP report released by the US Commerce Department this morning. Something worth noting, however, is that of the last four initial estimates for US GDP (reported quarterly) all have been revised lower. 

Click here to read more. 

Markets will quickly shift attention to a policy announcement from the US Federal Reserve (2:00 EST). With Q2 GDP, a FOMC policy announcment, and a labour survey Friday, Fed taper talks will be the number one focus of analysts this week. 

Click to read Pimco’s Mohammad El-Erian in the FT. 

Editor’s Note: Introducing Kitco’s latest addition to its industry-leading metals markets reports: Jim Wyckoff’s “Where Are the Stops?” daily report.

Professional traders have a very good idea of price levels at which buy and sell stop orders are located on a daily basis. And now you will, too! If pre-placed buy or sell stop order are triggered, bigger price moves can immediately follow. Most stop orders are located and placed based upon key technical support or resistance levels on the daily chart, which if breached, would significantly change the near-term technical posture of that market. Having a good idea, beforehand, where the buy and sell stops are located can give an active trader a better idea regarding at what price level buying or selling pressure will become intensified in that market.

….read about the location of the stops HER
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After plunging from a high of nearly $1,900 an ounce, gold is set to rally about 20%, to $1,550. Why traders “have not been as bullish since gold prices were under $300.”

The collapse in the gold price from a high of nearly $1,900 an ounce in August 2011 to a low of less than $1,200 late last month has inspired a few gold bears to liken the metal’s outlook to the early 1980s, when it fell nearly two-thirds from its January 1980 peak of $850. That bearish scenario would mean a low of $640 before history fully repeats itself.

But there is also a bullish outlook, and it gains credibility from the fact that its source has called the recent market turns with impressive accuracy. Steve Briese (pronounced “breezy”), publisher of the Bullish Review of Commodity Insiders newsletter, thinks the metal’s rise to nearly $1,300 last week could be the start of a sustained rebound.

…..read more HERE

Same Old Same Old at the U.S. Federal Reserve Board

McIver Wealth Management Consulting Group

Over the last week, the chatter about who will succeed Ben Bernanke as the Chairman of the U.S. Federal Reserve Board has really heated up.  The front runners are Janet Yellen (someone who is more dovish than Bernanke) and Larry Summers (someone who is friendly towards financing budget deficits with easy monetary policy).

However, there is a common bond between the two that suggests that the current trajectory of monetary policy will stay mostly unchanged after Bernanke’s assumed departure next January.  Both Yellen and Summers are part of the same group that has been steering the financial and monetary direction of the U.S. for the last two decades (Bernanke, Alan Greenspan, Tim Geithner, and Robert Rubin are the other more prominent members of this group).

The big problem with the perpetuation of this cabal is that they are charged with trying to fix the problems that they themselves contributed to creating earlier.  Obviously, they are not inclined to indict themselves by admitting to past mistakes.  This removes the potential for fresh thinking in terms of coming up with new solutions to persistent problems.  It is tantamount to hiring an arsonist to put out the fire that he started.

Until there is a “new guard” in place, expect a continuation of Quantitative Easing and very easy monetary policy until an inflationary wall is hit.  Also, expect very little to be done on needed reforms geared at increasing competition and doing away with the “zombie corporations” that are able to live on in such a benign environment.

Yellen and Summers represent the “old guard.”  Inflationary hedges such as gold and companies that are price inelastic (able to pass along price increases without hurting sales) continue to look intriguing as long as the “old guard” is in place, regardless of which individual ascends to become leader of the Fed.