Gold & Precious Metals
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).
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.
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
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.
STOCK MARKET – ACTION ALERT – BULL – BUT THERE IS STILL CORRECTIVE RISK – TOO MANY BULLS OUT THERE AND I HAVE MY FINGER ON THE TRIGGER SHOULD A SELL SIGNAL APPEAR. THAT SAID, BERNANKE IS NOT LIKELY TO TRIGGER ANY PANIC.
Turnaround Tuesday triggered the anticipated rally try and today the world awaits word from ‘the man behind the curtain’. Bonds are selling off, investors are dangerously too optimistic, economic fundamentals remain at best questionable both here, in Europe and in China. Bottom line, though there are still higher technical targets in the major indexes, this is not a time to be betting on the long side except for trading purposes. I remain on a BUY signal only because a downtrend has not, as yet, been confirmed, but things could change quickly. My hunch is that a big downside surprise is on the horizon.
On Tuesday, the S&P notched its high at the open before spending the rest of the session in a steady retreat. The selling intensified during afternoon action, sending the S&P into the red as participants displayed caution ahead of tomorrow’s advance second quarter GDP report and the latest policy statement from the Federal Reserve.
The Conference Board’s Consumer Confidence Index weakened a bit in July, dropping from an upwardly revised 82.1 (from 81.4) in June to 80.3. TheBriefing.com consensus pegged the index at 81.6. The slight dip in confidence does not change the overall picture of an improving consumer base. The index likely fell back due to normal volatility after reaching a 5-year high in June. Furthermore, the University of Michigan Consumer Sentiment Index spiked to its highest level since 2007 in July, signaling that the drop in confidence was likely a non-event.
Separately, the May Case-Shiller 20-city Home Price Index rose 12.2% while a 10.5% increase had been expected by the Briefing.com consensus. This followed the previous month’s increase of 12.1%.
Today, the weekly MBA Mortgage Index will be reported at 7:00 ET and the July ADP Employment Change will be released at 8:15 ET. Second quarter GDP will be reported at 8:30 ET and the July Chicago PMI will cross the wires at 9:45 ET. The day will be topped off with the 14:00 ET release of the latest policy statement from the Federal Open Market Committee.
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The Dow Industrials were down 1.38 at 15520.59. On Tuesday, July 23 the DJ touched a new record high of 15604.22 which was followed first by a Leibovit Negative Volume Reversal coincident with a 200 point intraday correction into Friday, July 26 into 15405.16. This defines the short-term trading range for the DJ. As a matter of reference, 14551.27 is major support under which downside potential could be another 1000 points.
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The S&P 500 was up .63 at 1685.96. A VR was posted on July 24 and the burden of proof is on the bulls to breakout into new high ground above 1698.78. The recent low was at 1560.33 on Monday, June 24. This establishes our short-term trading range. The next big upside target is 1730.00.
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The Dow Transports were up 20.87 at 6421.82.. We declined from 6608.87 on July 19 to 6355.04 on July 25 – a 250 point decline – establishing the current trading range. On a bigger picture basis, a ‘theoretical’ bullish reverse ‘head and shoulders’ patterns have formed: 1) From July, 2011 to present and 2) May, 2008 to present. The upside measurements are astronomical anywhere from 2600 points from the former to 3400 points to the latter ABOVE CURRENT HIGHS! If this is true and if the Transports are indeed the market leader I believe it is, we have a long way to go in this bull market, but I don’t think that is happening now. In fact, we not see those numbers until the end of the decade.
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The Russell 2000 was up 2.85 at 1043.51. The Russell touched a new high at 1056.86 intraday on July 23.
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The Nasdaq Composite was up 17.33 at 3616.47 touching 3629.12 – both new bull market highs. Looks like we’re headed to my next near-term upside potential lies to 3800. Is Bernanke trying to get the Nasdaq back to the 2000 peak of 5000?
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The CBOE Volatility Index (VIX), which measures the cost of using options as insurance against declines in the S&P 500 (i.e., the higher the number, the more fear in the marketplace) was up .67 at 13.39. The VIX touched 21.91 intraday on Monday, June 24 – the highest high since the March 15 low of 11.21 – the lowest level since February 2007. It was unchanged at on Friday. The higher we go in the VIX, the more likely a bear cycle is upon us.
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Four f the nine market sectors were higher on Tuesday.
XLB -0.25% Materials
XLE -0.19% Energy
XLF -0.05% Financial
XLI +0.42% Industrial
XLK +0.51% Technology
XLP -0.10% Consumer Staples
XLU +0.33% Utilities
XLV +0.02% Health Care
XLY -0.25% Consumer Discretionary
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NYSE Advance/Decline 1958/2034.
NASDAQ Advance/Decline 1301/1199.
NYSE UP volume to DOWN volume was 15 to 17.
NASDAQ UP volume to DOWN volume was 11 to 5.
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From the VRtrader.com website here is a link to World Market Indices:
http://www.vrtrader.com/vr_free/worldmarkets/index.asp
Yesterday we highlighted Newmont Mining as a potential buying opportunity in the gold sector. Today we take a look at another interesting situation.
IAMGOLD (IMG.TO) is a leading mid-tier Canadian gold producer with a $2 billion market cap that operates six gold mines on three continents and also operates Niobec Inc. which is one of the world’s top three producers of niobium.
Similar to our Newmont analysis, examining the long-term monthly chart going back to 1996 there were two major lows, one at $2.05 in 2000 and the other at $2.93 in 2008. If we connect these lows you can see a long-term rising trend line that has now provided support at the $4.00 level which was the low on the stock in late June.
The recent low was also accompanied by an expansion in volume as the final sellers have liquidated their positions with new shareholders now in place. This month we have seen some renewed demand creating an inside bar on the monthly chart.
Since the stock peaked at $16.45 last October it has failed to trade above the previous months high? The June high was $5.78 and so far this month the high is $5.65. If we see some renewed strength and the shares can close above $5.65 in August we would become very bullish on IMG.
Again, we are see a great buying opportunity unfolding in a good quality gold producer with a dividend yield of 4.6%.
The information contained in this report was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. This report is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views expressed are those of the author and not necessarily those of Raymond James Ltd.
Here’s what to look for when the Federal Open Market Committee releases a statement at 2 p.m. tomorrow after a two-day meeting in Washington. Unlike last month, the policy-making panel will not release economic forecasts, and Chairman Ben S. Bernanke will not be briefing the press afterwards.
— Possible clarification in the statement on the likely path of the Fed’s bond buying, currently $85 billion a month. Bernanke said in a news conference on June 19 that the central bank may begin reducing the pace of purchases “later this year” and may end the program about the middle of 2014, assuming the economy performs as forecast by the Fed. By the time the program ends, unemployment will be around 7 percent, Bernanke said. The rate was 7.6 percent in June.
“We are looking for the FOMC to formalize a version of the guidelines for tapering QE laid out by Chairman Ben Bernanke,” Julia Coronado, chief economist for North America at BNP Paribas in New York, wrote in a research note. The statement will probably say that the committee expects to begin trimming the purchases later this year; that the reduction will come in “measured steps” if the economy continues to improve and inflation rises closer to the Fed’s target; and that the program will end when unemployment is around 7 percent, she said.
— An emphasis from the FOMC that it expects to pursue accommodative policy for the foreseeable future, even after the committee concludes its so-called quantitative easing program, according to Neal Soss and Dana Saporta, economists at Credit Suisse Group AG in New York. The FOMC has kept its benchmark interest rate near zero since December 2008.
Economist Survey
— No change in the pace of bond purchases. None of the 54 economists surveyed by Bloomberg July 18-22 expected the FOMC to begin paring asset purchases at the meeting ending tomorrow. Half predicted a dial-back of the program to $65 billion per month in September.
— An acknowledgement that low inflation has been more persistent than expected, which would “would be seen as dovish, as would a more explicit commitment to defend their inflation target from below,” according to a research note from Bank of America Corp. in New York. The Fed’s preferred price gauge showed that inflation was at 1 percent in May, compared with the central bank’s 2 percent target.
— Renewed dissents from St. Louis Fed President James Bullard and Kansas City’s Esther George, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. Bullard has repeatedly voiced concerns about low inflation, while George has said the Fed’s record accommodation risks leading to financial imbalances.
To contact the reporter on this story: Aki Ito in San Francisco at aito16@bloomberg.net.
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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