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Gold bull bigger than ever

Jan Skoyles — Fri, 03 Feb 2012 23:21:38 +0000

Gold bull bigger than ever

We recently wrote about the difference between gold’s price and its value, demonstrating a significant difference between the two. We asked many fundamental questions which show whether or not the gold price is proximate to its value. The answer was it was not.

Late last year we wrote of the on-going ‘Gold Wars’ between so-called industry experts and gold investors. We repeatedly found ‘experts’, who write in the mainstream media, were calling the end of the gold bubble whenever the price of gold dipped slightly.

For many commentators, the rapid increase in the price of gold over the last decade has led them to conclude that we must be coming to the end of the gold bull market. However, as we pointed out, those that are bearish on gold are failing to look at the fundamentals which drove the gold price upwards in the first place.

Our friend Ronald Stoeferle has emailed us some compelling evidence which suggests the gold bull market is far from over. In fact, his work shows that gold is still significantly undervalued.

Rather than looking at the nominal prices, Mr Stoeferle has decided to carry out comparisons against monetary aggregates and other asset classes. This is key in gold price analysis as it puts the price of the metal into perspective alongside fundamentals which are heavily influenced by both monetary policy and confidence in the economy.

Measuring gold price against M2 money supply

The first chart shows the Gold/M2 ratio. The ratio currently trades at 0.16, which as Mr Stoeferle points out:

Is nowhere near the ratio at which the last bull market ended in 1980 which traded at 0.47
Bull markets do not end ‘around the long term median, they end in extremis’

In order to reach a similar ratio to that seen in 1980, gold would now have to rise to more than $4,500.

Measuring gold price against the MZM supply

MZM, the Money Zero Maturity measure, measures the liquid money supply in an economy. For some countries it is the preferred money supply as it measures the money which is readily available in the economy.

This demonstrates the difference between the value of gold and the money supply as even more extreme version of the earlier graph; the ratio of gold price to MZM is trading at the long term mean of 0.16. This again, is significantly off the 1980 ratio of 0.8.

Mr Stoeferle states that in order for the 1980 ratio to be matched today, the gold price would need to increase to $8,500.

Measuring the gold price against the S&P 500

As is clear from the graph, the current gold/S&P ratio is only just above the long term mean of 1.2. In order to reach the 1980s ratio of 6, the gold price (again, according to Mr Stoeferle) would have to reach in excess of $8,500.

Is this gold bull the same as the last one?

The last bull market ended in 1980 at a peak of $850. Are the fundamentals which both drove the gold bull market and stopped it in its tracks the same for today?

We don’t think so.

In the years prior to 1971, when the dollar had operated on a gold exchange standard, individuals were savers. They had faith in their currency. However, when gold was removed from the dollar, there was little reason to save. In the US, the CPI increased to 15% after the removal of the gold exchange standard. Add to this the issue of the oil shocks, ailing stock markets and loss of purchasing power in other currencies.

As Ferdinand Lips states in Gold Wars, ‘It was not surprising that Americans started to vote by buying gold in whatever form they were legally allowed to do so.’

The reason the gold bull market peaked at $850 is due to Paul Volcker, Chairman of the US Federal Reserve, increasing the interest rate to 20%. This gave stability to the US Dollar at home and improved exchange rates on the international currency markets.

Is our situation today a mirror image of that seen in the 1980s? Back then inflation was rampant, as it is today (unofficially). Back then, the stock markets were shaky, as they are today. Back then, currencies are losing the trust of the international market, as they are today.

Greater extremes for gold investment

But the extremes of today are much greater than in the 1970s, currency imbalances especially.

For a start, the participants in the global marketplace were only represented by the Western World. We looked at this previously. In the 1970s the USSR, India, South America and China were not the significant players they are today. Their roles have now expanded to such a degree that the number of players in the global market has increased tenfold and there is ten times more currency in circulation.

We are now a far more integrated market place. With much more paper money; controlled by governments, who like this easy money as it means they can promise lots of things their countries cannot afford.

Back in 1980 there was no Eurozone crisis, no repeat rounds of quantitative easing, no trillion dollar government debts and the real interest rates were positive.

Do we think there is a chance of Bernanke, or the ECB, or the Bank of England inflicting a Volcker flavoured medicine on the US economy? No, we don’t. With news last week of the Fed’s decision to keep interest rates at a minimum for the next two years, and with rumours of QE3 just around the corner, the Volcker treatment does not seem likely.

This gold bull can only get bigger

The gold price is climbing because of a loss of confidence in the fiat money system – as we looked at previously with Detlev Schlichter, confidence is the only thing which backs such money.

2011 did not end brilliantly for gold investors according to the mainstream commentators, but it still ended 14% higher than the previous year. At the time of writing the yellow metal is sitting comfortably above $1700. It has responded to Federal Reserve reassurances of further money printing and low interest rates, as it should have – by going up in price and demonstrating its role as a safe haven.

As Mr Stoeferle demonstrates, the gold price needs to go much, much higher in order to even begin to match 1980 levels, and even then the situation today is much, much worse. The gold price rising is merely the monetary system resetting itself from a state of imbalance that is far greater than in the 1970s.

Our thanks to Mr Stoeferle for sending us his graphs and analysis.

Jan Skoyles contributes to The Real Asset Co research desk. Jan has recently graduated with a First in International Business and Economics. In her final year she developed a keen interest in Austrian economics, Libertarianism and particularly precious metals.

The Real Asset Co. is a secure and efficient way to invest precious metals. Clients typically use our platform to build a long position and are using gold and silver bullion as a savings mechanism in the face on currency debasement and devaluations. The Real Asset Co. holds a distinctly Austrian world view and was launched to help savers and investors secure and protect their wealth and purchasing power.

January Was A Good Month For Uranium and Rare Earth Miners

Jeb Handwerger — Tue, 31 Jan 2012 21:19:24 +0000

As we predicted, our uranium (URA) and rare earth (REMX) selections are amongst the leaders during this market rebound. Their underlying fundamentals are strong enough on their own to propel this move. In addition, the shorts may be running for cover here. Lastly, the supply demand equation may be taking hold here.
The month of January is a harbinger for what may happen in the year 2012. This month we have seen both uranium stocks and rare earth stocks outperform the general market despite negative news. This means the naysayers are having less of an impact as shorts are rapidly covering.
About a year ago we did a series of articles called the “Chinamese Twins”. This related to a private candlelight dinner held in the White House between the industrial-military leaders of both nations. (See archives) The purported arrangements allowed for a strong yuan and a cheap dollar benefitting the interests of both parties at that time.
Fast forward to today, our kaleidoscope reveals a changing situation. The world economy is affecting previously reached agreements. The Chinese and the Americans have altered the requirements in the present economic picture. The Chinese have tried to maintain a strong yuan while the Americans adhered to a cheap dollar(UUP).
This brings into focus the specter of the escalation of trade wars with China (FXI). In the 1930’s, it was the Smoot-Hawley Act that exacerbated the Great Depression. One must believe that the Chinese and the Americans will try to avoid this outcome.
We can only hope that both sides can reach a modus vivendi to avoid a return of the Smoot-Hawley protectionist nightmare which plunged the world into the Great Depression. Associated with this burgeoning trade war is the Chinese manipulation of the rare earth quota system of which they are in command. We recently heard the ruling from the World Trade Organization against China’s export restrictions of critical raw materials. This may only exacerbate the underlying issue.
Such a trade war goes far beyond economic aspects, but reaches into the very sinews of American national security and defense. Our phlegmatic Congress should’ve acted long ago to green light and fast-track the development of a domestic source of these critical heavy elements. Hopefully, they will awaken from their long torpor and rise to the challenges of the times. Certainly, Alaska has awakened and included a small rare earth miner in its 2013 state budget.
The kaleidoscope is a fascinating child’s toy consisting of constantly changing designs when held up to the eye. Today’s market can best be characterized by the potpourri of unpredictable sequences of objects, which fascinates the eye of the observer by constantly changing patterns. The combinations and permutations of the designs are infinite and subject to unpredictable eventualities. The marketplace is very much akin to this device with its infinite unpredictability.
Gold Stock Trades views the current marketplace always trying to make some sense out of the melange. In early October, we called for an unexpectedly vigorous rally which is still in progress. While there is a pervasive air of pessimism in the marketplace, nevertheless the rally continues.
We feel that this move, particularly in our natural resource sectors, is apt to be a surprise to the naysayers. In our field of view we observed the record short position in many resource stocks which may be undergoing short covering thereby accelerating the upward moves in a number of our rare earth and uranium mining selections. Be assured that we are constantly monitoring this situation. Our projection is based on technical interpretations that indicate a continuation for the S&P500 (SPY) to challenge 52 week highs. This short term target in the general markets represent a significant milestone in this move. Should it breakthrough this level, it will have formed a breakout, indicating a continued advance. One caveat is that sufficient volume must accompany this upward move.
As always we will be monitoring technical developments to determine whether early October’s reversal was the inception of a significant upward move into new highs. We reiterate that the daily marketplace will do its devious best to confuse and obfuscate the speculator. The price of lucrative profits is eternal vigilance as we progress along the upwardly rising road of the long term super cycle in precious metals and our natural resource sectors such as rare earths and uranium.

Silver: Epic Reversal

Willem Weytjens — Sun, 29 Jan 2012 00:36:54 +0000

On January 11th, we expected the US Dollar to top as Sentiment was uber-bullish, which would lead to a nice rally for Gold, Silver, and (Mining) stocks. That day, the USD index closed at 81.35, Silver at $29.89, and Gold at $1,641. (Click HERE for the article)

Today, the USD stands at 78.90, Silver at $33.89 and Gold at $1,733.50, so we got what we expected.

On January 9th, we posted the following chart, which compares the current silver “bubble” to the Nasdaq Bubble a decade ago:

(Click HERE for the entire article)

Now let’s see where we are today.

Just like the Nasdaq, Silver has set a lower/equal low, accompanied by a higher low of the MACD index, and has now rallied quite sharply:

Compare this to the Nasdaq:

An overlay of both charts shows us where we are today:

If we zoom in a bit:

If the pattern holds, we should be about halfway the “Bull trap”, as many will view this as the Return to “normal”.

If the pattern doesn’t hold, and silver blasts through $40, it’s probably on it’s way to the all-time high. In that case, the next big move would be to the upside, with potential targets of $70 and potentially tripple digit silver prices.
As long as the pattern holds, I would be careful if silver hits $38.

For more Analyses and Trading Update, please visit www.profitimes.com!

Short URL: http://profitimes.com/?p=12130

This past week in gold

Jack Chan — Sat, 28 Jan 2012 23:50:11 +0000

01/28/2012

GLD – on buy signal.
SLV – on buy signal.

GDX – on buy signal.
XGD.TO – on buy signal.
CEF – on buy signal.

Summary
Long term – on major buy signal.
Short term – on buy signals.
Gold cycle has bottomed and we began cost average buying last week.

Disclosure
We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion.
We also provide coverage to the major indexes and oil sector.

End of update

Dollar’s Influence on Gold

Sunshine Profits — Tue, 24 Jan 2012 18:35:42 +0000

Based on the January 20th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

In our previous essays, we emphasized that the long- and short-term trends for gold are up. In today’s article, we will feature the current situation in the USD and Euro Indices and in the general stock market. After analyzing each of them, we will move to implications for the precious metals investors.

Let’s start with the analysis of the USD Index (charts courtesy by http://stockcharts.com.)

Our first chart this week is the very long-term USD Index chart. We see little change in the situation since last week. There has been no confirmed breakout above the late 2010- early 2011 highs and the long-term trend remains down.

In the short-term Euro Index chart, there are some visible changes. Though not yet confirmed, there is a visible breakout above the short-term declining resistance line. This is positive news for the euro currency itself and bearish news for the dollar.

We have an early indication here that the USD Index will finally begin to decline as the sluggish situation seen during this month seems to be reversing. It is too early to draw conclusions, however, since the breakout here is not yet confirmed.

Consequently, the situation in the USD Index is a bit more bearish due to a sign of a possible breakout in the Euro Index. Since this move is not confirmed, the change is not extremely important yet, but the situation is more bearish for the dollar now as compared to recent weeks.

Let’s move to the stock market.

In the long-term S&P 500 Index chart we see that stocks moved close to an important resistance line formed by the 2008 and 2011 tops. It appears likely that a period of consolidation could begin very soon and the recent rally will likely pause for a bit.

In the short-term SPY ETF chart, a proxy for the general stock market, we have a signal from the RSI levels that a local top may be close. This is based upon comparisons to past patterns where similar RSI levels have coincided with local tops as seen last July. A pause here in the recent rally would not be a surprise and could, in fact, be a healthy development for the general stock market.

In the Broker Dealer Index (proxy for the financial sector) chart this week, we see a breakout above the declining resistance line. This follows a strong move to the upside and although we could see a move back to the support line (and then likely a reversal), the financials do appear to be showing signs of strength. This is a bullish development for stocks in general, as the financials often lead the general stock market to higher (or lower) prices.

Consequently, stocks are soon to encounter a major resistance line which will likely stall their recent rally. The strength seen in the financials, however, is often followed by moves to the upside for stocks in general. It seems probable that following a pause or small consolidation period, stocks could very well rally to new 2012 highs with the next resistance level around 1375. This is about 5% above Thursday’s closing level for the S&P 500 Index.

Let’s take a look at the correlations between the above-mentioned markets and gold to estimate the possible moves in the latter.

The Correlation Matrix is a tool which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector. A look at the short and medium-term columns for stocks in relation to precious metals shows that the expected pause in the general stock market does not seem to pose a serious threat to the precious metals market. The correlation with precious metals is weak in the short- and medium-term columns and it seems that gold and silver investors have little to worry about with respect to the general stock market outlook.

The USD Index situation is likely to provide bullish news for the precious metals sector. The negative correlation between the dollar and the metals means that declines in the USD Index will likely coincide with higher precious metals prices. All-in-all, the situation has improved slightly this week for gold, silver, and gold and silver mining stocks based on the short-term (and so far not confirmed) breakout in Euro Index.

Summing up, the situation in the currency markets is a bit more favorable for the precious metals this week. It appears that the USD Index could begin to move lower, which generally leads to higher precious metals prices. The euro appears to be strengthening and if its breakout is confirmed, will likely lead to good news for gold and silver investors. The general stock market situation is a bit more bearish this week as stocks have moved close to an important resistance line. A pause in the current rally is therefore likely but does not appear to impact the outlook in the precious metals sector. More details on precious metals (including price target for gold) are available to our subscribers in the full version of the above essay.

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, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. It’s free and you may unsubscribe at any time.

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

P. Radomski
Editor
www.SunshineProfits.com

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This past week in gold

Jack Chan — Sun, 22 Jan 2012 21:57:03 +0000

This past week in gold

01/21/2012

GLD – on buy signal.
SLV – on buy signal.

GDX – on buy signal.
XGD.TO – on buy signal.
CEF – on buy signal.

Summary
Long term – on major buy signal.
Short term – on buy signals.
Gold cycle has bottomed and we have new buy signals. Gold stock ETFs are pulling back and can see set ups soon.

Disclosure
We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion.
We also provide coverage to the major indexes and oil sector.

End of update

By Jack Chan at www.simplyprofits.org

This past week in gold

Jack Chan — Mon, 16 Jan 2012 02:02:50 +0000

01/14/2012

GLD – on buy signal.
SLV – on buy signal.

GDX – on buy signal.
XGD.TO – on buy signal.
CEF – on buy signal.

Summary
Long term – on major buy signal.
Short term – on buy signals.
Gold cycle has bottomed and we have new buy signals. A pullback will establish trendline support and set ups for us to take some positions.

Disclosure
We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion.
We also provide coverage to the major indexes and oil sector.

End of update

Did The Silver Bubble Burst?

Willem Weytjens — Mon, 09 Jan 2012 21:36:04 +0000

Gold bugs argue that Gold is far from being a Bubble. Especially not when you look at the following comparison, which plots Gold’s rise versus the Nasdaq’s rise in the 1990′s.

Chart: Marketwatch

The Bear Camp (including Nouriel Roubini for example), argue that Gold is (or was) a hyperbolic bubble that is about to (or already has?) burst:

Chart: Forbes

I like comparisons because – although history doesn’t repeat exactly – I think it rhymes, and when I look at both charts seperately, I think both are very nice.

However, what if the Bulls are comparing the wrong asset to the Nasdaq Bubble? What if they should rather look at Silver prices?

Back in April, I felt silver was a Bubble, as price was going VERTICAL, which (as all good things) never lasts forever. The parabola burst in April, and usually, it takes a LONG time before the next move up will start (if it ever will).