The Technical Traders View on Gold, SPX and Financial
It was a non stop sell off last week in equities as the SP500 sold down 4 days straight with a small move up on Friday. While investors were cashing out of stocks, we saw that money move into the big shiny yellow safe haven – Gold.
I have put together a short video showing you how I see the market and what I think is likely to happen this week for gold, stocks and financials. But here are my Cole’s Notes version incase you cannot view the video.
- Long term trend is up and I am currently long gold but feel a sharp correction could happen any day.
- Price/Volume action on gold is bearish short term
- We took some money off the table on Friday into the strength
- I am protecting my long position using a stop around the $1240 area
- I still like gold and hope it rallies, but if it turns around I will be in cash until the correction is over.
- SP500 is currently oversold after its 4 day sell off
- This index is trading deep into a support level
- Financial sector and GS (Goldman Sachs) tend to lead the market and they performed well on Friday.
- I feel the SP500 index is due for a solid 2-3% bounce and possibly a 4-6% rally
Watch My Video for More Detailed Analysis and Price Levels
If you would like to get my detailed trading analysis and trading signals please visit my website: www.TheGoldAndOilGuy.com
The SP 500 and Gold Update, a Bear and a Bull cycle- June 5th, 2010
Back in mid April on Kitco.com I wrote a market forecast calling for a top in the SP 500 index and an ABC correction. Since that time I had one intervening update on both Gold and the SP 500 index, and this is a June 5th follow-up.
Gold should continue to back and fill as I postulated around the 1200-1235 area’s, until the next surge taking it up to 1300-1325 US per ounce. The burning matches we call currencies are getting hotter, and fingertips are getting burned in Europe a little at a time. The Elliott Wave patterns I use as my underlying basis for forecasting are continuing to look bullish for the precious metal. In addition, it’s a darn good alternative to fiat paper during this period of the Kondratiev winter where debt is repudiated and washed out of the system.
The SP 500 index or the US broader markets if you will, continue to unfold in my predicted A B C correction. I forecasted in pre market on May 25th that a “3-3-5” ABC low pattern was completing that morning from the April highs, with an intervening bounce likely. The problem is this “Bounce” as it were, has only recovered a 38% re-tracement of the April highs to May lows. The upward correction was mild in percentage terms, and the gap down in the SP 500 index and markets on Friday morning portends lower lows to come. A weak bounce and a solid thud is not near term bullish. My ultimate forecast called for 92-97 on the SPY ETF by mid September 2010, and I am continuing to stick with that as the likely outcome before the Bull can resume the advance in earnest. This would be a 50% re-tracement of the 13 Fibonacci month rally from March 2009 to April 2010. I look for the summer to be choppy and volatile with a likely downside bias. As I thought in April, it’s a sell in May and go away year until the summer ends. Trading profits could be made on the 2x/3x bear and bull ETF’s, and we plan to work with those this summer in my paid website services.
If you would like to view an up to the minute June 5th video on the SPY ETF and my updated forecasts, please click this link to view the video: http://www.activetradingpartners.com/articles/2010/06/the-sp-500-index-june-5th-video-update-poised-for-new-lows/
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David A. Banister
In previous missives, I have addressed the theoretical price of gold in U.S. dollar terms. This is a straightforward calculation based upon the M1 currency supply and the amount of gold the Treasury of the United States claims it owns.
Naturally, putting your neck out for a gold price leads to the next logical question and that is, “What price will silver reach at its high point?” This question is much more difficult to answer, because silver is not considered to be money in any government’s monetary base, either officially or unofficially.
Let me digress here for a moment. Many central banks worldwide still own gold. Yes, most have sold gold for paper the past several years, but they do consider it to be a monetary asset nonetheless. Additionally, some governments are actually increasing their gold holdings, so it is factually correct to place gold into the monetary aggregate base.
This is not true of silver; both the Chinese and Indian governments hold pitifully small amounts of silver in inventory, but for all practical purposes, all governmental silver holdings are depleted. Yet silver has been used as money more often, in more places, and for longer periods of time than even gold. This is difficult for most Western readers to absorb, yet as Milton Friedman said in 1993,
“The major monetary metal in history is silver, not gold.”
Coming back to forecasting the price of silver, we need to define a methodology. One way is to use what I call the classic, or monetary, ratio. This is based upon a bimetallic standard, which was exercised when both gold and silver were used daily as money. The ratio was fixed between 15-16 to 1. In other words, one ounce of gold bought 16 ounces of silver. If we use our gold price of $3400 derived in last week’s column, and divide by 16, that puts silver at $212.50 per ounce.
Before moving on let me clarify something—the ratio on hit 16 to 1 for one day, in the last bull market! It was the highest price silver has ever been in history! So, do I expect silver to outperform gold?—Yes! Will the 16 to 1 ratio be achieved? Most likely –Yes! BUT and this is a big BUT, it will happen most likely on a spike and near the end of the bull market in the precious metals.
Is this possible? Under our current financial conditions I am reluctant to rule out anything, but I am also a practical investor. Before we ever get to even $100, which I have forecast as a price I do expect silver to achieve, we must move above $30, then $40, and take out the old nominal high of $50. I think you see my point, and the ultimate high price is impossible to determine, because only the market knows. But in my view, silver has way too many things going for it not to continue higher over the next several years.
Consider the following points:
- Silver has every monetary attribute of gold and is far more affordable to the general public
- Monetary worry was primarily U.S.-based in 1980; today it is a worldwide concern
- The U.S. was in far stronger financial condition in 1980 than today
- The Silver ETF did not exist in 1980
- Silver is a much smaller market than gold, and therefore any new buying (or selling) has much more effect on the price
- In 1980, silver hit $50 per ounce when there were at least two billion ounces of silver in bullion form; today there is less than one-fourth that amount.
Mr. Morgan has followed the silver and gold market daily for over thirty years. Much of this Web site, www.silver-investor.com, is devoted to education about the precious metals.
You can get his Ten Rules of Silver Investing — click here
Each new round of Quantitative Easing and gold price suppression assures an even higher potential gold price as long-term forecast target. The official policies are ruinous, and even destroy capital, eroding capital formation, and circumvent job creation. The eventual gold target in my view has moved from $5000 to $7000 in the last few months. No remedy is in the works. No solution is even pursued. No liquidation of toxic assets is underway. More stimulus is planned for the USEconomy, as home foreclosures continue and bankruptcies continue and bank closures continue and lending is obstructed. The more money the syndicates and governments in partnership create in futility, the higher the gold target becomes. Their ship is but a derelict at sea. The lifeboats consist of golden vessels. Soon no more lifeboats will be available. The clowns on the helm will be the last drowning victims.
Today’s market bloodbath offers a prime example of why gold is the asset to own as the market continues its downward trajectory. Gold lost $10 today, or 0.85% of its nominal price. Bad news? Hardly. At the same time that gold was losing ground in nominal terms, gold’s purchasing power in the market increased because it fell less on a percentage basis than all other assets. This pattern is far from a one-off anomaly. This is how gold reacts in deflationary environments; it increases in value while its nominal price falls. We saw the same pattern unfold in 2008.
Granted, this is just one day in the markets, but it is a microcosm of a bigger story unfolding.
See today’s dashboard below:
Bloomberg released and interesting article today concerning Goldman’s performance last quarter. We have documented here many times that the four major banks, including Goldman, did not post a single losing day in the market last quarter. Conversely, Goldman’s clients, according to the article, lost as much as 14%, as seven of the firm’s nine “recommended trades for 2010″ have been money losers.
The corruption is so blatant and yet little is done to enforce justice. Excerpt below:
As readers of this column know, Max Keiser and Gerald Celente are two of my favorite industry commentators – not only for their information, but also for the entertainment value. I was delighted to find them teaming up on the latest Kesier Report to discuss world trends. Topics include:
War with Iran
. . . and much more
Informative and entertaining interview:
I find it incredibly bothersome to read speeches from central bankers espousing “banking freedom” and the importance of “guiding” (as some sort of benevolent watchman) the interests of a “free” society. The implication, of course, as that society cannot function/expand/innovate without bankers, and that do so would instigate a swift return to the dark ages – a world without penicillin and pasteurized milk (heaven forbid milk with nutrients!). Since propagandists in modern media drink from this fraudulent fountain of Keynesian economics, society is left gleefully unaware of the gravity of our economic crisis, created and sustained by none other than the central bank itself.
On that note, enjoy the latest words from the wizard, Ben Bernanke, at the Institute for Monetary and Economic Studies International Conference, Bank of Japan, Tokyo, Japan on May 25th:
In case you haven’t seen this clip making the rounds, a German entrepreneur has developed and branded the world’s first gold vending machine. Very interesting:
In this interview Dr. Leeb discusses the US stock market, gold, silver, energy, resource scarcity, intensifying competition for resources worldwide, quantitatvie easing and inflation/hyperinflation, the BP drilling disaster, today vs the 70s, alternative energies, the bond market and itnerest rates, reckless fiscal behavior by politicians globally and much more.