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Gold Yawns Before Breakfast

Stewart Thomson
Oct 16, 2012

  1. When the 3rd quarter numbers come out, Morgan Stanley predicts that US business investment & exports will show a decline, to the lowest point since mid-2009.

  2. The inventory-to-sales ratio is approaching 2009 levels now, and yesterday’s Empire State index report came in at -6.16.

  3. This important report shows the contraction or expansion of New York area manufacturing, and obviously things don’t look very good.

  4. Mainstream media called it an improvement over September’s -10.41 reading, but unfilled orders came in at a horrifying number of -18.28.

  5. A good chunk of recent GDP growth is related to inventory building, and that may be nearing an end. Companies are becoming very concerned about the approaching “fiscal cliff”.

  6. Despite all this bad news, general equity markets rose yesterday. Many analysts believe that Spain is moving closer to signing on for a bailout, thereby enabling the ECB to increase the pace of quantitative easing.

  7. Market prices move mainly on perception. For stock markets, money printing is becoming perceived as the “engine of growth”.

  8. Silver can do very well when institutional money managers operate on the perception that stock markets are healthy, growth is stable, and money printing is good. It doesn’t matter what the economic reality is; it’s their perceptions that determine their liquidity flows.

  9. On that note, please click here now. Commodity traders might call the price action around the $35 area a double top pattern, but it’s pretty small.

  10. I’d like to draw your attention to the current position of the Stochastics (14,7,7 series) indicator. The red line is already reaching oversold status, near the 20 area.

  11. From the lows near $26.25, silver rallied more than 30%, to the $35 area. Since then, it has only declined by about 8%.

  12. Silver may not be able to outperform gold in this crisis, but it can still do very well in the current environment of institutional perception.

  13. Please click here now. Note the position of the MACD (12,26,9) indicator. In a trading range, it often bottoms well below zero.

  14. In a trending market, the turn often comes from the zero area. I expect MACD to turn up very soon, and the silver price to move towards the high at about $37.50.

  15. The price action of the euro has a big effect on liquidity flows in the gold market. Please click here now. Currency traders are focused on the downtrend line drawn across the highs of about 1.3180 and 1.3080. A move above there could ignite strong buying of the euro, and gold.

  16. Some gold investors believe that the “banksters” can stop gold from rising, by selling unlimited amounts of futures contracts, and overwhelming buyers with limited funds.

  17. In the stock market, stock is sold from one investor to another. In the futures market, contracts are bets, with one party being short, and another party being long. As central banks increase their gold reserves, some of that gold is purchased from commercial banks. There can be a time lag between the date the contract is made, and the date delivery of the gold occurs.

  18. A lot of the short position that you see on the comex is simply a result of commercial banks hedging their risk between the sell date and the delivery date.

  19. As more gold is bought by central banks, more institutions are seeking to get on that “bandwagon”. I believe the reason the decline in gold from the recent $1798 area highs has been so timid, is because central banks and institutions are placing more and more orders to buy.

  20. I realize that many investors in the gold community are concerned about the possibility of a major price correction, but the longer term charts don’t really support that premise.

  21. Food commodities have sold off a bit, but that comes after a horrific drought in the United States that produced near-vertical moves in the grain markets.

  22. It takes time for a rise in crop prices to trickle down to the consumer; as long as six months. Prices have only backed off a little bit, and the effects of the initial price blast are yet to be felt by consumers. When Asian consumers really feel the bite of higher grain prices, gold could begin a very powerful move to the upside.

  23. Please click here now. I want you to look carefully at the position of the MACD (4,8,9 series) indicator on this long term monthly chart of the HUI gold stocks index. It produced a major buy signal about two months ago, and the 8,16,9 and 12,26,9 series look set to follow suit.

  24. I think the current dip in gold and gold stocks is more like an athlete yawning before breakfast, rather than the start of a major correction. I don’t see anything to be worried about. Please focus on the fact that in this crisis, gold is great, and getting greater!

Oct 16, 2012
Stewart Thomson
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