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The Great Market Disconnect: A ticking time bomb

Feb 27th, 2017 No comments

4 Years ago a time bomb was activated when a great market disconnect started between the precious metals market and the wider general market. The Silver : Gold ratio is positively correlated historically to the S+P500 index and in early 2012 they parted company and became inversely correlated, reflecting both the increased suppression of precious metals prices and the highly inflated general equity markets.

This is essentially the result of Central Bank destruction of currency values which continue to successfully elevate the broader stock, bond and real estate markets worldwide, while precious metal prices have been held down like a coiled spring. The more this condition continues the more spectacular will be the inevitable return to historic correlation in general equity collapse and precious metal price explosion.

Consider the chart below, by courtesy of Steve St. Angelo who’s article I urge you to read here https://srsroccoreport.com/the-great-precious-metals-market-disconnect-a-ticking-time-bomb/

The red graph is the Silver : Gold ratio and the black the S+P 500. Note the clear correlation up to the start of 2012 and the broadening disparity after, with depressed metal prices and the S&P 500 index surging upward to new record highs to a percentage disconnect level of 65%.

Additional research of the S&P 500 ÷ by the silver price (not the silver:gold ratio) since 1981 reveals the same disconnect in 2012 with the value turning up instead of continuing down. Again by courtesy of Steve St. Angelo.

The current S&P 500 Index : Silver ratio is about 130 which means 130 ounces of silver would buy the S&P 500 today.  In 2011 it was 28 and in 1981 it was 10. If we applied the 1981 ratio value of 10 today the price of silver would be $230.

But regardless of this arithmetic , the YELLOW ARROW in the chart shows that the S&P500-Silver ratio should have continued lower to 10, if it were not for the disconnect of excessively inflated equity prices and suppressed metal prices.

When you consider that the disconnect is supported by dropping volumes in the equity market and rising volumes in the silver market you realise The Great Market Disconnect is a ticking Time Bomb.

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Weekend Market Analysis 26 February 2017

Feb 26th, 2017 No comments

Gold price

The gold price is rampant and has broken up through resistance on the 2 year daily chart at the Oct low of $1243 and 200-Dema. It looks set to move up further despite both oscillators moving toward the overbought zone.

The short term 2 month chart illustrates the continued strong price climb from the 20 Dec 2016 low closing Friday at $1258.30 well ahead of the moving averages. The US Fed minutes from their Feb 2017 FOMC meeting were released this week, indicating a slightly more hesitant bias (dovish) as opposed to their ‘hawkish’ approach of 3 rate hikes this year, because of “substantial uncertainty of potential changes in fiscal, regulatory, and other government policy changes” coming from the Trump administration. Gold investors took this as bullish – hence the recent strong gold price.

 

The upward bias in precious metals prices is impacted negatively with no follow through by the miners underperformance which creates a normally bearish ‘divergent top’, unless the metal prices continue to rise to new highs which then induce the miners to follow. A major correction down is possible but it is also probable that the gold market is too strong as it emerges up from overdone suppression and manipulation during the down period, together with support from a weaker Dollar and confirmation of the 8 year cycle low in Dec 2015.

Miners need to increase above the previous top reached on 8 Feb to void this risk.

 

Silver price

Silver extends its strong 8 week price advance into week 9 including a Friday close at $18.41 as it penetrates up through the region of maximum resistance and the top resistance trendline in the 8 month long megaphone pattern.

 

The short term 2 month chart illustrates the continued strong price climb from the 20 Dec 2016 low closing Friday at $18.41 well ahead of the moving averages.

 

US$

The US$ has weakened in the last number of days to now approach finally forming a very threatening ‘head & shoulders’ pattern stretching back to mid-Nov 2016. Many commentaries, including Elliot Wave analysis, now indicate the start of a weaker Dollar period ahead which is positive for Gold and Silver.

The US$ Index closed Friday at 101.09 with the H&S neckline at 99.25, although the chart indicates a Hammer candle at the end which could induce a short term Dollar rise in the coming week.

US General Equities

US general equities are accelerating their upward advance, as embodied in the Dow Jones Ind Ave, with the breakout to an all time high in mid-Nov 2016 followed this month by yet another breakout up through the top resistance line in the rising wedge pattern. Despite many indications to the contrary this situation is likely to continue.

Note the rising volume up to the start of 2016 and falling volume since. Note also, the demise of currency values with the Dollar losing 97% of its value since Aug 1971 when $35 purchased 1oz of gold against $1250 today. The spectacular climb in US equities is of course therefore in massively devalued currency values and is illusionary.

The root of the problem is Debt. Debt has been growing exponentially everywhere since 1971, and it is backed by debt, based on debt, and leveraged with yet more debt. For example, today you can buy a bond (ie lend money) on margin (ie with borrowed money). In the monetary system we have, one party’s debt is another’s money. A debtor’s default will impact the creditor (who is probably also a debtor to yet other creditors), causing him to default, and so on. The time is coming when all debt will be defaulted, and when this begins in earnest (increasingly witnessed in the various banking crises) it will wipe out the banking system and thus everybody’s money. The paper currencies cannot survive this, and there is the increasing evidence of trouble from Greece to Italy, to Deutsche Bank, EU, etc., and eventually USA.

 

The short term 2 month chart illustrates the acceleration of the upward bias in the US equity market with no sign of change. The oscillators are all overbought and a correction is due anytime.

 

Conclusion

Gold and Silver prices continue to advance in breaking up through resistance levels, but are now impacted negatively with no follow through by the miners underperformance which creates a normally bearish ‘divergent top’. A major correction down is possible unless the metal prices continue to rise to new highs which then induce the miners to follow. It is also probable that the gold market is too strong as it emerges up from overdone suppression and manipulation during the down period, together with support from a weaker Dollar and confirmation of the 8 year cycle low in Dec 2015.

The US$ has weakened in the last number of days to now approach finally forming a very threatening ‘head & shoulders’ pattern stretching back to mid-Nov 2016. Many commentaries, including Elliot Wave analysis, now indicate the start of a weaker Dollar period ahead which is positive for Gold and Silver.

US general equities have accelerated price gains and will continue rising in the next period. However a correction is overdue.

Categories: Currency, Equity, Gold Tags:

Weekend Market Analysis 19 February 2017

Feb 19th, 2017 No comments

US$

The US$ index completed a 10 day advance from the beginning of Feb with a slight downward correction this week to finally move up again to end the week at $100.95 above the 10- / 20- / and 50-Demas. The oscillators are neither overbought nor oversold and momentum seems to indicate a continuation of Dollar strength before weakness.

 

At $100.95 the Dollar is approximately in line with its 2 year triple top breakout and breakback and with the oscillators in neutral territory the next move is somewhat disguised.

 

The current mild US$ strength is still not affecting the precious metals complex negatively and all seems to be finely balanced for corrections either way.

Gold price

The gold price 2 year chart has not changed this week with price still poised at resistance at the Oct low of $1243 and approaching the 200-Dema. Price increases since Dec 2016 are now overdue a downwards correction in line with the current US$ upwards correction with the oscillators in a slightly overbought position.

 

The short term 2 month chart illustrates the strong price climb from the 20 Dec 2016 low with no closes below 10-Dema since 30 Jan 2017. The gold price remains subject to an overdue correction but now seems to be developing a pattern of small minor corrections whilst maintaining its upward bias. Nevertheless, it remains subject to a downward correction unless the previous top at $1247 can be exceeded. Obviously a stronger upward bias in the US$ price will trigger the correction but that also seems unlikely. Although gold and silver are now both in an upward bias a negative impact is a slight drop in volume toward the week end in both gold and silver.

 

Silver price

Silver extends its strong 7 week price advance into week 8 including a Friday close above $18 at $18.03, despite a slight drop at week end. It has therefore cleared its region of maximum historic resistance as well as the top resistance trendline in the megaphone pattern, just. The oscillators are moving toward the overbought zone.

 

The short term 2 month chart illustrates the strong price advance with 16 consecutive closes above 10- / 20- / and 50-Dema, in the face of the comparatively stronger US$. Technically, the silver price has just broken up through resistance at $18 and still shows no sign of a correction.

 

Gold : Silver Ratio

Silver outperforms gold during bull markets and underperforms gold during bear markets, as we know. Therefore the Gold : Silver ratio rises during bear markets and falls during bull markets. It is interesting to note in the 6 year chart of the ratio (which includes the gold market peak at Aug 2011) that there is a clear change in direction of the ratio in Feb 2016. This suggests confirmation that the gold 8 year cycle low was in fact Dec 2015.

The ratio closed Friday at 68.72 and there is a bullish Head & Shoulders pattern developing at a ratio of 66, which when penetrated will be the result of increased gold and silver prices.

 

US General Equities

US general equities are accelerating their upward generation of higher highs and higher lows, as embodied in the S+P500. Despite the bearish ‘rising wedge’ pattern this situation is likely to continue.

 

The short term 2 month chart illustrates the acceleration of the upward bias in the US equity market with no sign of change. The oscillators are all overbought and a correction is due anytime.

 

Conclusion

The US$ extended its upwards correction marginally on last week and is poised to move either way, whilst the precious metals complex has still not as yet responded  by correcting down. Gold and silver prices have extended their price gains from the lows of Dec 2016 and are overdue a downwards correction in line with the US$ advance.

But the gold price now seems to be developing a pattern of small minor corrections whilst maintaining its upward bias, in the region of resistance. It remains imperative that gold breaks up through resistance or becomes subject to a downwards correction. Silver prices have however broken through resistance, just, at $18, and shows no sign of correction. Silver behaviour is very supportive of better gold prices and whilst much depends on US$ behaviour it seems as if the precious metals complex is developing a form of immunity from Dollar behaviour.

US general equities as embodied in the S+P500 have accelerated price gains and will continue rising in the next period. However a correction is overdue.

Categories: Currency, Equity, Gold Tags:

Weekend Market Analysis 12 February 2017

Feb 12th, 2017 No comments

The value of the US$ is usually pivotal to the world financial status, but at the moment it seems to be even more critical given the start of a tumultuous Trump administration in a world of geo-political sensitivities.

World events and the gold 8 year cycle low have impacted on the precious metals complex in resuming the next leg up in a new bull market which has seen positive price movements from the low in Dec 2015. These included a positive first half and negative second half in 2016 with the resumption of price increases from Dec 2016 which, critically, left Dec 2016 a higher low than the Dec 2015 low.

2017 has thus far been all positive and the analysis below investigates where this might lead. Key to this are the sensitivities impacting on US$ value.

US$

The US$ broke up through a triple top 2 year consolidation which indicated a much higher upside target except for the utterances of Donald Trump who wants a lower Dollar which has in fact lost 3% since.

The triple top breakout has lost its validity because of the breakback, and in fact when you view the bigger picture you can see a broadening megaphone pattern indicating the Dollar repeatedly reaching for the top trendline with limited upside to about $105, but with much downside potential.

The US$ is however now enjoying an upwards correction which can be seen in the short term 2 month chart. The US$ has 4 consecutive closes above 10-Dema and has broken up through 20- and 50-Dema as well. The weekly chart indicates a bullish engulfing candle with more upside to come, but crucially, the precious metals complex has not responded to this rise yet.

Gold price

The gold price low in Dec 2015 and Dec 2016 indicates a higher low with upward sloping support trendline increasing evidence that the 8 year cycle low has already been reached. Price increases since Dec 2016 are now overdue a downwards correction in line with the current US$ upwards correction with price at resistance at the Oct low of $1243 (as well as 200-Dema). The oscillators are also in the sell zone to support this.

The short term 2 month chart illustrates the strong price climb from the 20 Dec 2016 low including some 34 business days. Although price tested 10-Dema and support at $1219 on Friday it did not penetrate, but nevertheless has diverged from a strong silver price in turning slightly softer. In doing so it has created a bearish Evening Star candle which suggests downside potential.

All this has happened in the face of a stronger US$ and it now becomes imperative that the gold price aligns with the stronger silver price and in fact follows through in the coming week to new highs above $1243 otherwise the overdue downwards correction will become a reality.

Silver price

Silver has had a strong 7 week price advance and has reached resistance in its region of maximum historic resistance as well as the top resistance trendline in the megaphone pattern, as well as the 200-Wema (not shown on this daily chart). All the oscillators are in the sell zones.

As with gold, the short term 2 month chart illustrates the strong price climb from the 20 Dec 2016 low, but unlike gold it produced a bullish Engulfing candle on Friday and shows no sign of decline.

Also as with gold, this has happened in the face of a stronger US$ and it now becomes imperative that the silver price follows through in the coming week in breaking through resistance to new highs above $18 otherwise the overdue downwards correction will become a reality.

US General Equities

US general equities, as embodied in the S+P500, continue rising to new highs from the initial breakout in Jul 2016. The 2 year chart illustrates how the price advance from beginning 2016 forms a bearish ‘rising wedge’.

The short term 2 month chart illustrates new higher highs and new higher lows which suggest increased prices for the next period.

Conclusion

The US$ is enjoying an upwards correction with potentially more upside to come which the precious metals complex is not as yet responding to. Gold and silver prices are enjoying a strong price advance from the lows of Dec 2016 and are overdue a downwards correction in line with the US$ advance.

Gold and silver prices have reached resistance levels and either they respond by breaking through to new highs in the coming week or they will succumb to Dollar strength in downward corrections.

US general equities as embodied in the S+P500 will continue rising to new highs in the next period.

 

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