Gold, Stocks, and Manipulation Issues

By: Przemyslaw Radomski | Tue, Mar 6, 2012
Print Email

Based on the March 2nd, 2012 Premium Update. Visit our archives for more gold & silver analysis.


 

We would like to begin today's essay with a discussion of points from a few e-mails that we received after publishing our previous essay entitled Gold Downside Targets and Manipulative Excuses. Most messages were about the remarkable reliability of the self-similar pattern, and about the silver market, but there were a few interesting messages about the manipulation in the gold market, and these are the messages that we will focus on here.

One of these messages included reader's opinion that the recent move lower was probably a central bank intervention. Another message said that our article showed a lack of understanding of the manipulation of the precious metals market and that sharp drops can be predicted by watching the crooked bankers as they increase their massive short positions. Another reader wrote that the severity of the take downs at specific times is in their opinion reflecting substantial market manipulation involving the dumping of significant volumes at the time when the market is in overbought territory.

While we are thankful for these messages, we would like to point out that our previous essay was not about whether gold and silver markets are being manipulated or not. In fact, in the article (third paragraph), we wrote that there are indications that gold and silver markets are being manipulated. We meant for instance incredibly volatile moves in silver close to derivatives' expiration dates.

The article was about the mistake that one can make by attributing all downswings to price manipulation. This would imply that if there was no manipulation, there would be no corrections and that gold and silver would move only in one direction - up. Furthermore, since corrections do occur in every market - and have always occurred, then it means that all markets have been manipulated at all times. Consequently, using technical analysis doesn't make sense. This is simply not true and that was the point of this essay.

Our reasoning doesn't end at the above paragraph - in the previous essay we provided a proof that some downswings can be successfully predicted in advance. We even included target levels (which were hit today by the way) that are normally reserved to our premium subscribers and we provided analysis behind it - the point was to show the performance of technical analysis in real time.

By showing that the decline was predictable, we wanted to show that ignoring technical analysis can be costly and that explaining all sharp market moves with manipulation theory is not appropriate.

Having said that, let's move to the technical part of our essay. This time we will focus on the markets that at times influence moves in the precious metals market. We will start with the very long-term chart of the USD Index (charts courtesy by http://stockcharts.com.)

$USD (US Dollar Index - Cash Settle (EOD)) ICE

There has been no change since the past week. The situation is still very tense as the index is right at its long-term support and resistance lines.

$USD (US Dollar Index - Cash Settle (EOD)) ICE

In the short-term USD Index chart, we see a move to the upside after the cyclical turning point was reached. This rally has brought the index to the 79.3 level and the 80 level may provide significant resistance here. The rally could stop right now or a little bit higher, it's simply too tough a call at this point.

Dollar's recent rally contributed to metals' decline. However, the same can be said about stocks' move lower.

$SPX (S&P 500 Large Cap Index) INDX

Based on the similarity to 2010, a consolidation or period of decline is likely to be seen next in the general stock market (a part of which we have already seen). RSI levels were close to the range seen in October-November 2010 when the rally in stocks paused, only to resume with vengeance.

$SPX (S&P 500 Large Cap Index) INDX

In the above long-term S&P 500 Index chart, once again we see that a correction appears to be in the cards. There was no real confirmation of the breakout above the red-resistance line which is now a support line. We believe that stock prices could move back to this support line and then move higher once again. The latter is based primarily on the extremely low interest rate environment we are currently in.

Correlation Matrix

The Correlation Matrixis a tool which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector. The situation here is normal once again (metals move along with stocks and in the opposite way to the USD Index). Consequently, what's bullish for USD and bearish for stocks is bearish also for the precious metals market.

Consequently, we are seeing a rally in the USD Index and there are clear indications that the general stock market will see a correction fairly soon. We have seen a move lower on Tuesday - so the correction may already be over, but at this point a continuation of the decline is just as likely.

Still, since our target area for the yellow metal has been reached, we are now bullish on gold. Stocks may move lower from here, but it seems that even they did, they would not drag gold much lower, as the downside in gold is quite limited.

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!

 


 

Przemyslaw Radomski

Author: Przemyslaw Radomski

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Gold & Silver Investment & Trading Website - SunshineProfits.com

Przemyslaw Radomski

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same.

His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem that may never be solved, PR has changed the world of trading and investing by enabling individuals to get easy access to the level of analysis that was once available only to institutions.

High quality and profitability of analytical tools available at www.SunshineProfits.com are results of time, thorough research and testing on PR's own capital.

PR believes that the greatest potential is currently in the precious metals sector. For that reason it is his main point of interest to help you make the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for professional excellence and ethics for the ultimate benefit of society.

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

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.

Copyright © 2009-2014 Przemyslaw Radomski, CFA

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/