Many Signs Point to Gold's Higher Prices
Based on the April 20th, 2012 Premium Update. Visit our archives for more gold & silver analysis.
The Reserve Bank of India on Tuesday surprised investors with a bigger-than-expected half-percentage-point cut to its key lending rate, sending it to 8%, saying the state of India's economy is "a matter of growing concern." Assuming a normal monsoon season, continuing improvement in industrial production and in the global outlook, the RBI said it expects growth for the current year at 7.3%. Inflation in India slowed less than expected in March. Indians, who love gold in any case, could turn to it as an inflation hedge. Meanwhile, the Indian Post office system is offering a 6% rebate on gold coins of various denominations for the forthcoming Akshaya Tritiya festival, which is one of the biggest gold buying festivals in the country. At present, gold coins are available at more than 800 post offices across India. For small investors the post office is an attractive option since they can buy gold coins in low-end denominations like 0.5 gram, 1 gram, 5 gram and 8 gram. Traders say high sales are a sign that the yellow metal is gaining acceptance as an ideal investment in the world's biggest gold consuming nation.
There are some places in the world that don't seem to feel the pinch. A 24K gold plated iPad 3 will be unveiled at Damas Jewellery in Dubai Mall next week before being auctioned off for charity. If you're considering buying one of these gold iPad 3s, keep in mind that it can handle overheating issues and it is corrosion free. Gold is one of the most non-reactive precious metals on Earth. The gold plated iPad 3 costs more than $5,499.
And the best part is, just think how good our gold charts will look on that gold plated iPad. Speaking of charts, before turning to the technical analysis of gold, we would like to provide you with our comments on the general stock market (charts courtesy by http://stockcharts.com.)
On the above, long-term chart we see that the RSI level is no longer close to 70, and thus the situation is even more similar to late-2010 than it was weeks ago. Last week we wrote the following:
(...) we can see a similarity between the trading patterns of mid-2010 and now. Back then, stocks reached a bottom in a similar way and then showed a sustained rally, had a small consolidation around the level of previous highs, and then continued their rally.
Consolidation around previous tops is something what we've seen back then and what we have right now. A substantial rally followed back then, so this is a likely outcome also this time. The long-term picture is clearly bullish.
In the short-term S&P 500 chart, we have a bearish picture. Prices have slipped below the short-term resistance line and consolidated close to the 50-day moving average. Consequently, the breakdown has been confirmed with three consecutive closes below the line.
Consequently, outlook for stocks appears to be slightly more bullish than not. When long- and short-term pictures are in conflict, the long-term implications usually prevail. Therefore, the overall situation in the stocks is rather bullish in our view.
Let us now take a look at the most popular commodity - oil.
In the crude oil prices chart, we see that some consolidation took place after prices reached a resistance line earlier this year. The suggestion here is that once the consolidation is complete, prices will rally once again. The correlation with precious metals on a medium-term basis has not been very meaningful. Prices have been below their 2008 highs while, at the same time, gold prices have been above theirs.
Short-term moves often align, however, and it now seems that once oil prices begin to rise, gold prices will do so as well. They have pretty much moved in tandem since the beginning of the year and the situation therefore looks quite favorable for gold based on the signals seen in this chart. The price of crude oil has already consolidated and appears ready to move higher. If it manages to move above the declining resistance line, a significant rally is likely to emerge - also in gold.
Now, let's have a look at gold - this week we will feature it from the non-USD perspective.
The chart shows us signals which are quite bullish. There was no breakdown below the declining support line, and the move below the rising support line is now being invalidated. The latter is based on intra-day lows.
The recent price action is similar to what was seen in mid-2009 and late-2011 when prices approached but did not break below this rising support line. Based on these prior, similar patterns, the outlook now is bullish as no lower prices were ever seen in either of these previous cases.
Summing up, the long-term outlook in the general stock market remains bullish as does the situation in gold. More details about short-term and the probable length of the current consolidation are available to our subscribers.
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Thank you for reading. Have a great and profitable week!