A Look at the PM Sector
posted Jul 3, 2004 at 03:45PM
My two bits on the interest rate hike
Maybe the way to start is to ask yourself the question "Would a quarter point drop have been good for gold or bearish?"
It would have been bullish...ergo one would think that a quarter point raise is not bullish for gold.
Now the bulls will argue that we are still in negative real rates so the rate hike will not be catastrophic for gold...and they are right...but some of the fuel has been taken out of the gold engine.
In my mind the future series of "measured" rate hikes will be akin to Chinese water torture...the first drop isn't that bad...but it only gets worse with each future drop.
Perhaps more on this as we look at the all important yield spreads further down.
Bullion looks fine on the daily although the $400 level continues to frustrate. Although the above is drawn as a bullish ascending triangle...one may also be dealing with a more bearish flag formation.
MACD coming up to a critical level..in terms of a potential cross as well as getting back above the zero level.
An interesting case study for those who debate the merits between elliot wave analysis and more standard TA.
From an elliot perspective there is only one possible direction and that is DOWN,,,and down hard.
A more standard approach will note all those gaps which were formed on the way down and are begging to be filled.
My own experience with stocks is that one can wait a long time for gaps to be filled...I wouldn't use it for a basis of a trade myself.
All in all you have a parabolic rise followed by a crash, followed by a shallow correction. Unless silver does a lot of basing at these levels, I myself would be leary of making big, life-style changing bets.
Conventional wisdom states that triangles are continuation patterns. However we have a dilemna here...which move will the triangle be continuing? In the first option below the triangle (a-b-c-d-e)is shown as a consolidation of the entire move down and will resolve to the down-side.
In the option below the triangle is either a B wave or wave 2 triangle consolidating the gains off the May bottom.
Only an expert EWA techician can say which it is right now by correctly counting all the sub-waves heading into that bottom.....and I am not one of them
Keeping an eye on the trend-lines is the key. To me it is much safer to buy a break-out. Standard measurments for a breakout entails at the minimum a test of the 200dma.
The two ratios below bear watching as well as they would be expected to lead in one direction or the other.
Although the Fed is talking about being ready to step in and do battle with the inflation dragon, it appears to me that the market is just as worried that he will set off of a deflationary spiral.
Would the DOW transports be putting in new highs if they were really worried about inflation?
Once scenario to be on the look out for is that the higher the Fed raises rates, the higher the deflation fear and the lower the yield spreads, a definitive minus for gold stocks.
There are no shortage of frothy real estate markets ready to be cooled off which would have a negative impact on commodity demand.
The above is a key chart to watch as it is a guage on where the markets are siding on, in the inflation/deflation question.
The gold rand price shown below is at critical support levels. There is no way to soft-pedal this - the branches are creaking.
Not shown here..but a number of Asian indexes are still sporting bearish configurations (sharp drops followed by shallow consolidations, bearish 50/200dma crossovers)
In summary the aroma of deflation persists.