Przemyslaw Rado...'s  Instablog

Political and Economic Factors Bode Well for Gold

Based on the May 11th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

So far, 10 European political leaders out of 17 have been ousted out of office like a falling dominos in a little more than a year.

The issue that has angered voters other than unemployment is austerity. We know from personal finances that when we overspend, we must cut back, pay our debts and rebuild our savings. That's the prudent thing to do and that's what the austerity school preaches. But what happens if the financial hole is so deep that there is no way to climb out by reasonable cutting back and saving? That's when you declare bankruptcy and your creditors share the pain. The laws of capitalism decree that if you don't assess risk correctly, you lose money. The conclusion is that austerity has to come with a mechanism for default, which is not the case in Europe.

The growth club, represented eloquently by New York Times columnist and Nobel Prize winner Paul Krugman, believe that borrowing and spending will spur growth and consumption and that austerity will begat only more austerity. In other words, the European Central Bank (ECB) should print money and then Greece and the others can service their debts with cheaper euros due to the inflation caused by money printing. Is this not a kind of default, since you are paying back your debts with devalued money?

We believe that the massive printing of euros will eventually take place and please keep in mind that unlike Fed, EBC has still room to lower its main interest rate. Once markets believe that this is the likely (or even inevitable) outcome, the gold price will soar not only in terms of euros but also in terms of other currencies.

The ECB recently lent money at concessionary rates to European banks in an effort to co-opt these nearly bankrupt institutions into financing the nearly bankrupt European sovereigns. They offered loans against dubious collateral, to tempt commercial lenders to play the "carry" game, namely, buying Spanish and Italian debt of varying maturities yielding up to 7% while paying a mere 1% for a three year loan. The prospect of a devastating run on banks was avoided, for now.

We wonder if this is not pushing the can down the road.

There are certain things that look to be almost inevitable. The eurozone is in trouble, in particular Spain, Portugal and Italy. (We don't even talk about Greece, that country is already just about bankrupt in more ways than one.) The longer this crisis will take to play out the deeper it will get with more countries caught in the net, with Belgium, France and Netherlands not far behind. The proportion of young people between the ages of 15 and 25 who are now without a job is 51 per cent in Greece and Spain, 36 per cent in Portugal and Italy and 30 per cent in Ireland. In France "only" one in five young people are out of work.

History has shown over and over again that when there are deep economic problems, the monsters that lurk in dark, dank corners come out brazenly into daylight looking for victims or scapegoats. It wasn't so long ago when this is precisely what happened in Europe. This week in Greece a Neo Nazi party took 21 out of 300 seats and 7% of the popular vote - the first neo-Nazi party to enter a European assembly since the Second World War. This is enough to give us shivers. The center seems to be falling apart and the extremes of left and right are gaining power.

Even Somali pirates preying on merchants ships are having a hard time due to the economic downturn. On the one hand, things couldn't be better for them. Shipping companies have reduced ship speeds through the highest-risk area to save on fuel, making the ships easier targets. But the companies have switched to relying on guards, rather than speed, for protection, which will make for shoot outs on the high seas. The math is simple. A single day at lower speeds can save $50,000 in fuel at current prices - enough to pay the guards for the entire journey.

The image reminds us of Europe, a cumbersome ship overgrown with barnacles, trying to make its way in pirate-infested waters. Instead of finding a solution to the problem, and perhaps there is no simple or fast solution, European leaders keep finding stop-gap, make-do, arrangements. So, do you put on speed with the hope of creating jobs and growth and outrunning the pirates, or do you cut back and hire armed guards?

So why do we focus on these political and economic factors that much? Well, we do feel that there is a need to separate short-term turmoil from the long-term fundamental picture. Markets are intrinsically emotional and prone to a sudden change of mood. Sometimes even seemingly unimportant events can spark an abrupt move, yet in the long term the fundamentals make the decisive impact. And these are indeed favorable for gold and the whole precious metals sector.

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!

P. Radomski

Editor

www.SunshineProfits.com

* * * * *

Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

Sunshine Profits provides professional support for

Gold & Silver Investors and Traders.

Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits' Premium Service gain access to Gold Charts, Gold Investment Tools and Analysis of Gold & Silver Prices Naturally, you may browse the sample version and easily sign-up for a free weekly trial to see if the Premium Service meets your expectations.

All essays, research and information found above represent analyses and opinions of Mr. Radomski 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, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, 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.

Gold's Long-term Picture Remains Bullish

Based on the April 27th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

Lately, gold has been a disappointment to many investors while it has been mostly treading water. Gold has traded well beneath its all-time high of $1,924 an ounce on September 6th and well above its subsequent low near $1,520 which took place in late December. Many anticipated higher prices this year, but the year isn't over yet, and neither is gold's long-term spectacular, secular bull market. We are now in one of those periods of consolidation that tries the souls of gold investors, tests their resolve and challenges their staying power. This is when the market takes a breather and adjusts to prepare for the next major move.

If you need some encouraging news, according to the latest IMF statistics, at least 12 countries are known to have increased their gold reserves in March continuing a trend that goes back more than two years. Overall Central Banks appear to have purchased about 58 tons in the month, which suggests acceleration in their gold accumulation. The significant purchases were by Mexico, which increased its holdings by 16.81 tons; Russia with purchases of 16.55 tons and Turkey with 11.48 tons. The statistics only show the figures for those nations which are transparent in their reporting. In the past there have been some sharp 'upwards adjustments,' to gold reserves notably from China, which seems to like to accumulate its gold on the quiet. Last year Central Banks that do report their statistics bought 439.7 tons of gold and many gold analysts are predicting similar levels of purchases in 2012. And to think that years ago investors feared that the bull market will end a long time ago because of massive sales of gold by governments and monetary authorities over the world…

Analyzing the fundamental situation and news is important, but the analysis would be incomplete without referring to charts. In today's essay, we will focus on the long-term charts of USD Index and S&P 500 and then briefly discuss the impact that they can have on the gold market.

Let's begin with the analysis of the US Dollar Index (charts courtesy by http://stockcharts.com.)

On the above chart we see that the sideways trading patterns continue between the two levels which are quite important from a technical perspective. These are the declining long-term support line and the horizontal support line based on the early 2011 high. At this point, the very-long term chart remains mixed with a bearish bias (after all, the prevailing trend is down).

To illustrate how small the trading range has been for the USD Index recently, the past six Premium Updates have found the change from the previous week to be as follows: down .41, down .61, up .95, down .79, up .25, and down .39. So nearly every week saw a change of less than 1% for the index value of a week earlier, and with the good mix of ups and downs, this is a prime example of true sideways trading.

Still, with the main trend being down, the odds are that the next significant move will take the USD Index lower, not higher.

Having said that, let's take a look at the general stock market.

From the long-term perspective, the bottom in the S&P 500 Index appears to be in. The support line based on previous highs has been reached and crossed but the breakdown failed. Prices bounced higher soon after reaching this line (based on 2011 high), and the long-term picture is bullish based on this development.

The Correlation Matrix is a tool, which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector. Let's see how the above can translate into future price moves of gold.

Since we are discussing the long-term impact, please focus on the 1500-trading-day column. The values of correlation coefficients are negative in terms of the relationship between precious metals (gold, silver, mining stocks) and the USD Index and they are mixed as far as metals-stocks link is concerned. Consequently, the rather negative long-term situation in the USD Index is what we should focus on and since its relationship is inverse, we can infer that the long-term picture for gold is indeed bullish.

Summing up, both: fundamental and (indirect) technical factors provides with a bullish long-term outlook for the gold market. As far as short-term is concerned and whether the consolidation is over or not is a different matter and other factors (not mentioned above) must be taken into account.

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!

P. Radomski

Editor

www.SunshineProfits.com

* * * * *

Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

Sunshine Profits provides professional support for

Gold & Silver Investors and Traders.

Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits' Premium Service gain access to Gold Charts, Gold Investment Tools and Analysis of Gold & Silver Prices Naturally, you may browse the sample version and easily sign-up for a free weekly trial to see if the Premium Service meets your expectations.

All essays, research and information found above represent analyses and opinions of Mr. Radomski 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, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, 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.

Will Silver and Platinum Outperform Gold in the Near Future?

Based on the April 20th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

The New York Times reported on a growing phenomenon in Europe: suicide by economic crisis. Apparently people are taking their own lives in despair over unemployment and economic failure. Paul Krugman in his column in the New York Times wonders if it isn't the case that European leaders are committing economic suicide for the Continent as a whole.

Just a few months ago I was feeling some hope about Europe. You may recall that late last fall Europe appeared to be on the verge of financial meltdown; but the European Central Bank, Europe's counterpart to the Fed, came to the Continent's rescue. It offered Europe's banks open-ended credit lines as long as they put up the bonds of European governments as collateral; this directly supported the banks and indirectly supported the governments, and put an end to the panic.

The question then was whether this brave and effective action would be the start of a broader rethink, whether European leaders would use the breathing space the bank had created to reconsider the policies that brought matters to a head in the first place.

But they didn't. Instead, they doubled down on their failed policies and ideas. And it's getting harder and harder to believe that anything will get them to change course.

Of course, now it is Spain that is feeling the pain. Krugman asserts that Spain is in a full depression with an overall unemployment rate of 23.6 percent. Unemployment among the young is a staggering 50 percent. Spain wasn't fiscally profligate like Greece. On the eve of the crisis it had low debt and a budget surplus. The rain that hit Spain in the plain is an enormous housing bubble, made possible in large part by huge loans from German banks.

Krugman states that fiscal austerity will depress Spain's economy ever more. He suggests that the solution is an exit from the euro and a restoration of national currencies.

So it's hard to avoid a sense of despair. Rather than admit that they've been wrong, European leaders seem determined to drive their economy - and their society - off a cliff. And the whole world will pay the price.

The International Monetary Fund apparently doesn't agree with Krugman. It is more optimistic about the global economy after seeing faster growth in the United States and a coordinated effort in Europe to address its debt crisis, the group said last Tuesday. In its latest economic report the IMF said that the American economy should expand 2.1 percent this year. (It was last year at this time that the ratings agency Standard & Poor changed its outlook on America's credit score to "negative", the first step in the U.S. losing its stellar triple A rating.) Europe is likely to shrink 0.3 percent and the world economy should grow 3.5 percent. All three of the I.M.F.'s estimates are slightly better than its January's forecasts. The group praised European leaders for bulking up its bailout fund and taking other steps to address the crisis. Both the IMF and Krugman agree on one thing-- that the eurozone crisis continues to loom as the biggest threat to the global economy.

Let's turn to the technical part of today's essay. Before we move on to the use of relative strength analysis, let us first see if anything has changed in the USD's very long-term chart in comparison with last week (charts courtesy by http://stockcharts.com.)

We can see that very little has changed since last week. We have therefore decided to quote from last week s essay:

We see that the sideways trading patterns continue between the two levels which are quite important from a technical perspective. These are the declining long-term support line and the horizontal support line based on the early 2011 high. At this point, the very-long term chart remains mixed as the USD Index moved a bit higher once again this week, but no breakout has been confirmed thus far.

Since the trend remains down for the USD Index, it seems that the precious metals could very well rally once this index begins to move lower.

Let us now proceed to the main part of our essay - the use of relative strength analysis that consists simply in plotting the ratio of two commodities on a single chart. We can then apply other "traditional" technical analysis tools to see which one is outperforming the other and how this situation is likely to change in the future. Let us have a look at the silver-to-gold ratio.

In this chart, we see a major support line in play and the suggestion is that a move to the upside here is very likely. The chart tells us that silver is likely to outperform gold in the months ahead, though not necessarily immediately. A more in-depth analysis of the white metal's situation is provided in the full version of this article.

The last part of today's essay is devoted to platinum-to-gold ratio, that shows us the strength of platinum relative to the yellow metal.

In the platinum to gold ratio chart (you can click the chart to enlarge it if you're reading this essay at sunshineprofits.com), we see that platinum is once again cheaper than gold (the ratio is less than 1.0). We have been asked to comment on this. It is important to keep in mind that the ratio has rallied sharply since January 1 so a pullback is not all that surprising.

Let's compare it to the last rally which was seen after a considerable decline. In the 2008-2009 trading period, the short-term volatility was in place and this did not invalidate the bullish trend at all. The ratio was actually a bit higher then as compared to its extremely low value at the start of 2012. The potential to catch up this time has been enormous so we continue to believe that platinum is a very good long-term play in and of itself as well as relative to gold.

Summing up, the long-term picture in the USD market continues to appear a bit more bearish than not and the implications for the precious metals are generally positive. The silver-to-gold ratio chart suggests that silver is likely to outperform gold in the months to come, yet it should be kept in mind that this may require some time to happen. Additional short-term volatility has been seen in the platinum market, but this is not unusual. Platinum seems poised to outperform gold in the medium and long term, but the short-term situation is somewhat unclear at this time. More details with regard to both the short-term and the long-term situation in the yellow metal's market is available to our subscribers (plus we have just posted an extra update dedicated to gold stocks - if you're wondering how much more they can fall, you will surely enjoy today's very detailed discussion).

Thank you for reading. Have a great and profitable week!

P. Radomski

Editor

www.SunshineProfits.com

* * * * *

Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

Sunshine Profits provides professional support for

Gold & Silver Investors and Traders.

Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits' Premium Service gain access to Gold Charts, Gold Investment Tools and Analysis of Gold & Silver Prices Naturally, you may browse the sample version and easily sign-up for a free weekly trial to see if the Premium Service meets your expectations.

All essays, research and information found above represent analyses and opinions of Mr. Radomski 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, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, 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.