The Decoupling of Gold
With today's historic move into new high ground for gold against the dollar, has this market finally decoupled from the other markets?
In this short two minute video, I will share with you what I think the next major technical level is for this market. We will also be looking at an indicator that is close to kicking in that could sharply accelerate gold's upward move. Gold has an enormous energy field below it that is capable of pushing prices significantly higher in the months ahead.
When a market makes a new high like this one, the pro's are buying as the line of least resistance is onward and upward.
As always our videos are free to view and require no registration. I would really like to hear your thoughts on this market. Please feel free to leave your comments on the blog.
All the best,
Adam Hewison
President, INO.com
Co-creator, MarketClub
I want to be their when gold implodes so I can short it.
Bill,
I'll try some answers (not an expert at all)
"I’m curious how much of the move in gold do you attribute to dollar weakness, and how much to reflation?"
Zero! Instead, I attribute gold's move to 3 things:
1. Gold is in a secular bull (its 9th year) and secular bulls last 15-20 years; more, as we all know, bull markets move... UP! So here u have it.
2. Competitive devaluation around the world; gold is moving higher against all major currencies (euro, yen, dollar, etc.). LT, paper currencies will eventually move to 0 which is their intrinsic value; currently the market is too dollar focuses imo and somehow assumes that euro is better for instance; well, is not! dollar is broken but so are other currencies!
3. Credit stress/depression; contrary to popular belief, gold doesn't do well during inflation! (I mean gentle inflation). Gold does well when there is stress (ie hyperinflation, wars, depression, bank failures).
"I would like to hear you expound upon the correlation between gold and silver."
Imo, gold will decouple from all commodities, silver included. So gold will make its way no matter what the dollar, the euro or silver does.
"One of my stock broker friends told me today that gold and silver have diverged with gold having made price gains that have not been followed by corresponding gains in the price of silver."
Don't put too much faith in that; it might that silver will bounce strongly, but silver is more an industrial metal; gold is trading like it's money, so the place to be is clearly gold imo (cash is king).
In the same time, you need to keep in mind that like all bulls, the gold bull will finnish in a bubble; you don't want to be there when it will implode, you know how that will finish 🙂 How do you know gold entered a bubble? It spikes vertically in a short period (couple of months). You can ride the bubble, but be careful! And good luck...
Toby,
We emailed you the details.
Thanks
Adam
Hi Adam,
I would like to be a paying subscriber. Please advise via email on steps.
Thanks Toby
Good analysis on a VERY important issue: decoupling. Valued!
I have been looking for a way to combine $USD dollar and price of gold 'POG' into a kind of index for charting. Consider the ratio of GLD:UDN as such an index. Empirically, this "gold price index" ratio seems to work well over several time-frames with anticipative technical indicators.
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Such seemed to give a day or so "heads up" on latest POG record high.
Prediction of market trend seems like prediction of astrological of an individual.Sometimes it tallies and some time it doesn't tallies.Today we have to watch and check with the prediction of others
Any thoughts on silver?
Eric,
Thank you for your feedback.
I am focusing on gold
Adam
Well as to gold, now that gold has decoupled "from the other markets" do you foresee another decoupling of the actual physical gold from the paper gold? And if so, do you have any insight as to when?
Thank you, Adam, for sharing your insights. They are very helpful.
Eric,
The short answer is I do not have an idea of when or if actual gold will decouple from paper gold.
Thanks for your feedback.
Adam
Adam, It might be useful for the newbies to point out that the "purple dots" (PSAR) showing on your screen are also signaling a "buy" situation.
Of the 5 tools I use (all available on MC) 3 are signaling a buy situation (Triangles, MacD, PSAR,) and 2 are signaling a possible short duration pull back (Williams, Bollinger Bands).
Again for the newbies it would be helpful to understand that members following this trade would have been in it since 11Feb09 at $929.50 (the monthly triangle). For any members wanting to enter this trade latter on then any green triangle would be fine.
I have also found that it is usually non-productive to jump out on the red triangles and back in on the green. Usually all this accomplishes is churning your account and increases the broker fees. Some times it is a difficult mental challenge to hold a position that is going thru a 15% pullback (such as this trade with the $125 pullback in March and April). You have to develop the confidence that if the monthly is still green it will come back. At least that is my opinion.
Gold definately will be going along the uptrend, and it has just showed breakout higher level. I think the $1,000 will be its long term support - any momentum below this level will gives long-term buy chance. This view will be supportted by long-term devaluation of the US$.
I wouldn't hold your breath on the decoupling as well. The US dollar faded from the open and traders drove up gold in the opposite direction.
Silver more than doubled golds gain today too. Poor man's gold or whatever you want to call has more upside than gold. $1100 is only 3% away from today's close. If you want to get excited about 3% knock your socks off. I'm in this racket to make money and in the precious metals game silver is the way to go.
I wouldn't bet the farm on decoupling yet. 1 day does not make the season. Markets are still close to their support. If a sell off happen, Treasuries will go up and gold down, since traders beleive in the inverse relationship between gold & dollar.
YES! I hope this trend continues. The big threat to gold has been a strengthening $US. But we have now seen a new weekly green trade triangle in both instruments indicating that gold strength beats dollar strength. This is something new.
Bill,
Thank you for your feedback.
As I said before on this blog markets can correlate for a while and then they tend to decouple based on fundamentals and demand. As a technical trader I am focused more on the technical side of the market and I have not paid any attention to silver as it has no interest in my portfolio.
One of the things I like to look at is what's going on in the market. If a market is making all time new highs I'd definitely want to belong.
All the best,
Adam
Excellent and concise analysis! I'm curious how much of the move in gold do you attribute to dollar weakness, and how much to reflation? From a purely technical stanpoint it may not be that important, but here's one thing that might. I would like to hear you expound upon the correlation between gold and silver. One of my stock broker friends told me today that gold and silver have diverged with gold having made price gains that have not been followed by corresponding gains in the price of silver. Their point was that since gold is unlikely to come down, silver must rise to restore their balance. Interested in any thoughts you may have on the subject, thanks!
Bill, this would be a "ratio trade". Your friend is probably not talking about going long silver outright, because by this logic if gold turns down, silver would also. I'm sure he is implying that silver will "catch up" to gold. This would mean buying silver and selling equal dollar value of gold at the same time. If original stipulation holds water and silver indeed is "catching up" to gold, silver side of the trade would make more money than gold side is loosing. These are reasonably safe trades, as long as margin used is not excessive.
Problem is that gold/silver ratio can remain in extreme territory for months, even years, before returning to some historical average. You'd better have some staying resolve before entering into something like that. You would want to study charts of this ratio and see how it changes over time.
BTW, Adam, very good video.