• 287 days Will The ECB Continue To Hike Rates?
  • 287 days Forbes: Aramco Remains Largest Company In The Middle East
  • 289 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 689 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 696 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 699 days Big Tech Disappoints Investors on Earnings Calls
  • 700 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 702 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 706 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 707 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 709 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 710 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

  1. Home
  2. Markets
  3. Other

Bearish Picture for Gold from the Perspective of the Dollar and the Stock Market

The recent collapse in gold price hasn't discouraged consumers across Asia, and in particular from China and India from buying yellow metal. Taken together, China and India account for more than half of the total consumer bullion demand worldwide. What we are seeing now is an exceptional phenomenon because Indian demand for gold is up 200% from a year ago.

Gold demand in India, the world's largest buyer, is heading for a quarterly record as imports reach 300 to 400 metric tons, the World Gold Council said in a report last week. Again, we're only getting close to the mid-way point of the year and the amount quoted by the WGC is equal to almost half of the total shipments for all of last year. We read that banks are actually being told to discourage gold investment and suggest financial products instead. Interesting isn't it?

It looks like Indian, Chinese and Middle Eastern consumers are taking a long-term view on the prospects for gold. I'm not surprised you would want something to decline in price to buy more for yourself, but are you sure that the recent gold price collapse is as great a buying opportunity as it seems?

Let's look at the charts and search for some answers. We'll start with the USD Index long-term chart (charts courtesy by http://stockcharts.com).

US Dollar Index Monthly Chart

In this week's long-term USD Index chart we see the index is still above the declining support line and the bullish medium-term outlook has not been invalidated here. That's why last week's decline has very little impact from this perspective. We discussed the underperformance of the precious metals relative to the USD Index several times last week beginning with Monday's Market Alert:

… gold is responding strongly to the dollar's rallies but responds less significantly to its declines. This is a bearish situation as it means that gold would likely decline even if the USD was just trading sideways.

This underperformance (responding less significantly to declines) was clearly taken to the extreme on Thursday.

The situation remains bullish for the USD Index. Does it look bullish for the general stock market, too? Let's find out.

SPX Weekly Chart
Larger Image

As we wrote in our essay on gold, stocks and the dollar on May 17,2013:

The situation is overbought on a short-term basis, but we do not expect to see an invalidation of the breakout above the 2007 high. If anything, we could see stocks move back to this level, which could further verify the breakout and allow them to gather strength in advance of the next rally.

Although the last correction was deeper than the previous one it doesn't change the overall picture of the market. As long as stocks are able to hold up above the 2007 high the uptrend is not threatened. That's why we think that the bottom for the latest decline may be in. The main buyers arguments are certainly two support lines because price levels bounced off the intersection of them.

This could mean that the bottom in the stock market is in anyway.

Now that we know how the situation looks from the perspective of the dollar and the stock market, it's time to take a look at the yellow metal itself.

Gold Weekly Chart
Larger Image

In this week's very long-term gold chart, we see that the trend remains down. Despite a $20 move up last week the outlook continues to be bearish (it's hard to take this small increase as a sign of improvement especially as we consider the whole decline.

Gold could still decline heavily based on the long-term cyclical turning point, which is due approximately this week. In both 2008 and 2009, local tops formed slightly after the cyclical turning point, so it is possible that the reversal in the downtrend won't be seen until after the cyclical turning point once again, leaving a number of days in which further declines could be seen.

Summing up, the long-term outlook is bullish for the USD Index at this time. As for stocks, the situation remains bullish for the medium term, and although the last correction was deeper than previous one we don't expect to see a bearish trend immediately. It seems that higher stock prices will be seen without further declines. Finally, gold's picture provides us with bearish indications.

Overall, it seems that the final bottom in the yellow metal is not yet in.

We know keeping an eye on the market is very important to you, as you care about your savings and that's why we hope you've enjoyed reading this essay and that it will help you to decide whether or not buy gold Asian style, anytime soon.

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

 


To make sure that you are notified once the new features are implemented, and get immediate access to our free thoughts on the market, including information not available publicly, we urge you to sign up for our free gold investment newsletter. Sign up today and you'll also get free, 7-day access to the Premium Sections on our website, including valuable tools and charts dedicated to serious Precious Metals Investors and Traders along with our 14 best gold investment practices. It's free and you may unsubscribe at any time.

 

Back to homepage

Leave a comment

Leave a comment