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Przemyslaw Radomski, CFA
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Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same. His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the... More
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  • Sunshine Profits: Mining Stocks‘ And Euro‘S Implications For Precious Metals

    Mining Stocks' and Euro's Implications for Precious Metals

    In our essay on gold price in November we examined the long- and the-short-term outlook for gold to check whether it confirm the indications for silver and mining stocks or not. As we wrote in the summary:

    (…) the medium-term outlook for gold remains bearish and, at this time, the short-term outlook is bearish as well. It seems that the precious metals sector reversed direction this week right after moving to the declining resistance lines. (…) From this point of view, it might be the case that the next major downleg has already begun and it seems likely that we will see at least a short-term downswing shortly.

    Since that essay was published, gold dropped below $1,340 and almost reached an important support level at $1,300. The yellow metal has lost about 3% since Oct. 28 and has logged its longest losing run since mid-May when it dropped 8% in seven days. Additionally, we also saw drops in case of silver and mining stocks.

    From today's point of view we see that this decline was triggered (as it was likely to happen anyway, based on technical reasons) by doubts over when the U.S. Federal Reserve would begin scaling back its stimulus measures. Although the Fed left its $85-billion-a-month asset purchase program in place following its monthly policy meeting, it didn't give clear indication whether it would start scaling back stimulus at the December meeting or continue it into the start of 2014.

    Therefore, investors still look out for U.S. data reports to gauge if they will strengthen or weaken the case for the Fed to reduce its bond purchases. As is well known, if you want to be an effective and profitable investor, you should look at the situation from different angles and make sure that the actions that you are about to take are justified based on each of them, or at least based on a majority of them. That's why in today's essay we examine the Euro Index and the HUI Index (along with its performance relative to gold) to see if there's anything on the horizon that could drive the precious metals market higher or lower. We'll start with the Euro Index chart (charts courtesy by stockcharts.com).

    (click to enlarge)

    Looking at the above chart we see that the long-term downtrend remains in place. Additionally, it seems that the short-term uptrend might already be over. In the previous week, the RSI bounced off the 70 level, which was a bearish sign. At the same time the Euro Index moved very close to the strong resistance created by the declining resistance line, but it didn't break above it. This show of weakness in combination with the position of the RSI triggered a heavy decline and the European currency dropped below the 135 level. Earlier this week, the euro extended declines and it seems that the downward move is not limited at the moment.

    At this point, we would like to emphasize one important fact: the previous tops (in 2008 and then in 2011) were followed by major declines in the precious metals sector. If history repeats itself we may see similar price action in this situation.

    Having discussed the current situation in the European currency, let's take a look at our Correlation Matrix - a tool designed to measure, present and provide interpretations of correlations between various parts of the precious metals sector and key markets that impact it - specifically, at the USD Index and the general stock market.

    (click to enlarge)

    In the previous week we saw a return to normalcy in case of the short-term coefficients. The precious metals sector responded negatively to changes in the USD Index and positively to changes on the general stock market. However, taking into account the situation in the Euro Index, we clearly see that the long-term resistance triggered a medium-term downward move. Therefore, we will focus on the medium-term correlations.

    The correlation coefficients between USD Index and precious metals are clearly negative when we take the last 250 and 750 trading days into account and it seems that a big decline in the Euro Index could trigger a decline in the precious metals, as it would very likely mean a major move up in the USD Index.

    Once we know what the current situation in the Euro Index, let's move on to the HUI Index and try to find out what kind of impact the mining stocks can have on gold's future price.

    (click to enlarge)

    On the above long-term chart we see that the HUI Index reached its medium-term declining resistance line in the previous week.

    At this point it's worth noting that we also saw similar price action in the case of gold and silver. Therefore, implications are bearish and the trend remains down. Please note that we still expect that the HUI Index will move to the 150 level or very close to it.

    Before we summarize, let's turn to our final chart - the gold stocks:gold ratio. After all, gold stocks used to lead gold both higher and lower for years (not in the very recent past, though).

    (click to enlarge)

    Looking at the above chart featuring gold stocks performance relative to the underlying metal - gold, we clearly see that the ratio reached its medium-term resistance line (similar to what we saw in case of gold, silver and the HUI index), but there was no breakout above this line, which is a medium- and short-term bearish factor.

    Although we saw an invalidation of the breakdown below the previous 2013 low, the long-term trend remains unchanged - we have the ratio below the 2008 low and the breakdown below this low was already confirmed.

    Summing up, looking at the current situation in the Euro index we see that the implications for the precious metal market are no longer bullish in the short term as currencies have already reversed and the USD Index has done so at the cyclical turning point. It might be the case that we are looking at the very early days of a major downswing in the Euro Index and a rally in the USD Index. Taking this into account and combining it with the medium-term outlook for the mining stocks, it seems that the medium term trend in the precious metals market remains down.

    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 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.

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

    Przemyslaw Radomski, CFA

    Founder, Editor-in-chief

    Gold Price Analysis Website - SunshineProfits.com

    * * * * *

    About Sunshine Profits

    Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

    Disclaimer

    All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA 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, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, 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.

    Nov 07 7:27 AM | Link | Comment!
  • Sunshine Profits: Can VIX Substitute Gold?

    Can VIX Substitute Gold?

    Based on the October 31st, 2013 Premium Update. Visit our archives for more gold & silver articles.

    No, it can't. We've read a very interesting essay on gold, VIX (the volatility index) and the safe haven status entitled Forget gold, the VIX is the new safe haven and we would like to share our thoughts about it.

    First of all, what would you expect from a safe haven asset? Should it trade without speculative parabolic upswings and subsequent corrections?

    Such ups and downs will happen if a given asset is allowed to trade freely and independently from other ones. Bull markets and bear markets. Excessive optimism turns into excessive pessimism and vice-versa - at least when the markets are free, that's how things work. That's simply a realistic observation.

    If the gold market is free (at least to a considerable degree), then we can expect it to move ahead of itself every now and then and to underperform at times. What does that tell us? That we should be careful not to view the cyclical downturn as anything more than it is. It is the way markets work and attributing such downturns to other - especially fundamental - factors, can be misleading.

    Gold hasn't really responded to the open-ended QE - it hasn't skyrocketed. It didn't even manage to hold a rally for long - the upswings that we saw when the key pieces of news were announced were temporary at best. Does that mean that gold is no longer a good way to protect oneself from the rapidly increasing money supply, which has to, eventually, trigger higher inflation? No, it means that multiple factors that determine the gold price ended up pushing it lower. We can't tell what would have happened if we hadn't had an open-ended QE in place for so long. Perhaps the price of gold would be a few hundred dollars lower. All we know is that given the cyclical, fundamental, and short-term emotional factors gold is where it is. Can we infer - based on gold's decline in 2013 - that the fundamental situation has deteriorated? No. Gold has been rallying, with small pauses, for over a decade. We could have expected to see it correct eventually - it seems that this time is now. It doesn't mean that it has stopped being a hedge against irresponsible monetary policy. That has not necessarily been the reason for gold not to rally in recent months.

    Moving back to the topic - what does it mean for gold to be a safe haven? It means that it should appreciate - on average - when things go bad. Bad = high inflation or any other significant uncertainty. If it is allowed to trade freely (at least mostly), then we can expect it to form local bubbles and then to correct. Has gold more than quadrupled in the last decade? Yes, it has. This means that, on average, gold has been moving higher, most likely, on rising uncertainty and huge money creation. It has corrected in the recent years - ok, but it could be the case that it simply corrected just because it had to correct as this is just the way bull markets work.

    Gold is still a hedge against turmoil (especially financial turmoil), but we just can't expect it to respond to each and every piece of bullish news. If it is in a cyclical downtrend, it will not really respond to positive news. It will eventually, but not necessarily right away. It might need to correct first, and then it will likely come back with a vengeance.

    Therefore, if something doesn't happen right away, it doesn't mean that it doesn't work at all. In a loose analogy - you might not see an immediate benefit from education, yet you know that you are very likely to benefit from it in the end.

    Then there's the VIX. The VIX is a financial instrument, which will quite likely do a good job in case of small, day-to-day risks, but - unlike physical precious metals - it will not protect you if the financial system is destroyed. It's not that we predict that to happen tomorrow or the next week, but something like that could very well take place eventually - within this decade or the next one.

    The various decisions that the Powers That Be are making that limit the short-term risks (and the way the current financial system is designed), are actually increasing the systemic risk. In other words, all the insurance companies, reassurance companies, hedged risks via derivative instruments and so on, mean that unless the losses are really huge, the system will absorb it and move back to equilibrium. One company goes bankrupt? No problem. The system risk means a huge problem when a hundred companies go bankrupt at the same time which causes the companies that have been insuring them to go bust as well along with their reinsurers. At such time other companies would become vulnerable to default, which could spread given the overall panic in the market.

    With the contagion effect, it wouldn't take long before the stock market tanked on hundreds and hundreds of companies getting out of business. This is something that could collapse the financial system. That's precisely the systemic risk. In fact, systemic risk is just a fancy term for "when all hell breaks loose". Academics, and quite a few analysts, will tell you that systemic risk is here to stay and that you can't do anything about it. However, we respectfully disagree. There is something that has preserved value for thousands years and endured more than tens of various fiat currency systems - precious metals.

    The VIX, on the other hand, should seem excellent (as far as hedging the risk of plunging stocks is concerned) on a short-term and medium-term basis, but if the financial system collapsed, the VIX would likely not provide any protection whatsoever, as it's just a quite sophisticated part of this system.

    Gold is not a mathematical computation of variability of stocks' returns, but an asset class of its own - a one with a few thousand years of history of serving as a true hedge against the massive fiat money creation. Can a sophisticated financial instrument substitute gold as a true safe haven? No way.

    To make sure that you are kept up-to-date with our free thoughts on the market, including information not available publicly, we urge you to sign up for our free gold newsletter. It's free and you may unsubscribe at any time.

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

    Przemyslaw Radomski, CFA

    Founder, Editor-in-chief

    Gold Price Projection Website - SunshineProfits.com

    * * * * *

    About Sunshine Profits

    Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

    Disclaimer

    All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA 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, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, 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.

    Nov 04 12:38 PM | Link | Comment!
  • Sunshine Profits: Gold: The Medium-Term Outlook

    Gold: The Medium-Term Outlook

    Based on the October 31st, 2013 Premium Update. Visit our archives for more gold & silver articles.

    In our previous essay we took a closer look at the situation in silver and mining stocks (precisely: SLV and GDX ETFs) and discussed how it may translate into the precious metals market. As we wrote in the summary:

    (…) when we factor in the impact of (…) silver's cyclical turning point, which is just around the corner, and the fact that the short-term resistance lines have already been reached in case of the GDX ETF, we can presume that the top of the recent upward move in the precious metals may be already in (or is very close to being in).

    After that essay was published, silver moved slightly above the medium-term declining resistance line on an intra-day basis, but didn't manage to hold these gains. Therefore, it's quite possible that we have already seen the impact of silver's cyclical turning point on the white metal. Additionally, the GDX ETF quickly invalidated the breakout above the 50-day moving average and the 38.2% Fibonacci retracement level. When we take into account the recent price moves in both, we can conclude that our projections from the previous essay's summary remain in place.

    These circumstances have encouraged us to focus on the most interesting asset - gold. Does it confirm the indications for silver and mining stocks? To see what we can expect in the gold market, let us move to the world of charts. Today, we will start with the yellow metal's very long-term chart (charts courtesy by stockcharts.com.)

    (click to enlarge)

    Once again, we see that the situation hasn't changed much from this long-term perspective. It was bearish as gold had already broken below the long-term rising support line and this breakdown wasn't even close to being invalidated this week.

    Please note that in 2008, when gold moved higher before plunging for the final time, there were several intra-week attempts to move higher after which gold finally declined. Therefore, a double top pattern should not surprise us here.

    Actually, we've recently seen a similar pattern on a smaller scale. It's more visible on the short-term chart. Let's take a look.

    (click to enlarge)

    On the above chart we can see two things:

    1. Gold reached the declining resistance line and the 61.8% Fibonacci retracement level 3 times (intraday highs) in the last 3 days but failed to break it.
    2. The yellow metal has broken below the short-term rising support line (marked in red on the above chart).

    The first point has bearish short- and medium-term implications and the second one has bearish short-term implications.

    Either way, the outlook remains bearish.

    Before we summarize, let's take a look at the chart featuring gold's price from the non-USD perspective.

    (click to enlarge)

    Looking at the above chart, we see that from this perspective, the situation is quite unclear. On the one hand, we might see a post-double-bottom rally. However, on the other hand, a pullback might be nothing more than a confirmation of a breakdown that we saw begin in mid-September.

    The non-USD gold price moved to its declining resistance line (similar to the USD gold price) and declined. In this case we are taking the weekly closing prices into account. Naturally, we could see a move up to 51 on the above chart and the medium-term outlook would remain bearish, but it's not that likely that we will see an additional rally.

    Summing up, the medium-term outlook for gold remains bearish and, at this time, the short-term outlook is bearish as well. It seems that the precious metals sector reversed direction this week right after moving to the declining resistance lines. We can see this important event in gold, silver and mining stocks. From this point of view, it might be the case that the next major downleg has already begun and it seems likely that we will see at least a short-term downswing shortly.

    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 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.

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

    Przemyslaw Radomski, CFA

    Founder, Editor-in-chief

    Gold Price Prediction Website - SunshineProfits.com

    * * * * *

    About Sunshine Profits

    Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

    Disclaimer

    All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA 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, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, 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.

    Oct 31 2:13 PM | Link | Comment!
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