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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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  • What Does a Breakout in Euro Mean for Gold Investors?
    What Does a Breakout in Euro Mean for Gold Investors?
     
     
     
    Based on the April 8th, 2011 Premium Update. Visit our archives for more gold & silver analysis.
     
    Before moving on to the timing-related part of this essay (in fact a continuation of our previous essay Breakouts in Gold and Silver Prices), let's take a few moments to focus on the big picture. Namely, we would like to draw your attention to some interesting facts about the main point of our interest - gold.
     
    Demand for gold was always high from ancient civilizations. If we check in the Bible, gold is mentioned 417 times (according to Answers.com), underpinning importance of gold even centuries before. Here are some off the wall, unusual and even bizarre anecdotes about gold that show you that some things never change.
     
    History is replete with famines, but have you ever heard about the Great Bullion Famine? It seems to have implications to today’s economic situation.
     
    During the years 1370-1420, various major mines around Europe become completely exhausted and gold and silver mining declined. Another big problem facing the West at that time was a trade deficit with China and India. Exotic luxuries such as spices, silks, and cotton were highly prized in Europe, but European products such as wool from England were not valued in the east. But what was valued then, as now, in the east was gold and silver and those sent to the east in payment for goods never to return in payment for exported European goods. Mints closed down all across Europe because of the lack of bullion. Gold coins gradually disappeared from circulation due to hoarding and the market was invaded by debased "black money", and the public turned increasingly to surrogate currencies and to simple barter.
     
    The scarcity of bullion was one of the triggers of the Age of Discovery as Portuguese explorers sailed down the African coast to open new routes to sub-Saharan gold. Christopher Columbus in the diary of his first voyage mentions gold 65 times. After the discovery of silver in Latin America the bullion famine ended. But the Spanish monarchy had to learn the hard way that too much of a good thing can be a curse. They had dug up so much silver that the metal itself dramatically declined in value. What they failed to understand is that the value of precious metals is not absolute. Money, just like about everything else, is only worth what someone else is willing to give you for it. An increase of the supply, or today we call monetary expansion or quantitative easing, will merely make prices higher, or what today we call inflation.
     
    So from the Great Bull Famine came a period called the “Price Revolution” which affected all of Europe from the 1540s for about 100 years. The cost of food rose dramatically. Rising food costs is also something that we are seeing today.
     
    Niall Ferguson, in his book The Ascent of Money, wrote that when an American exchanges his goods or his labor for a fistful of dollars he is essentially trusting… Ben Bernanke not to repeat Spain’s error and manufacture so many of these things that they end up being worth no more than the paper they are printed on.
     
    All these indicate that economic growth and value of gold go hand in hand. To see how economic performance and gold market fluctuations tally currently, let’s have a look into the currencies market and its relationship with gold. Let’s begin with the long-term Euro Index chart (charts courtesy by http://stockcharts.com.)


     
    Although it’s not visible on the above chart, the Euro Index has moved above the declining trend channel, which – if confirmed – will be a major breakout. This is, of course, be closely tied in an opposite manner to what happens in the USD Index.



    In the short-term Euro Index, we have also seen a tense situation, after which (not visible on the chart) euro moved higher – above levels that were seen last November. For several weeks, local tops in the Euro Index have coincided with those for gold as well. Now, with euro breaking out to new highs it seems that gold might finally be able to hold its recent gains.
     
    Meanwhile, let’s take a look at the USD Index chart.


     
    In the long-term USD Index chart, we have also seen a mixed situation, which has just gained a bearish bias. Index levels were close to a cyclical turning point, so the move downward that we’re just seeing might be a big one.
     
    The breakdown is still being verified, so we may in fact see a reversal to the upside, but that does not appear to be the most likely outcome.
     
    With rising euro and declining USD, let’s take a look at the possible implications for gold.
     
     
    Please take a look at the 30-day column and the Gold-USD correlation. Actually, the current value of the coefficient is -0.61, which means that it has become even more negative in the past few days. This means that gold has on average moved in the opposite way to the USD Index, and since we know that people buy gold in order to hedge themselves against currencies’ depreciation, we might infer that a decline in USD Index is likely to be the cause of a rally in gold.
    Summing up, the favorable situation in the yellow metal appears to be confirmed by the recent developments in Euro and USD Indices. The breakouts/breakdowns in the latter have not been verified yet, but the situation for gold remains bullish.
     
     
    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 todayand 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
     
     
    * * * * *
     
    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.
    Apr 12 2:31 PM | Link | Comment!
  • Gold and Silver Gather Strength for Bigger Moves
    Gold and Silver Gather Strength for Bigger Moves

     
    Based on the April 5th, 2011 Premium Update. Visit our archives for more gold & silver analysis.
     
    China Central Bank’s recent announcement of a rise in lending and deposit rates caused gold to trade close to US$1,430 on Tuesday, Asian trading time. However, long-term trends in precious metals are UP although the current investor sentiment appears mixed. Weakness of the dollar, the uncertainty in the Middle East and concerns over a looming debt crisis in the euro zone, could support yellow metal.
     
    On the other hand, bears are seen in the market, past few days. What about the sustainability of current short-term downtrends? Today’s breakout to new highs in gold appears very bullish at the first sight, but the move has not yet been confirmed.
     
    Well, let’s begin today’s discussion with reviewing gold and silver market performance. We will start with the long-term gold chart (charts courtesy by http://stockcharts.com.)
     

     
    The first and most important point that can be made based on the above chart is that the situation is no longer overbought in the short term. Please take a look at the RSI indicator, which is nowhere near the 70 level (something that would indicate the overbought status). The breakout above the rising long-term resistance/support line has been confirmed.
     
    Until the move above the level of previous highs is confirmed, however, we do not view the situation as one that can be described as bullish enough to justify opening long positions. It simply appears to be mixed at best right now.

     
    In the non-USD chart, we have seen a move to the rising support line followed by a bounce. Index levels are now equal to where they were several weeks ago. Very little has happened as we have seen a period of consolidation recently.
     
    This could be the silence before storm – markets gather strength for a bigger move. Perhaps we may see a new rally begin quite soon. Overall, the situation is clearly mixed for and Gold Investors should stay alert for new developments on the market, even though gold appears to have started another rally. In most cases, waiting for breakout’s confirmation is a profitable idea.
     
    While situation is still rather mixed in the gold market, as the breakout in gold might or might not be confirmed, let’s take a look at gold’s sister metal – silver.

     
    From the non-USD perspective, silver was moving in a rather tight trading range in the past week, but it has moved considerable higher since that time.
     
    The situation is somewhat tense, as the previous ‘silence before storm’ (consolidation) appears to be over. This means that the ‘storm’ part is upon us, meaning a strong move in either direction. Based on silver’s recent performance, it appears that the direction is up.
     
    Still, not everything is bullish for the precious metals market at this point. For instance - silver’s seasonal tendencies.
     
    As you might remember from previous essays, this analysis is based on our forthcoming tool – True Seasonals. This tool encompasses both the seasonality of metals and the impact the expiration of derivatives has on metals. As the precision of True Seasonals has proved to be high in March, True Seasonals remain particularly interesting on the brink of the month of April.
     
    Our tool suggests that silver might follow a sideways trend throughout the rest of the April after some well defined fluctuations during the initial days of the month. Quality of Projection suggests that the reliability of the predictions remain high – at no point does it go below 8 (10 is the maximum) and reaches its peak point at the beginning of the predicted sideways trend. This implies that you should include True Seasonals in your analysis of the market and that the prediction of a sideways trend might be especially accurate.
     
    Therefore, based on silvers usual performance in April and how it moves around the expiration dates, it seems that an upward trend might occur in the first days of April after which we should be particularly cautious and look for signals of a possible slump. In the second half of the month prices of silver might drift sideways. So far we’ve seen a rally, but that is still in tune with True Seasonals.
     
    Summing up, gold has just move to new highs, but this breakout has not been confirmed yet. Silver is the most bullish of the precious metals at this time but since all precious metals move together, we hesitate to call the situation very positive for the white metal, especially that the True Seasonals suggest caution.
     
    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 todayand 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
     
     
    * * * * *
     
    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.
    Apr 05 3:54 PM | Link | Comment!
  • No Breakout in Gold So Far, Strong Resistance Seen in Silver
    No Breakout in Gold So Far, Strong Resistance Seen in Silver
     
     
    Based on the March 25th, 2011 Premium Update. Visit our archives for more gold & silver analysis.
     
    There are so many news items affecting precious metals, especially gold, these days. The precious metals glittered in their roles as havens as euro-zone debt worries resurfaced increasing the anxiety among market participants already jittery about $106 oil, the fighting in Libya, protestors killed in Syria and the nuclear crisis in Japan.
     
    What is the market scenario in precious metals at this juncture? Investors clamoring for safe places to stash their money sent gold futures to a record high and silver to a fresh 31-year peak. Prices turbocharged as gold futures overcame a weak start to soar past $1,440 an ounce, well on their way to setting a settlement record high.
     
    With so much taking place in the world, let’s turn to the technical portion of this essay. This week we provide you with gold, silver and platinum charts. We will start with the long-term chart for gold (charts courtesy by http://stockcharts.com.)


    Gold has been struggling to move above the rising trend channel. No breakout has yet been confirmed above either the upper border of the trading channel or the 2010 highs. Only after these levels are taken out is a move towards the $1,600 target level likely to begin. Also, we can see that gold has corrected to its previous support line and the move above it appears to have been verified. RSI levels are no longer overbought as had been the case several weeks ago.
     
    With the lack of recent price action excitement, it seems that there is plenty of capital still on the sidelines. This also makes an upcoming breakout quite possible. However, since a breakout above previous highs has not been seen yet, caution seems to be required in the days ahead.
     
    While gold market is awaiting a breakdown, what is happening in silver market?

     
    As in gold, long-term silver chart also suggests caution. In silver’s case however, there is another important factor/level which must be considered and that is the long-term resistance line.
     
    As we’ve mentioned in one of our previous essays dedicated to gold & silver analysis, the $38 level is/was a valid target level for this rally and thus it’s likely to provide strong resistance, when it’s reached. This is what we have just seen.
     
    Please note that $38 is the price that is right at the long-term resistance line created based on the highs seen in 2006 and 2008. These are two of the three most important tops in this bull market, so the resistance level is very important.
     
    Similar situations in the past lead us to realize that if a decline is to be seen soon, then it is likely to be sharp. The recent rally has been much in tune with previous rallies. Only the strong rally seen in 2005 to 2006 was bigger. Although an upside move is possible from here, it might be the case that the top is just around the corner.
     
    Overall, silver has recently seen new highs but a very important resistance level has been reached. All in all, this means that the current situation is very tense and caution is required.
     
    Moving on, let’s take a look at the short-term chart for platinum.
     

    While it does not have important implications for the following days, this chart is being included to clearly show the benefit that technical analysis can provide. Long–term readers of Sunshine Profit’s publications are confident in the validity of technical analysis but many opposing views are often seen in the financial pages.
     
    This chart is a perfect example of an important and valuable technical signal (actually combination of two of them). The “bullish hammer candlestick” pattern touched the 200-day moving average and prices have immediately reversed. More importantly, other precious metals then followed. This clearly refutes the claims of those opposed to technical analysis as being useless. While it’s true that it is not perfect (no way to approach the market is), it works quite often and gives both positive and negative signals in advance of important market moves. Without it, Investors and Speculators simply cannot have the complete overview of the markets.
     
    Amid the uncertainties associates with precious metals market, let’s have a look into the gold seasonality.
     
    In our Premium Update posted on February 18th, we argued based on our forthcoming tool – True Seasonals (which – unlike other similar tools available on the Internet - presents seasonal price patterns adjusted for the expiration of derivatives and provides you with information about this projection’s quality) that the price of gold might decline in the second week of March. True Seasonals indicated a possible decline on March 8th and pointed to March 17th as to a possible end of the bumpy period. As a matter of fact gold did decline on March 9th and regained its momentum precisely on March 17th.
     
    However, on February 18th, we did not know what the price of gold would be on March 1st and we assumed that it would be $1379 (the latest available price at the moment – form February 17th). Today the situation is different – we know what the price was on March 1st. Below you will find a comparison of the prices predicted by True Seasonals on March 1st and the actual prices of gold in March (up to March 24th).
     
    Let’s take a look below to see what these (so far reliable) tendencies suggest for the end of the month.


    The red line shows prices of gold that True Seasonals had predicted. The orange line presents the actual prices of gold in March. As we can see the actual prices of gold followed closely these forecasts. What is most important is the fact that the actual direction of price changes remained in line with the direction predicted by True Seasonals. All of this makes the seasonal analysis even more interesting for you at the moment.
     
    At this moment the above chart suggests that the price might have gone a bit too high on a short-term basis, as it is visibly above what the tool would suggest. Still, the quality of projection is not too high at the moment and will decrease until the end of the month. Consequently, caution is necessary, especially if you are currently betting on higher values of gold. If you’re interested in viewing the True Seasonal chart for April, we encourage you to subscribe – this chart has been included in today’s Premium Update.
     
    At this point we feel obliged to remind you – factors other than seasonality and expiration of derivatives might influence the prices of precious metals. Because of that, we strongly recommend you to keep track of the situation on the market and utilize other tools as well.
     
    Summing up, the situation in metals is quite extreme at this moment. Silver moved to new highs but encountered a very long-term resistance level. Gold moved higher but failed to confirm the breakout above the previous highs. Given this level of uncertainty, it might be best of one to wait for additional (either bearish or bullish) signals before entering any speculative transactions in the 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. Sign up for our gold & silver mailing list today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.
     
    Thank you for reading. Have a great and profitable week!
     
    P. Radomski
    Editor
     
     
    * * * * *
     
    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.
    Mar 25 5:57 PM | Link | Comment!
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