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Are the Elections the Key to the Short-Term Stock and Gold Price Swings?

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The general stock market is mixed for the short term and the final support line for stocks has not yet been reached.

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Let us have a look at the intermarket correlations to see what the above developments could mean for precious metals.



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. We continue to see little correlation between the USD Index and gold and the rest of the precious metals. This can be attributed to what has happened within the past month where metal prices declined despite the lack of a rally in the USD Index. This is a bearish factor for gold, silver, and the mining stocks.

The general stock market is positively correlated with the precious metals. This has bullish implications in these days just before the US elections. However, since gold price increases are not really what the powers that be prefer to see right now (since they are implications of inflation), we could see some deviation from the normal correlations. The point is that significant coefficients should not be considered as useful as they normally are. In short, the overall implications of this table are bearish to neutral for the precious metals sector.


Click to enlarge

Analysis of the short-term GLD ETF chart once again gives us bearish implications based on price trends and price/volume action. Declines have been accompanied by relatively high volume and no breakout has been seen. Wednesday gold and silver moved higher, but they didn't move above their short-term declining resistance lines (see above chart).

For the yellow metal, the line was touched but not broken and gold prices declined on Thursday. The question is: When will the downside target levels be reached? Based on the above chart, it seemed that the bottom was likely about a week or so away; however, based on today's price decline, it seems that the decline may already be over today.

Summing up, the short and medium term picture for crude oil is bearish, which may translate into lower precious metals prices in the near future. The general stock market is mixed for the short term and the final support line for stocks has not yet been reached. With Election Day looming, however, some strength is possible for stocks in the coming days. This will probably have a positive impact on the precious metals. Based on Friday's decline, it seems that the bottom in the precious metals sector might have just been reached.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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