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Open-Ended Rally in Gold, Silver, and Stocks?

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Even though the expectation for stimulus was already priced in to a certain degree, precious metals went on a binge.

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Let's take a look how the above can impact the precious metals market.



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. Moving back to this week's analysis, the question is: What picture does our previous analysis of stocks (above) paint for the precious metals market?

The answer is that stocks' current impact on the precious metals sector is very bullish for the medium term (three weeks or more) but rather unclear for the short run (up to three weeks or so). The reason is that the significant and positive correlation between precious metals and stocks makes the situation similar for both precious metals and stocks. It seems that the events mentioned in the first part of this essay contributed greatly to this situation – after all, open-ended QE3 is something that is likely to positively impact almost all asset prices – except for the USD Index.

Summing up, the outlook for the stocks in general is bullish for the medium term and rather unclear for the short term. Because of the shape of correlation between precious metals and the general stock market, this translates into a rather unclear short-term outlook for precious metals and a bullish medium-term one. The situation on the precious metals market is very overbought from the short-term perspective, so traders should be careful if they wish to bet on the immediate continuation of the rally.

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

For the full version of this essay and more, visit Sunshine Profits' website.

Twitter: @SunshineProfits
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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