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


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

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.
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