|
The big question on the minds of most investors is what will happen to the
markets and precious metals in 2019. Well, the answer depends mainly on
two factors, the oil price and overall weakness in the economy. If the
oil price continues to decline, it will indicate a deflationary outcome for
the economy and markets.
While this sounds counter to the notion that falling oil prices will drive
higher consumer demand, we also must remember that it will negatively impact
the U.S. shale oil industry. A lower sustained oil price, as I wrote
about in my previous article, IT
BEGINS… Rapidly Falling Oil Prices First Guts Tar Sands, Then Shale Oil
will begin to destroy the oil industry, especially the unconventional oil
industry. I don’t believe Americans or the investors realize the
tremendous amount of economic activity it takes to produce shale oil.
Now, the last U.S. economic bubble in 2007-2008 was based on a highly
leveraged housing market. However, the present economic bubble is
being propped up by the U.S. Shale Oil Ponzi Scheme. Some
energy analysts don’t believe the U.S. shale oil industry has that much of an
impact on the market, but I disagree. Since the 2008 market crash, the
U.S. shale oil industry has brought on nearly 7 million barrels per day (mbd)
of tight oil. U.S. oil production has surged from 5 mbd in 2008 to 11.7
mbd currently.
So, to understand what happens to the markets in 2019, we need to focus on
the number one driver of the economy… THE OIL PRICE. In my most recent
video, GOLD,
SILVER & MARKETS: What’s Next For 2019, I discuss what
is taking place in the broader markets, gold-silver, and the oil price:
In the video, I describe the oil price market and where it will likely trade
early next year. Through my recent research of the Day Trading Markets,
I have learned how prices move up and down around certain key technical
levels. Thus, market prices are set by two factors, FUNDAMENTAL and
TECHNICAL ANALYSIS. While I have focused primarily on fundamental
analysis, technical analysis provides sort of a “Crystal Ball” where the
prices of stocks, energy, metals, and commodities will trade,
It is important to understand that Day traders, Swing Traders,
Investors, Hedge Funds and Institutions set the stock market prices based on
momentum and technical analysis for the most part. On the other
hand, fundamental analysis is a more prominent factor in determining the
market value of energy, metals and commodities prices.
Let me explain. A stock like Amazon, which reached $2,000 this
summer, is not based on fundamental analysis. Rather… Day traders,
Swing Traders, Investors, Hedge Funds and Institutions have bid up Amazon’s
stock price to a stunningly high bubble level. Thus, momentum and
technical analysis have provided the principal traders and investors with the
desire to follow Amazon’s stock price to the top. But, because
fundamental analysis of realistic price ratios (such as PE Ratios) are
overlooked, the crazy market continues to push stock prices like Amazon to
insane levels.
But, if we look at what is taking place in the oil market, it is
more based on fundamentals, even though technical analysis provides us with a
partial “Crystal Ball” of what lies ahead. In the video, I
discuss several oil charts and how the price trades in between these
technical levels and what the is in store for 2019. However, this chart
shows the overall oil price trend… WHICH IS LOWER:
Furthermore, I explain what is going on in the gold and silver price
charts.
Interestingly, gold and silver are much closer to their BASE PRICE
LEVELS than are the broader markets. Which is why I don’t believe we
are going to see a crash in the precious metals prices along with the broader
markets. However, if the oil price does continue to fall
lower, which seems likely, then it could pull down the gold and silver prices
a bit more in the short-term.
Although, I believe the key difference between the precious metals and the
broader markets is that the fundamentals will oppositely impact each
other. If we look at the next chart I discuss in the video, it shows
why the gold price hasn’t fallen to new lows as some analysts have suggested:
While the gold and silver prices are close to their base support levels,
due to the cost of production, the broader market valuations are in bubble
territory and will likely start to correct violently in 2019. Thus, as
the markets continue to crack (crash), FEAR will motivate investors to rotate
out of Stocks and Estate and into the precious metals.
With very few assets to protect wealth, the amount of momentum
from Day traders, Swing Traders, Investors, Hedge Funds and Institutions into
gold and silver (and the miners) will push their values to new record levels.
|
|
|
