Let’s all take a collective deep sigh of relief. Instead of a new
crisis, we're just going to keep having the same old one.
to stay in the European Union with a narrow victory for the center-right New
Democracy party. A global crisis has been averted—for now. But as we
take a deep sigh of relief let’s keep in mind that the euro is already
on a slippery slope to oblivion.
face it. A Greek exit is already a forgone conclusion for many. Now
it’s Spain’s turn to headline with its bond yields soaring to new
euro-era highs. Spain’s economy is almost twice the combined size of
Greece, Ireland and Portugal, countries that have already received some form
of eurozone bailouts. Spain looks poised to become
Index chart (charts courtesy by http://stockcharts.com) appears to reflect
long-term Euro Index chart, we see that as the USD Index has reversed and
moved higher, the Euro Index has reversed and moved lower. The previous move
above the declining red support-resistance line has been invalidated and the
situation is now more bearish than not for the euro. This is consistent with
a more bullish than not outlook for the dollar.
rally in the Euro Index could have been based upon the improved outlook in
Greece. With the New Democracy winning the election as expected, investors
may now be focusing on Spain and the problems of other countries causing the
implications here to be bearish. Favorable outcome of the Greek elections
appears to have been in the price and we saw a “buy the rumor, sell the
fact” type of action.
dollar? As euro declined, it rallied.
We begin this
week with a look at the long-term USD Index chart (if you are reading this
essay on sunshineprofits.com, you may click the above chart to enlarge). The
index appears now to have completed the verification of its breakout. About
one half of the previous upswing has been corrected and the index has
declined more or less to the lower of the major support lines. It
is now moving higher once again.
short-term USD Index chart, we can see the recent correction and subsequent
reversal. The index closed above the short-term declining resistance line,
which is the higher one - based on intra-day highs (relative to the line
based on daily closing prices). The situation here is therefore bullish from
a technical point of view. We don’t describe it as clearly bullish
because the breakout has not yet been confirmed. The index has not moved
considerably above the declining support line and has only closed above it
one time. Two more closes are needed to confirm the move and then the
situation would be better described as very bullish.
the situation in the USD Index is bullish and this has bearish implications
for the precious metals, which you can see in the table below.
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 see a bit of a weaker link between gold and the USD Index this
week. This link appears to be getting stronger however, based on the 10-day
of the currency market and the general stock market appear strongest upon
silver. They likely contributed to its heavy price decline on Thursday as the
USD Index rallied while stocks declined significantly. Overall, the
implications going forward are bearish for the precious metals sector taking
into account the USD and Euro Indices.
summarizing, let’s take a look at one more market that can tell us
something about the possible future moves of gold and silver prices. Namely,
let’s examine the crude oil chart.
In the June
7th, 2012 essay entitled Gold And Crude Oil Charts: Does Any Clear Picture
Emerge? we wrote the following:
long-term chart we see that oil prices continue their breakdown. This chart
suggests that oil is likely to decline much more (to 74 or likely to 65 or
even lower) and that gold prices have merely seen a small pause in their
downtrend, much as was the case in 2008. The implications here are bearish
for gold and the entire precious metals sector.
pause in declining prices for crude oil was quite understandable, as multiple
support lines were in play. The consolidation now appears to be over and
considerably lower prices could be seen in a trend similar to 2008. The
implication here for gold is that the recent correction in gold prices could
very well be over and major price declines just ahead. The situation is quite
bearish for precious metals investors.
Summing up, based on the situation in the currency
markets and in the crude oil, the outlook for the precious metals sector is
quite unfavorable. Yes, precious metals are still in a secular bull market
and are likely to move much higher eventually, but there’s a huge
difference between “eventually” and “now” and it
seems that a decline will be seen first. More details are available in the
full version of this essay.
Thank you for
reading. Have a great and profitable week!