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Showing posts with label fundamentals. Show all posts
Showing posts with label fundamentals. Show all posts

Saturday, July 30, 2016

Gold crosses a milestone that historically guarantees another 40-412% in price growth

Before the advent of central bank intervention into the markets, most investors relied upon fundamentals and technical analysis when researching the future of a company stock, or the potential growth in resource commodities.  And while past history does not always guarantee future trends, the likelihood of certain benchmarks being crossed places the probability of such moves in the 75-95% range.

This week, technical analysis for gold reached one of those historical milestones, and in all past bull markets for the metal, the upside once reaching that benchmark has always been between 40 and 412%.
Strategically, it’s been even longer since we updated our longer-term framework for gold.  In fact, it’s been three months since we did that in this post.  In that May piece we suggested the metal continued to track favorably vs. our bullish expectations, but in the near-term it faced a major test having rallied nearly +25% off its Dec-15 low, a historical demarcation point whereby cyclical retracement rallies were either snuffed out with a resumption of a secular bear beginning afresh, or, the same moves continued higher, indicative of a new secular bull being underway.
Where do we now stand vs. that +25% demarcation point? 
As of month-end today, gold is up over 27% from its Dec-15 lows. 
This a major milestone - any time gold has managed a move of at least 25% off a major low, it has continued higher every single time with incremental gains ranging from 21%-412%, with the average totaling 175%. - Only Prices Matter


Chart courtesy of Only Prices Matter.com

Wednesday, June 1, 2016

Gold prices cheap in relation to stocks (Dow) and oil

In the financial world, technicals can sometimes carry far more weight than fundamentals do.  Ie... stocks right now on the S&P and Dow indices remain close to their all-time highs despite the fact that Wall Street just had one of its worst earnings seasons since the Great Recession.  Thus investors have been trading primarily on technical analysis and Fed intervention, and have thrown out nearly all fundamental data as irrelevant.

With this in mind we will look at two interesting technical charts that compare stocks on the dow, as well as oil prices in relation to gold.

Gold versus the Dow:
This 50-year chart of the blue-chip Dow Jones Industrial index from Macrotrends suggests otherwise. The graph tracks how many ounces of gold it would take to buy the Dow over any given month going back to 1966. 
In January of 1980 when gold in inflation-adjusted terms hit an all-time high of roughly $2,400 an ounce the ratio was 1.3 ounces and during the Great Depression it took 1.9 ounces to cover the Dow. 
That compares to highs around 40 between mid-1999 and mid-2001 when gold reached lows of $250 an ounce. 
When the nominal price of gold hit a record high above $1,900 in August 2011 the ratio was 6.4, but has now more than doubled to just under 15. 
That means despite the exceptional start to 2016 gold is still cheaper than it was for the 24 years between May 1972 and September 1996 and on a relative basis it's the cheapest since December 2007. - Mining.com
50 years of gold price vs Dow shows metal still a bargain

Gold versus oil:
The Golden Constant: The English and American Experience 1560-2007. In that work, Jastram finds that gold maintains its purchasing power over long periods of time, with the prices of other commodities adapting to the price of gold. 
Taking the broad lead from Jastram, my colleague, David Ranson, produced a study in April 2015 in which he used the price of gold as a long-term benchmark for the price of oil. The idea being that, if the price of oil changes dramatically, the oil-gold price ratio will change and move away from its long-term value. Forces will then be set in motion to move supply and demand so that the price of oil changes and the long-term oil-gold price ratio is reestablished. This is nothing more than a reversion to the mean. 
We begin our analysis of the current situation by calculating the oil-gold price ratios for each month. For example, as of May 24th, oil was trading at $49.24/bbl and gold was at $1231.10/oz. So, the oil-gold price ratio was 0.040. In June 2014, oil was at $107.26/bbl and gold was at $1314.82/oz, yielding an oil-gold price ratio of 0.082. The ratios for two separate periods are represented in the accompanying histogram - one starting in 1946 and another in 1973 (the post-Bretton Woods period). - Zerohedge
Two interesting technical ratios to watch in the market which can be signals as to which direction gold prices will eventually go.