In terms of fundamentals, there are several concerns for the bulls:
1- The supply/demand equation is probably going to be reversed:
a) In a global recession environment, it is almost sure that global demand for commodities will be affected, even in the miraculous China, that is almost 40% dependent on exports. The only question here is how severe is going to be this recession, now predicted by more than 50% of economists: this will dictate how is going to be the correction in terms of percentage. I'm betting on a 50% correction but that's just a bet;
b) There are also issues on the supply side of the equation: a lot of production capacity increase plans has been started in the last 2/3 years but the effects are only starting to be felt lately because those plans take time to accomplish: you don't start to extract gold or crude oil the next day you decided it. There is a significant lag of time between that decision and the day the commodity gets in the market. There are environment studies, paper-work (licences,...) and the normal lead time that huge construcion/assembly plants like an oil platform or gold mines takes to get ready;
2- Most commodity stocks are ciclical (they depend on the prices of the materials they buy and sell) but there are currently been valued as grow stocks: this is a major - and repeated -mistake and investors will pay a high price for it.
In technical terms there is a also a great challenge for Gold investors. Gold is defying a colossal BARR (Bump-and-Run Reversal Top) in the weekly chart. Let me clarify that I'm not trading this pattern but I'm considering it as a reference for the next 2 years:
You have an interesting blog. Thanx for commenting on US DX on mine
ResponderEliminarusdreport.wordpress.com
I'd like to catch gold at 620. It would be lovely, but my fear is that metals, especially silver and gold, have gone parabolic and a 50% correction might begin after 1,300 or something like that (for gold).
Anyway, we'll see.
Do you think US DX is bottoming. I think the level you gave me was breached to the downside.
cheers
Hi,
ResponderEliminarYour blog is also great! I found it when searching for that 73.3 number... :-)
I really don't think gold is going to manage much more upside since a downturn in the U.S. economy is going to pressure the demand side of the equation and the supply side is already been pressured.
In the U.S. Dollar, that 73.3 level was broken in the downside but were are there again today: I think that down breakout will prove to be a false/premature one.
Regards,
Dax Speculator