Precious metal technical and fundamental outlooks
As much as we chat technical factors with Jordan Roy-Byrne, Founder and Editor of The Daily Gold, he does stay up to date on the fundamental drivers for the metals. The overwhelming fundamental factor that he watches are real interest rates and with the Fed continuing to raise rates and inflation rolling over this lead to some skepticism.
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Over the past 10 years the Yen is up 5%, Gold 82%. Correlations are a terrible, amateurish way to trade and invest. Yes, Gold and the Yen have been tightly linked for a while but Gold is moving on its own factors. At somepoint the correlation will end and it will be ugly for the “Gold is the Yen” crowd.
It’s not about the degree of correlation. It is about directionality.
Pull up a daily and weekly chart of $xjy and $gold and try to deny that they aren’t directionally tied to the hip. The inflection points are basically 1 to 1.
And what does that matter, Spanky? Sometimes gold turns first and sometimes the yen turns first.
+1
It would be just as accurate to that the yen trades off gold for 10 years now.
Correlation does not mean causation.
The problem is the BoJ has the yen on a leash. This is crystal clear from when they announced a giant QE in 2013, which corresponded to a massive, sustained waterfall decline in $xjy.
BoJ needs to tighten or the Fed needs to loosen for commodities to get anything other than a technical bounce.
The yen moves like gold because of the carry trade. Gold goes up when systemic risks rise because it is a safe haven but yen goes up when systemic risks rise because so much yen has been borrowed and sold to buy “risk-on” assets and needs to be repurchased.
Gold is up more than five-fold versus the yen this century and is currently in a big bullish consolidation. Gold:Yen is going far higher whether the correlation remains or not.
http://stockcharts.com/h-sc/ui?s=%24GOLD%3A%24XJY&p=W&yr=7&mn=7&dy=0&id=p81574936314&a=516697513
I’m not disagreeing at all. The problem is $gold:$xjy direction tells you nothing about price.
It’s little consolation that $gold:$xjy will go up if that is achieved by gold tanking a little less than yen. Whoopee, my gold gained ground on yen. Meanwhile gold has tanked vs the stock market and USD.
Jordan comes across as very bearish on the PM sector. Or did I hear that wrong?
I wish he’d finish a sentence that he starts…
Up a bit in the next 21 days and then a flush down the crapper into the late summer.
Buy July-Sept.
that’s what I heard.
Yep. He is coming to the realization most of us made years ago–that commodity and gold prices are purely a function of currency flows and have been for for over 20 years. As long as the Fed is tightening relative to the BoJ (and to a lesser extent the ECB) gold and commodities are going down, down down. Sure, you will get technical bounces from time to time, sometimes massive bounces (2016).
His argument is that Gold is driven by negative real interest rates. He never said anything about currency flows. Look at the charts of real interest rates and they bear out what he’s saying.
real interest rates are purely a function of $usdjpy.
Woah. Sorry. You are way off. Real rates having nothing to do with currencies or a specific currency pair.
Agreed JonNadlerGhost (great name BTW).
Real rates = Fed rate – Inflation in Consumer Price Index (CPI),
Some investors use the 10 year rate – 5 year inflation swap.
Maybe.
I think buying July-Sept will prove to be a wise move though.
Then up, up, up…
I’m targeting the July/early August time period. I’d say due to the seasonal patterns, which often become “self-fulling prophecies” because so many traders consider them; however, Jordan was tough on seasonality in his interview (only to conceded that there was a summer dip seasonally…. haha!).
I’ve posted a number of seasonal charts in the past, because they are merely another arrow in one’s quiver as it relates to fundamental and technical analysis. Charting and Technical Analysis is very key in my approach, but it is unwise to dismiss Seasonality due to the huge effect it has on investor’s Sentiment.
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Gold Futures – 20 Year Gold Chart ending (12/31/2014) – so 1994-2014
http://charts.equityclock.com/seasonal_charts/futures/FUTURE_GC1.PNG
Again, I don’t bet the farm on Seasonality, but we’ve seen these patterns play out over and over again. The Q1 Run, the pullback on both the Front and Back end of the PDAC, the Spring Fling, “Sell in May and Go Away” leading into the Summer Doldrums that bottom near June/July, and then a Fall Rally from Aug-October.
Here is a different 15 year Chart of Gold and it seems like a reasonable pattern to keep in the back of one’s mind for the balance of 2017.
While no 2 years are alike, and History doesn’t repeat…. It often Rhymes.
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#GOLD – 15 year chart [2001 – 2015]
http://stockcharts.com/h-sc/ui?s=%24XJY&p=W&yr=10&mn=0&dy=0&id=p33708519535&a=523069660&listNum=1
Something to at least ponder.
spanky in the indicators box on your stockcharts example put up Price and change it to $goldand place it in the position box behind price that will show gold is traded as a currency off $yen…excellent chart!
If $usdjpy bust 115, gold, silver and the miners are going to get absolutely destroyed. It may be a fakeout, but the pain and panic for the duration is going to be very real.
The only thing that can save commodities and gold and silver is if the BoJ announces tighter monetary policy or the Fed loosens. Neither are happening for another 10+ years. As long a yen is weakening, the US stock market (and all US assets to some degree) will have a big bid.
It’s beautiful for the stock market. And any new loosening/QE by the Fed will flow right to the stock market (although commodities should rally too, and likely more).
Your comment about commodities rallying is a direct contradiction of your above comment saying that commodities are going down, down, down.
Which is it?
No, commodities will rally if yen strengthens, which will only happen if the Fed loosens relative to the BoJ.
The Fed and BoJ love a weakening yen (higher stock values and lower commodity prices–win win). There is no reason to stop the party as long as everything is going swimmingly.
OK
I think you have to disconnect the yen from gold; they are two very different things.
They have moved together, but the yen is bound to lose immense value relative to gold in the coming years.
See my comment above about $gold:$xjy. Who cares if gold gains ground on yen if they are both tanking in absolute terms vs stocks and USD???
It’s not going to though. After 9 years the stock market is surely going to weaken vs gold.
What have we got left on these valuations relative to earnings or sales. … another 200 points?
Gold is still up almost 6% vs the dollar year-to-date.
The XAU is up 67% vs the S&P 500 since the bear market low for the XAU-SPX ratio last year.
http://stockcharts.com/h-sc/ui?s=%24XAU%3A%24SPX&p=D&yr=1&mn=6&dy=13&id=p37131476699&a=523087292
Agree 100%.
Tad – Agreed on your comment about disconnecting the longer term picture of Gold and Yen. They’ve been traveling in tandem for exactly the reasons the Matthew laid out up above Gold as a Safety play, and the Yen as a popular carry trade when investors need to rotate out of risk assets in times of fear (so it benefits like a safety play for now) .
However, as interesting as the correlation is at present [and clearly there have been HFT algos keyed off this correlation for the last 2 years]; longer term they will decouple and Gold will outperform the Yen in a major way.
It is important to understand the last 2-3 years of correlation is mostly due to how the Yen is used as a carry trade, but that Gold is very much marching to the beat of it’s own drummer.
Also, not going to lie: the monthly $gold:$xjy chart has been consolidating for 6 years now and is now in an incredibly tight range, historically speaking. This ratio is either going to break up or down and relatively soon. I know it’s hard to imagine gold losing ground/topping vs yen, but I am not going to rule it out until we get a sustained break out.
The negative correlation between bitcoin and gold continues. When one goes up the other goes down. Bitcoin at a shade below $1800 is crazy… moreso when one considers where it was just a couple of months ago – below $900. Current momentum suggests bitcoin should take out the $2000 mark, but who knows?
This gold and silver slide is so oversold but just because something becomes severely oversold doesnt mean it wont continue.
The Long term price of gold has been the cost of production since 1971. So I see that as a baseline figure. $1100-1200 is that region….so that’s our base I believe. It could temporarily blip below that range, but not for long. Only way it could break down, is if oil prices crash, and input costs for gold mining decrease substantially…..
Oil has already crashed relative to gold and is up more than 80% since that low. The weekly chart is also shaping-up nicely in oil’s favor, once again…
http://stockcharts.com/h-sc/ui?s=%24WTIC%3A%24GOLD&p=W&yr=3&mn=0&dy=13&id=p47954887810&a=511956429
Gold trades off $yen as it has for 10 years now