trotsky [ PM ]
March 05, 2007 03:57PM
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Posts: 92
well, right here i'd be looking for a retrace bounce that retraces between 30-60% of the decline at most. usually a decline such as this recent one involves a second leg down after an intervening rebound. with the caveat that a general market crash could upset such plans. the markets feel very heavy again as the close approaches - that's not good, as they should be bouncing by now.
in any event, i'm not expecting immediate resumption of the previous upward trend - too much technical damage has occurred for that, imo.
trotsky [ PM ]
March 05, 2007 11:14AM
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Hi,
the logic is as follows: gold is one of the few assets that react very swiftly to a changing liquidity backdrop and a change in perceptions about future Fed policy. when the yield curve begins to steepen from a previous inversion, it signifies that speculative demand for credit is drying up. at the same time, it signals a coming easing of Fed policy. in these situations, gold's real price (as measured e.g. with the gold/copper ratio, which is a good indicator for this) tends to rise sharply - usually far more than its nominal price. gold mining margins thus almost immediately expand.
the last such occasion was the period late 2000 to late 2003, and if you look at e.g. the HUI in this time frame, in the early stages of the rally (just as the yield curve began to steepen, late 2000-mid 2002), the HUI rallied very strongly in percentage terms , while copper e.g. lost 50% and the SnP index went down sharply.
note that it usually takes a few weeks after the yield curve has reversed from inversion to a steepening trend for the rally to begin. i.e., usually, gold and gold shares will go down with the general market in the first down-wave (as is happening now), but will then begin to decouple during the second down wave for the broad market. |
