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“It
was the best of times, it was the worst of times, it was the age of wisdom
(for those who invest in gold) , it was the age of (central bank)
foolishness, it was the epoch of belief (in Chinese growth) , it was the
epoch of incredulity (in fiat money), it was the season of Light, it was the
season of Darkness, it was the (Arab) spring of hope, it was the winter of
(Syrian) despair.”
With
several of our own additions in parenthesis, these are the opening lines of
the famous novel “A Tale of Two Cities,” by
Charles Dickens whose 200th year birthday was celebrated around the world
this week. His words seem just as true and relevant today as in the time in
which they were written.
Greece
played the Artful Dodger this week and missed another deadline to
approve conditions for a second €130bn bail-out on Tuesday night because
of last-minute haggling with international lenders over emergency spending
cuts. Negotiations to save Greece from a disorderly default are now teetering
on the edge.
The
delay fueled anxieties that Athens may be forced into a messy default next
month and triggered concern over whether Greece remains committed to fiscal
reform after two years of failing to implement measures agreed in return for
financial support. Greece has already missed two deadlines this week. Finally
a deal was presented for approval at a meeting of eurozone
finance ministers Wednesday only to be sent back to Greece as incomplete with
a fresh set of demands and an urgent deadline. The eurozone
finance ministers dismissed as incomplete a reputed €3.3bn package of
Greek budget cuts and sent the country’s finance minister back to
Athens with a fresh set of demands and an urgent deadline. They also warned
of more intensive involvement in the Greek economy to improve tax collection
and accelerate the sale of state-owned assets.
Earlier
in the week the Great Expectations that a Greek rescue plan will be
completed drove the dollar down sharply against the euro and boosted gold 1.5
per cent on Tuesday.
Gold
could face a short-term pullback if Greece strikes a deal, as it may hurt the
appeal of safe-haven assets, but on the other hand it will be good for the
euro (bearish for USD Index), which might be bullish for gold. In the long
run, the lingering euro zone debt crisis is expected to support sentiment in
gold.
Charles
Dickens said: “Do all the good you can and make as little fuss about it
as possible.” To see what good we can do for precious metals investors,
let's begin the technical part with the analysis of the USD Index. We will
start with the very long-term chart (charts courtesy by http://stockcharts.com.)
 
In
the very long-term USD Index chart we see no significant changes.
Thursday’s closing index level is slightly below that of a week ago,
but the recent move back below the long-term resistance line has not yet been
confirmed. The index level is now more or less right at this
support-resistance line, and the medium/long-term situation is slightly more
bearish than not.
In
the short-term USD Index chart, we see that the index “somewhat
bottomed” at the cyclical turning point. Instead of a rally, a pause
has followed with some sideways trading and small moves to the downside
although declining at a much slower pace than seen in previous weeks. It
seems likely that the index could actually rally in the very short term but
the outlook for the medium term is bearish.
The
situation for the USD Index appears rather bearish for the medium term but
bullish for the short term, which might be a bearish short-term indication
for the precious metals sector. It is also consistent with our recent view on
the mining stocks part of the precious metals sector published on February
3rd, 2012 in our essay on the likely top in mining stocks:
(…)
the
medium- and long-term outlook for the gold and silver mining stocks is
positive, however a correction is likely to be seen soon – perhaps it
will start next week. Long-term investors should consider purchasing junior
mining stocks, while short-term traders might want to trade the coming
correction.(…) if you've
been considering trying out our Premium Service, it appears to be a
good idea to do so now.
Since
the dollar is negatively correlated with the precious metals market, the
likelihood of a rally is bearish factor for the precious metals sector
– also for silver.
A
look at the very long-term chart (if you’re reading this essay at www.sunshineprofits.com,
you may click on the above chart to enlarge it) reveals a rather uneventful
week. Silver’s price has been in a sideways trading pattern during the
past two weeks after a strong rally in which the red support-resistance line
was pierced and volume levels were significant. With silver now above this
line, it seems that a move back to it, a test of the breakout may in fact be
seen. The 38.2% Fibonacci retracement level based on the 2002 to 2011 rally
is also in play and will likely assist in stopping a decline as well.
Summing up,
the medium and long-term outlook for silver remains bullish but – also
based on the analysis of the USD Index – the short term is now more
bearish than not.
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make sure that you are notified once the new features are implemented, and
get immediate access to my free thoughts on the market, including information
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Thank
you for reading. Have a great weekend and profitable week!
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