Chart Analysis: Today’s market commentary is provided by Christian Hoffman, Ninjacators CEO and NinjaTrader partner:
Why does the price for gold constantly increase while the fear of inflation steadily rises? For many investors Gold was considered as the “safe harbor” but the peak of the bull market was September 2011, almost two years ago. This peak was the end of a nearly 10 year rally with a “turbo rise period” during the financial crisis. In this period the price skyrockets about 590% to its high of over $1,900!
Why did we saw such a heavy increase of the price? Because the Fed and the EZB fought the fight against the crisis with an, let’s say, casual monetary policy and the world was afraid of high inflation as the result. The money was shifted in the “safe harbor”, the gold price rises. Sounds simple and the logic is easy to follow, right!?
So far so good but what causes the “breakdown” of the gold price from about 35% in the last two years? Did the Fed stop printing money to lend it to bank who blow it into the stock markets? Did monetary policy constricted to control the potential of inflation? As you already know the answer to both questions is NO.
So what is it what causes the heavy decline and more important will gold get any cheaper? The first part is as easy as it is scary, even when everybody knows that the current “money printing” is as dangerous at it could be regarding an inflation, there is no inflation as well as there is no inflation on the horizon. Not in the US and also not in Europe and as Ben recently promised, the path of the casual money printing will get tighten up before the inflation can rise. And that is the core point, when nobody believes anymore in a rising inflation and the people who thought about it get told that it will be no problem, that just “blows” the problem away and nobody cares anymore about it!
You might miss out on the huge short opportunities in Gold over the last few months due to idea Gold has been a “safe harbor”. Our Supply and Demand Indicator detects two entries on the short side which were both good for HUGE profits! Actually, we are still short in the last trade but looking to cover around the 1100 level (see chart). But not to worry, opportunity is on the horizon!
The market could potentially run into a huge demand area around the 1100 level which would not only be our exit of the current short position, but a great opportunity to buy back into the market. At this mark the price has dropped over $800 since fall 2011!
Nevertheless the “safe harbor” is not as safe as a lot people thought it was. This is a great opportunity to buy into a market which has the potential to become the next “big bull market”. Not only are the technical signs right, the demand is huge and in times of new all-time highs in the index markets, a break down will come for sure. And when that happens the “safe harbor” gets safe again and you find yourself in the trade of your lifetime!
Are there any markets you would like to discuss? Send us an email to sales@ninjatrader.com and let us know for our next Chart of the Day. You can re-create today’s chart for free using NinjaTrader powered with fast, unfiltered Kinetick data.
