- Gold may be breaking 5 month downtrend versus US Dollar.
- Black swan may be due to increasing tensions between the West and East.
- History shows that these policies lead to economic crashes which the metals and oil may be forecasting.
The economy in the Eurozone is struggling at present and has been for some time now. Consistently low inflation has significantly increased the risks of deflation in the region. In response to this the European Central Bank (ECB) has taken unprecedented action by cutting interest rate to negative levels, and then dropping them again. On top of this the ECB has introduced quantitative easing (QE) to combat the economic risks of deflation and announced in their meeting last week that they are now preparing to increase these measures.
Notwithstanding the other effects that this action is likely to have, of which there are many, we believe that that this increase in QE in Europe will have a highly bullish effect on the European equities markets. The first reason for this is that the ECB’s QE has so far been, and is very likely to continue to be, targeted towards actually stimulating growth in the economy, in a similar way to QE3 in the US, rather than broad based actions that pumped money into the system to avoid a collapse as QE1 and QE2 did. This means the ECB’s new measures are likely to stimulate growth over the long term.
During a time in which downward volatility of the junior resource sector has resumed in force, Rick Rule, Chairman ofSprott U.S. Holdings was kind enough to share a few comments.
When asked if we’ve seen the ultimate capitulation in junior resource markets yet, Rick noted that, “We haven’t had a capitulation yet… we’re beginning to see the types of market volatility, rabid moves up and down on no volume, that are normally the “rattle” of the rattlesnake of capitulation. But the market hasn’t followed through yet, and I think that’s a consequence of the recent strength in the gold price.”
With the paper price of silver now below the break-even for the majority of the primary silver mining companies, India imported a massive 1,243 metric tons of silver in October alone. What is quite interesting about this figure is that it comes in at one metric ton shy of the previous record set in May, 2011 at 1,244 mt (Source: Koos Jansen article).
Why are these two records interesting?
There are many factors that affect the overall movement of the stock market. However, today we will consider just one of these, one that we believe carries considerable weight and is key for predicting the how stocks perform: momentum. Through our analysis of momentum we have produced a model based momentum trading system (SK Momentum System or SKMS), which boasts a Sharpe ratio of 3.49 since 2002 and a return of 57547% since 1950.
The reasons that momentum is such an important factor when considering the future movement of equities markets can be broken down to the old adage, “the trend is your friend”. If stocks are trending higher investors are more likely to buy than sell, as they believe that the rally is likely to continue. The result of this is rising stock prices will drive prices even further higher, at least for a while, as new investors bet on the trend continuing. There is a similar phenomenon when equities are falling, as a small selloff can cause a larger panic that forces prices much lower and at a faster pace. Thus, momentum in stocks can drive rallies higher and selloffs lower than their underlying causes. We consider equities to be more momentum driver then many other markets such as bond and currencies, due to their status as a key confidence barometer.
Results for Swiss gold referendum were released today, ending weeks of enthusiastic bulls calling for gold to rally to new highs on a “yes” vote and countless articles speculating about the impact of the result. The Swiss people voted overwhelmingly against the policy of that would have caused the Swiss National Bank to significantly increase their gold reserves. However, the excitement and the speculation around the potential impact of the result represents a misunderstanding of the event and indeed, the gold market as a whole.
The chances of the proposal being passed in the first place were slim. The potential negative affect on the Swiss economy, the opposition from SNB and, as shown by the polling figures, the Swiss people, were all factors that made a rejection highly likely. However, even if one believed the contrary to these indications and that the Swiss would vote in favour of the proposed measures, why would that make them bullish on gold?
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