We remain on a sell signal for gold.
Our signal was primarily due to deterioration of gold’s technicals, reversals of our momentum indicators (not shown), investor sentiment for gold at the time, the pattern of lower highs and lower lows, and so forth.
But as usual, the fundamentals have caught up to what technical analysis was seeing in February.
Global economies are slowing. Even the U.S. economic recovery is stumbling. So demand for commodities is plunging, as are commodity prices. The jobs picture is deteriorating again preventing pressure from building for higher wages.
And those deflationary effects are taking support out from under gold, the historical hedge against inflation.
Our original downside target was $1,500 an ounce, which at the time of the sell signal was at the lower limit of the trading band that has formed since last August.
However, gold has been taking its time in getting there, which has given the lower limit of the trading band time to extend further, perhaps indicating a move below $1,500.
Emerging Markets. Buy or Bail?
I’m still hearing a lot of bullish analysis regarding emerging markets as the place to be, given the economic problems and market declines in developed country markets.
“With demand from the developed world tepid at best, trade between emerging markets themselves will accelerate.”
“Emerging markets had a good start in 2012 and our Asian strategists expect Asia to outperform developed markets in 2012.”
Much of the analysis points out how emerging markets even made larger gains than developed country markets in the bull market off the 2009 lows.
True, but that was then, and this is now.
Technical analysis is showing a different picture.
Emerging markets look to me like they’re possibly in a bear market that began in April of last year, with the rally off the October low to a lower high, potentially being only a bear market rally within an ongoing bear market.
How Far Behind the Curve Is the Average Guy in The Street?
Analysts and markets have been concerned about the economy since the monthly jobs reports over the last few months began showing new jobs in serious declines.
Yesterday it was reported that the University of Michigan’s Consumer Sentiment Index improved to 77.8 in May from 76.4 in April, topping forecasts of a fractional decline to 76.2.
And interestingly, the report said almost twice as many consumers in the survey reported hearing about the previous new monthly job gains than had heard about recent monthly job losses.
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To read my weekend newspaper column ‘Plunging Commodity Prices Are Ominous For Stock Market’ Click here.