Market Trends | Gold, Silver, Currency Swaps and QE3
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Market Trends | Currency Swaps
Although this topic may have the charismatic brilliance of grandmas false teeth, it likely may be the most significant piece of financial news of the past several months to hit news wires. It is important to follow these market trends to understand the market we are trading in. On November 30th 2011, the Federal Reserve, along with the Euro Central Bank, and the central banks of Canada, Switzerland, Japan and the U.K. all slashed U.S. Dollar swap rates by nearly half (1.08 percent down to 0.58 percent) to borrow U.S. Dollars to ease the Euro Debt Crisis.
Peter Schiff was adamant that this move is going to be a primary driver for precious metals and the US Dollar while studying market trends. "Today's unprecedented announcement by the world's most powerful central banks was a loud and clear bell ringing to buy precious metals... By reducing interest rates paid for dollar swaps, central bankers are in effect increasing the quantity of global dollars in circulation." I could not agree more with Peter and would also add that the EURO is also going to see significant changes in how it is traded in the following months based on current market trends.
Clearly from the following two Charts the EURO and US Dollar have been falling and rising respectively in near perfect inverse market trends and patterns. After the coordinated central bank announcement we are now witnessing technical reversals in both of these currencies.
The EURO after a technical double bottom appears poised for a rally and the U.S. Dollar has hit a double top and is now breaking down.
Market Trends | EURO Breakout
Market Trends | U.S. Dollar Breakdown
Market Trends | The Devaluing Of The U.S. Dollar
Effectively what the Central banks are saying is that the insolvent European financial intuitions will be allowed to continue down their paths of self-destruction at the expense of the U.S Dollars that are now being funneled in to the banks at very cheap rates.
U.S. dollars in Europe have been scarce, and it is possible that a large financial intuition may have been on the verge of collapse prior to this announcement.
Even Forbes.com is speculating about this possibility, as this action is similar to what happened following the collapse of Lehman Brothers in 2008; yet the real facts behind this coordinated effort at this time is to remain hidden from public perception. "It appears that a big European bank got close to failure last night. European banks, especially French banks, rely heavily on funding in the wholesale money markets. It appears that a major bank was having difficulty funding its immediate liquidity needs. The cavalry was called in and has come to the successful rescue."
Market Trends | Precious Metals Breakouts
On the positive side, precious metals investors may finally have something to smile about based on the technicals below. After the major metals markets peaked this past May, a long drawn out and seemingly endless multi-month consolidation period has taken place. The central bank action may be seen in the charts as creating breakouts across the board on all precious metals sectors. Palladium is leading the charge, with gold and silver about to breakout of current market trends.
When new these technical indicators take place, it can be difficult to stop them and generally last the same period of time as their consolidation periods. Since tops were hit roughly 7 months ago, and we are about to embark on new rallies, we could expect renewed 7 month rallies and market trends that should bring us into the third quarter of 2012 making our May highs appear like small cars from a airplane.
Market Trends | GOLD Breakout Chart
Market Trends | SILVER Breakout Chart
Market Trends | PALLADIUM Breakout Chart
Market Trends | QE3
Now, this swap agreement could in fact have limited impact and these market trends could reverse sooner than expected yet there still remains the unforeseen and expected QE3 which may be around the corner based on the current market trends. Societe Generale SA, the second biggest French bank recently released a report which they believe that the worse things get, the stronger the response by the global central banks will be. They make the case that QE3 is around the corner and as we all know, QE is basically a currency debasement policy and will seriously devalue the U.S. Dollar and continue precious metals on their upward tear on market trends pointing to the moon.
Market Trends | What is the long term precious metals outlook?
In my previous article last week I mentioned that my precious metals exit strategy is a long ways away. Why? Well one of those reasons is because gold has not yet caught up to all the money that has been produced based on availability market trends. You see, gold does a periodic accounting for all of the Fiat money in circulation.
It happened in 1933, in 1980 and in all it will happen again. Take a look at the chart below based on the market trends and I think you will agree that for gold to catch up to all the base money in existence. We still have a long way to go, and that is if they stop printing today. Staying current on these market trends can greatly increase your portfolio sustainability.
My advice, don't miss the train as the precious metal steam engine has fired up and is about to make its way out of the station, study these market trends.
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