Gary Christenson | May 27, 2015 02:09PM ET
Prominent analysts have announced often and persistently that gold will drop to $1,000, $850 and even below $500. Mainstream media, “gold-bashers” and banks encourage the “gold-is-going-lower” meme. But gold is real money, in contrast to the paper stuff that is valuable only as long as people, businesses and countries retain confidence that it will devalue, but only slowly. The world runs on paper and digital fiat currencies so don’t expect banks, central banks or western governments to encourage or support gold.
However, with the constant barrage of anti-gold, anti-silver, pro-dollar and pro-paper media stories, it is not surprising that people are confused, worried and scared regarding gold prices, the value of real money and the inevitable demise of paper currencies.
But what if a simple tool would identify most important lows and highs in gold, silver and the S&P 500 index? Would that reassure people regarding high-probability turns in those markets and thereby encourage investors to ignore the media propaganda, both for and against, those markets?
THE FINANCIAL STRESS INDEX (my version):
What does the Stress Index say about the gold market? Examine the graph of gold where the highs for the Stress Index are marked on the gold graph. The stress index often marked major turns, such as in early 2001, late 2008, mid-2009, August 2011 and March 2015.
Examine the graph below where the Stress Index highs are marked on the S&P graph. The stress index includes the deviation of the S&P from its 200-day moving average so, unsurprisingly, it often marked the highs and lows in the S&P 500 Index.
The index is simple in concept. How many percentage points above or below their 200-day moving averages are the daily S&P and the daily T-Bond prices? Take the sum of the absolute value (all percentages are counted as positives) of both deviations from their 200-day moving average and graph it, which produces the Stress Index as shown earlier. When the S&P and bond markets are at extremes (highs or lows) compared to their 200-day moving averages, sentiment is usually intensely positive or negative. That sentiment affects the gold and silver markets, which often turn at about the same times. The Stress Index is a simple indication of how far the S&P and bond markets have been pushed to extremes.
CONCLUSIONS:
Do your own research but don’t ignore sentiment as indicated by the Stress Index.
Read Bill Holter, The Great Silver Debate
Read,
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