Friday, August 18, 2006

Last Chance to Buy Silver and Gold at Low Prices

Here's the scorecard for the week:

10-Aug 18-Aug Change % change

Silver, cents/oz. 1207 1201 -6.00 -0.5%

Gold, dollars/oz. 634.90 612.10 -22.80 -3.6%

Gold/silver ratio 52.60 50.97 -1.64 -3.1%

Silver/gold ratio 0.01901 0.01962 0.00061 3.2%

Dow in Gold Dollars (DiG$) $ 362.20 $ 384.37 $ 22.17 6.1%

Dow in gold ounces 17.52 18.59 1.073 6.1%

Dow in Silver Ounces 921.65 947.67 26.012 2.8%

Dow Industrials 11,124.37 11,381.47 257.10 2.3%

S&P500 1,271.81 1,302.30 30.49 2.4%

US dollar index 85.12 85.09 -0.03 0.0%

Platinum 1,233.50 1,208.60 -24.90 -2.0%

Palladium 319.00 333.30 14.30 4.5%

The US DOLLAR can't make up its mind what it wants, but it surely doesn’t want to rise badly enough.

Gold Prices
GOLD broke through the bottom of 625-630 support yesterday & closed at 614.50. It dropped a bit more today, but not surprisingly found footing at 606.80 and closed above 610 support at 612.10.

What next? Having broken out downward from an equilateral triangle, gold could revisit its previous reaction low (542), or stop at 575. I bought some yesterday below 620, and would buy more below 600, more at 575, and sell everything to buy gold at 542. It's hard for me to ignore gold's seasonal pattern here, & that calls for a low in midsummer, a flattish August & rising market through September and into mid-October.

However, gold could remain weak into September. Still, I keep recalling the lightning V-bottoms we've seen so far in this correction, & that stiffens my nerve to buy on any drop. A close above 625 would turn gold's trend up and nay-say further downside moves.

Silver Prices
Here's another reason to buy gold: SILVER. Silver's chart doesn't look like gold's. Although both metals rose to resistance areas & look like gold's, & that non-confirmation makes me question gold's fall. Silver is refusing to retire below 1200, where it finds strong support and, right now, its 17 day moving average (DMA). Silver's performance this week with a fall to 1185 just replicates what it has done earlier in this correction, so I can look at silver & say, "Maybe it won't drop any more." A close over 1225 would constitute an upside breakout. If silver drops, then look to buy below 1150. Buy more below 1100, then more below 1060. As with gold, y'all will have to look sharp and watch closely, because any drops are liable to whiz by pretty fast.


STOCKS broke out above 11,200 this week, but am I embarrassed? Don't count on it, Jack. Stocks stink, even technically, & I would be grabbing this opportunity with both fists to swap stocks for silver & gold. Yes, when I say this I understand that certain, carefully selected, special situation stocks might do well whatever the general market does. If a company finds a way to turn gravel into chocolate or cure colds with sawdust, they'll make money in any economic climate. However, that is not the general market, which is locked into a bear market and after this rally will punish its lovers with abandonment and cruel kicks -- and "general market" is what most people have in their mutual funds and retirement accounts. Be warned!

As witnesses in my favour, I point again with a grim smile toward the DOW IN GOLD DOLLARS and the DOW IN SILVER OUNCES. Notice that in spite of new highs in the Dow, the DiG$ & DiSoz remain in the lower end of their ranges. Beware!

Enjoy your weekend.

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger

To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $1,250.00; silver's primary is up targeting 16:1 gold/silver ratio or $78.13; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate in a bubble, primary trend way down.


The US DOLLAR INDEX is a average exchange rate for the US dollar against the Euro, Yen, Pound sterling, Canadian Dollar, Swiss Franc, and Swedish Krona, weighted for each country's trade with the US. It gives a general measure of the US dollar's performance against all other currencies.

The DOW IN GOLD DOLLARS measures the Dow Jones Industrial Average in gold dollars (0.048375 troy oz. by law). The DiG$ depicts the Primary (20 year) Trend of stocks against gold. When the DiG$ is dropping, gold is gaining value against stocks in a trend that should last 15 - 20 years. The DiG$'s chart is identical to the Dow in ounces of gold, but gives us one unvarying measure all the way back to 1896. Because it shows the primary trend ("tide") of gold against stocks, for investors it is the single most important financial chart in the world today. Since its August 1999 high at G$925.42 (44.8 ounces), the DiG$ has trended down, targeting a G$80 - G$20 (4 - 1 oz. of gold will buy the whole Dow).

The DOW IN SILVER OUNCES shows how many ounces of silver are needed to buy the entire Dow. The DiSoz is trending down with a target of under 36 ounces.

The GOLD/SILVER RATIO is the gold price divided by the silver price, & shows how many ounces of silver it takes to buy one ounce of gold. The Ratio shows us the Primary (20 year) Trend of gold's value against silver. When the Ratio's trend is dropping, silver is gaining value against gold. This trend targets a gold/silver ratio of 16 ounces of silver to one of gold within the next 5 - 10 years. That implies that silver will massively, vastly outperform gold before this bull market ends. When both metals are rallying, the ratio often (but not always) drops, confirming the rally.