Wednesday, December 06, 2006

Gold Could Decline to 612 or Could sink as Low as 575

When you're wrong. I think it's best to go ahead & admit it as soon as possible, and take your licks. I've been wrong. I thought that gold and silver had completed their last plunge down, and I was wrong. That seems to be happening now. Here is the outlook.

The SILVER PRICE could stop anywhere: at the last top (1328), and the gap left on the way up (1305-1310), at strong support at 1250 or 1185. Even lower is possible, 1050. The 200 day moving average stands at 1187, the 50 DMA at 12.38, & those are also candidates to contain the plunge. Either silver will drop very sharply, very fast, bottoming by mid December, or the decline will last into mid to late January. The short, fast outcome is the one I prefer, since it will be followed by a longer, stronger rally, having shaken off all the weak investors. Those left will be the utterly convinced bulls.

GOLD and SILVER PRICES remain out of synchrony, although both have been rising and now both are falling. Their charts show different stages of development, silver having broken out upside and gold still trying to break out of a triangle.

Gold could decline to 612, where the 50 & 200 DMAs both stand right now and where support stands at 610, or it could sink as low as 575. Gold should complete this downward move by mid December or early January, followed by a long, hard rally that should carry about 300 points, to US$900 or higher. (As silver rockets out of this bottom it will crash through 1500 and perhaps challenge 2400 by May.)

I acted too early. The charts fooled me into thinking that the breakout had already begun, but gold's stumbling below 650 (non-confirming silver's rise through 1400) should have warned me, along with the still high discount on US 90% silver bags. If my current interpretation is correct, that premium ought to shrink in the next few days, or at least when we hit a bottom. I'll be looking for it.

The proximate cause of today's fall was a dead-cat rally in the US DOLLAR, which I should also have been watching more closely for, given its long fall and obviously oversold state. Don't expect this dollar rally to last long, or carry beyond 83.50.

STOCKS proved themselves weak again near 12,350, failing today at 12,335 and closing slightly lower on the day. As I said yesterday, stocks will probably make marginal new highs in the next 8 weeks or so, but then will fall hard. Say, by the way -- this drop in silver and gold makes for y'all an even better opportunity to swap stocks for silver & gold!

Today's gold tumble sent the Dow in Gold Dollars up about a half an ounce to close at G$403.59 (19.52 oz), still way below any meaningful resistance.

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

- Franklin Sanders, The Moneychanger

"Buy Silver and Gold Coins at the Best Prices"

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.