Thursday, June 07, 2007

A Trip to 635 Looks Likely, Unless Gold Scrabbles & Holds Here

SILVER fell to its 50 day moving average, and could still pull things out & turn around. GOLD's chart looks terrible, like a rally back to where it fell out of the channel, followed by failure. A trip to 635 looks likely, unless gold scrabbles & holds here. Today presents you with either a great buying opportunity, or a warning of lower prices. The market will probably make clear which tomorrow.

Big story today was plunging bonds. The wave of inflation around the world and the secular bear market in bonds threatens to raise interest rates and wreck stock market hopes (higher rates mean higher costs for businesses). Remember that interest rates & bond prices move opposite to each other, so when rates rise, bond prices fall. The 2 year Treasury reached 5%, and the 30 year reached 5.18%.

Higher rates are widely perceived as bad for gold, so that helps explains the hit metals took today, too. (By the way, "high interest rates" per se are not necessarily bearish for gold. Very high short term rates, for example, indicate high inflation & are therefore good for gold. Gold does move inversely to interest rates, but to real interest rates, that is, the interest rate less the inflation rate. But wherever high rates reflect high inflation, that's good for gold.)

The world is awash under a tidal wave of inflation. Sooner or later central banks will have to raise interest rates to protect the value of their currencies. The Euro central bank raised rates yesterday, then this morning tiny New Zealand raised rates. It was the mouse bark that frightened the elephant, as panic hit already weak bond markets. Look at the chart for yields or bond prices (remember they move inversely). Bonds gapped down today -- bad juju. whoops -- Did I forget to mention what higher interest rates would do to mortgages, & thus the home building industry, & thus a huge chunk of the economy?

The Dow puked up might near 200 points. Whoops. I warned y'all it would come down fast when it came down. This is only a beginning. But trying to pierce the veil of momentary events, we look at the Dow in Gold Dollars, & see that even with a 9.20 gold fall, the DiG$ still dropped today because stocks fell further. The DiG$ has eaten most of its way through G$415 - G$417 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.