Tuesday, July 17, 2007

As Long as Silver Holds 1285 & Gold Holds 662, the Rally Remains Unbroken

SILVER & GOLD have both disappointed me since Friday. Yes, they are correcting a leg up, but this lethargy may point to deeper weakness. Recall as well that silver & gold are wallowing in the midst of their seasonal time of lethargy, so this doesn't surprise us too much. As long as silver holds 1285 & gold holds 662, the rally remains unbroken.

Clearly, stocks lie uppermost on everybody's mind,so let us ponder stocks. According to the Minneapolis Fed's inflation calculator (& if you can't trust the Fed, who can you trust?), to equal its January 2000 high at 11,722.98, the Dow today would have to be 13989.97. At today's 13,971.55 close, the Dow is just now making up its 7-year loss to inflation. The S&P500's intraday high on 24 March 2000 was 1,552.87, but the all-time high close the same day was 1,527.46. Today's close was 1,549.37.

Life is often a matter of perspective. The Dow in Gold Dollars peaked 25 August 1999 at G$925.42. Today it closed at G$434.51. The Dow in Silver Ounces peaked 7 June 2001 at 2,566.04 ounces; today it closed at 1,083.07. Against gold, the Dow has lost 53% since 2000; against silver, the Dow has lost 58%.

Now that we have our minds and our denominator right, look more deeply at stocks. The Dow will probably move to 14,100 before this rally ends. Stocks may keep right on moving up after that, but the terrible erosion of their value against silver & gold over the past 7 years illustrates -- once you get the US dollar denominator out of the way -- that the primary trend is down for stocks against silver and gold.

The Dow in Gold Dollars next demands our attention. For the last 2 days its has closed over the 432.60 barrier, but even with 4 new Dow highs in as many days, it has only climbed to G$434.51, not yet to the old high at G$436. This turnaround came after a false breakdown out of a wedge, so odds are good the DiG$ will continue to climb. Oddly enough, if the Dow went to 14,100 and gold stayed at 665, the DiG$ would only be G$438.30 (21.20 oz). For a long time I have suspected the DiG$ would climb back to the halfway point of its long fall, that is, G$475. Next few days will make plain the path of the next 6 months.

Mercy me, am I glad I'm not responsible for the US Dollar! Almost makes you glad to be poor, knowing that the nothing you are holding is at least not losing something as fast as the dollar. The Samolean keeps bounding along the 80.50 level, much like something that is bottoming. That would make a double bottom with the Dec. 2004 low, and a platform for a rally. As long as that 80.35 low remains unbroken, a dollar rally remains a prospect.

As I was pondering today's commentary, one word came to mind: perspective. Don't panic, don't let events stampede you, keep your eyes on the horizon & always ask if these events change anything fundamentally. Deep breath. Stick with silver & gold. Bull markets climb a wall of worry.

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.