Friday, August 10, 2007

Where Will Silver and Gold Prices Go?

Gold Price Close Last Week : 672.50
Gold Price Close This Week: 670.30
Change: -2.20 or -0.3%

Silver Price Close Last Week : 1310
Silver Price Close This Week: 1282.5
Change: -27.50 cents or -2.1%

Folks, what! -- we got ourselves a panic!

On Friday European stock markets plunged an average 2.8%, Japan, Hong Kong, & Australia dropped more than 2.56%, South Korea fell 4.27 %.

If you've paid close attention over the years, you have many times heard me say that the Fed & other central banks have only two weapons: inflation & blarney. Whenever a crisis occurs -- & crises are frequent in our rotten financial & economic system -- they rush liquidity to the scene, i.e., they inflate. Then they trot out the Fed-head & the Secretary of the Treasury (who usually can't even type or take shorthand) to make pronouncements about how the economy is "fundamentally sound" & other chin-boogie. They fire both weapons: inflation & blarney.

About every 2 years there appeareth a crisis, monetary or financial, that threateneth to take down the whole house of cards -- "systemic risk" they call it so y'all won't grasp what they're talking about. Yet seldom have I seen such a mob of central bankers rushing money to the market to un-seize the engine. I calculate from the conflicting reports that Thursday & Friday they pumped $279.5 billion (with a B): from the ECB $131 billion & $84 billion, from the Fed $18 bn & $38 bn to buy ("repo") mortgage backed securities, which have fallen so low nobody else will touch them, and $8.5 bn from the Japanese.

From the Financial Times, here's what the Fed did:
" In the Fed's repo operation, dealers posted securities as collateral and received cash in return from the Fed. Next week, the dealers and the Fed will reverse the trade. Usually, the Fed does not accept mortgages as collateral for repo transactions but the move signals an attempt by the central bank to alleviate financing fears.
"Wall Street dealers are seeking the sanctuary of government bonds & are selling their holdings of riskier assets such as mortgages [read: "Mortgage backed securities].
"Traders said that if the financing problems continued & the effective funds rate remained above its target level, the Fed was likely to repeat repo operations until the market settled down." From the Financial Times, 10 August

Now, if you are a person who yet owneth stocks, you are probably puking in your wastebasket today. Own them or not, y'all are beginning to see my point about getting out of stocks & into silver & gold. Yes, SILVER & GOLD were caught in the downdraft with everything else, because when people desperately need to raise cash, they sell the good assets first. Critical was the metal's response at previous lows, and steadfast they stood, bouncing off 1260 & 660.

Make no mistake: one of these days the entire financial system will go off the rails, & the panic will not be contained, but it probably won't be this time. That's why I keep recommending silver & gold, because other than moving out to a farm to grow your own food, they're the only asset that is independent of the financial system (altho the Nice Government Men are busily trying to suppress their prices, an undertaking marked more by failure than common sense.) However, it is possible that the credit panic could precipitate falls in silver & gold that would take them way down for 6 - 12 months & take the Gold/Silver ratio up to 60.

As long as gold stays above 660 & silver above 1250, however, their uptrend remains in force & that nightmare won't take place. Ignore the deflationists' arguments because you have seen today what central banks & governments will do in any financial crisis or debt collapse, namely, they will flood the system with liquidity(inflation) if it destroys their currencies in hyperinflation. We may have a depression, but it will be hyperinflationary and not deflationary.

STOCKS today traded as low as 13,057 before the Nice Government Men & their Plunge Protection Team (sounds like people who clear clogged commodes, doesn't it?) could manipulate the market higher near the close. Meanwhile against gold the Dow dropped again today, to a Dow in Gold Dollars value of G$408.30 (19.752 oz). Against silver, the Dow dropped towards the critical 1,000 oz level to close at 1,032.73 ounces. By the way, stocks have also given a Dow Theory trend-change-to-down signal.

Where will silver & gold go? Will the credit crunch begun in no-good mortgage backed securities take down the whole world? Again, I don't think so because you have all the weight of government, central banks, & silver interest against it, but it's always possible. Yet were awful possibility to eventuate, which would you rather be holding, stocks, bonds, or silver & gold in your own sweaty hands? As I said above, as long as metals hold 1250 and 660, they are still headed up. A really bad panic could push them up overnight by 10%, 20%, or more, above the critical resistance at 1500 and 720, & into the stratosphere.

So, take a deep breath & calm yourself. When I am afraid, I know only one cure: Psalm 56:3-4. It's not the end of the world yet.

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.