Friday, September 21, 2007

Silver & Gold Prices Broke Out Last Week & the US Dollar Index Broke Down

Gold Price Close Last Week : 709.60
Gold Price Close This Week: 731.40
Change: 21.80 or 3.1%

Silver Price Close Last Week : 1254.4
Silver Price Close This Week: 1347.5
Change: 93.10 cents or 7.4%

Enough tumult this week to satisfy anybody. Technically, stocks, silver, & gold prices all broke out last week, and the US Dollar index broke down. Question is, how much longer can it last?

Technically, the GOLD PRICE ought to reach 790 before it undergoes another major correction, but a close below 700 would hit it hard.

The SILVER PRICE improved in the last few days, bring the GOLD/SILVER ratio down, but not much. Silver's job next week is to pierce 1350. A close below 1300 would take it lower.

It is really not too amazing that stocks & metals are moving together, when you think about it. After all, both classes represent alternatives to the US dollar. Stocks are evidences of bricks & mortar & machines, real things like gold & silver. Evidence from the past, though, shows they can never keep up with silver & gold during a really bad inflation.

The Dollar Index is the keystone here. It is approaching its 1991 low at 78.19, the lowest price since 1971. Pause to think about it.

None of the other currencies outshine the dollar in fact; the yen is a phony fiat currency, as is the euro. Both have problems as bad as the dollar's, although not the same. More to the point, if the buck sinks to new lows against the yen & euro, what happens to the free ride the Japanese & Europeans have enjoyed since Bretton Woods in 1948.

Their currencies were pegged falsely low against the dollar, which was redeemable in gold for them, but not for us domestically. So US inflation at home put US manufacturers at a perpetual disadvantage, and it's been pretty much the same show every since (apparently, somebody wants to de-industrialise the US, somebody big).

If the dollar index sinks to 60, how will the Japanese & Euros compete for the American market? They can't, so pressure is probably building now for the US to raise the dollar's exchange rate. Next dollar move (okay, maybe it drifts all the way to 78.19) is more likely to be a surprise rally than a fall through the floor, if for no other reason that a low dollar kills the Japanese, Europeans, and Chinese.
But the key to the surge from metals & stocks this week was a weaker, not a stronger, dollar. Helicopter Ben Bernanke cut the Fed funds rate and the discount rate 1/2 %, flashing an unmistakeable sign to Wall Street and its troubled masses: "We will bail you out, no matter if it kills the dollar." Hyperinflation, here we come. (Who put this guy in charge?) How much lower can the dollar fall? In my mind, not much. So now that the drunk from Bernanke's rate cuts have worn off the markets, what will they do next?

Got me -- but any close below the August Dow low at 12,845 would pull the plug on stocks. It may be that after a short correction in metals, which I expect early next week, stocks & metals will part company & metals will resume their rises.

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.