Friday, November 09, 2007

Should I Buy Gold and Silver Or Hold Off?

Gold Price Close Today : 805.8
Gold Price Close Friday: 832.50
Change: -26.7 or -3.2%

Silver Price Close Today : 14.71
Silver Price Friday: 15.499
Change: -78 cents or -5.0%

US Dollar Index Today: 76.03
US Dollar Index Friday: 75.387
Change: 0.64 or 0.9%

I know, I know, silver & gold fell far today. But first let's consider something that may tell us how far the fall can go.

The premiums on physical silver & gold items can reveal market direction. Large & ready supply makes premiums fall, so low premium implies there are as many sellers as buyers, or more sellers than buyers. Scant supply makes premiums rise, & tell us buyers outnumber sellers; that strong demand and scant supply makes for a strong market. Easy supply and weak demand makes a weak market.

But I can't cite any absolute levels on premiums as signals, because only relative levels are important. Rising premiums point to a rising market; falling premiums point to a weak market.

Today when silver & gold fell, premiums popped up and stayed up. That hints that sellers are refusing to sell at these lower prices, which in turn hints that this correction won't last very long.

The SILVER PRICE gapped up last week between 1486 & 1522. Gaps are usually filled in later trading. Today's low at 1427 filled the gap and then some. Support on the chart lies at 1450.

The GOLD PRICE traded as low at US$791.10 today. It had gapped up from 808, so that fills the gap. Further support lurks at 780, but I think that 791 low today was enough for a whole correction. The jump back above 800 shows mobs of buyers waiting to buy.

Today came the sudden, sharp correction I warned y'all about, triggered by a small US dollar rally. Recall that gold has been rising NOT ONLY against the dollar, but against all currencies, so don't assign more importance to the dollar than it deserves. The market was was very spooky & silver & gold very overbought to have reacted so strongly to such a piddling US dollar rally (64 basis points to 76.03).

Several weeks of silver & gold grinding lower might describe the correction, but their toughness today makes me expect a very short correction, perhaps over by the end of this week. Whenever corrections occur, people want to know whether they should buy or hold off. Unless you are the Oracle at Delphi or the Cumaean Sybil, just go ahead & buy. Don't get cute trying to catch the very bottom, but be satisfied with the gift you've been handed. Remember the market proverb, "Bulls get rich, & bears get rich, but pigs get slaughtered."

Under no circumstances conclude that today's drops mean silver & gold's end. Lo, they have YEARS to rise yet.

So-called "psychological numbers" are really "morale numbers", i.e., round numbers that break or build moral when crossed. Today the Dow closed at 12,987, below 13,000, eating deeper into stock buyers' confidence. The Dow has now fallen deeply below its 200 day moving average (13,221) & its 50 DMA (13,686), and become deeply oversold. Can a rising dollar help stocks, after lo! these many months the buck & the Dow have moved opposite each other? Hardly. Stocks are whispering a message about the economy's future, and suggesting that the sub-prime mortgage mess has not even begun to be unveiled. "Bad stuff coming!" stage-whispers the Dow. Oh, and the poor S&P500 had taken an even worse beating.

How high might the US DOLLAR INDEX climb? Resistance will be offered at 78 - 78.2, then again at 80. Let's see how it unfolds, but it might reach 83, even 85. Silver & gold will be able to digest even that.

One last thought on silver & gold. This month sits in the time window when silver & gold seasonally make important highs or lows. However, sometimes (like 2005 - 2006) silver & gold make little peaks with shallow corrections in November-December, then proceed to another, far higher peak in the other seasonal high/low window, April - May. Obviously, I think we will see now a shallow correction leading to much higher prices next spring.

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.