Monday, April 21, 2008

Dow in Gold Dollars and the Gold/Silver Ratio Say Silver and Gold Prices Should Rise

Gold Price Close Today : 914.70
Gold Price Close Last Friday: 912.20
Change: 2.50 or 0.3%

Silver Price Close Today : 17.342
Silver Price Close Last Friday: 17.802
Change: -46 cents or 2.6%

US Dollar Index Today: 71.65
US Dollar Index Last Friday: 71.927
Change: -0.28 or -0.4%

Sometimes it helps to try to read one market through other markets, sort of like reading a book in a mirror. Today I'm looking at the Dow in Gold Dollars and the Gold/Silver Ratio.

Stocks have probably bottomed and are launching a rally that will last several months, judging by their breakout last week above 12,750 resistance. However, against gold, stocks have done nothing of the kind. Rather, they have behaved exactly as they did during the long period in 2006 when stocks threatened and huffed and puffed, but in correcting their long drop against gold, never managed to reach even the halfway point of the fall. So today the DiG$ is trading down along a descending trend line without breaking through to the upside. Well, if stocks are rising, but stocks measured in gold are not rising, that strongly hints that gold is not about to take a nosedive. In fact, it hints that gold is about to rise faster than stocks. So our first read-it-in-the-mirror witness says gold ought to go higher.

The Gold/Silver ratio is another contrary witness. The Ratio broke down earlier this year, then corrected upward, and now has entered one of those nail-biting frustrating sideways triangles. However, looking at the whole cart, it is difficult for me to conclude that the next breakout in the ratio will be to the upside.

So if the ratio is headed lower, what does that say about silver and gold prices? Ratio bottoms usually occur at the same time, or slightly before, the silver and gold prices price highs. So this mirror points up, too.

Finally, what about the US DOLLAR INDEX? Won't a rising dollar send silver and gold swimming upstream? But the dollar can't break through 72.50. It reaches for the over-72 area, but cannot hold on. No tidal wave against silver and gold coming from that direction soon.

The SILVER PRICE low today was $17.25, but it closed at $17.342. As long as it stays above $16.80, it will be all right. Any close below that means the silver price has more downside suffering. The GOLD PRICE needs to stay above $904, to keep intact a reverse head and shoulders bottoming formation that may be forming. All things considered, I'm still buying silver and gold. Right now.

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 $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate in a bubble, primary trend way down.