Friday, April 25, 2008

We Ought to be Buying Silver and Gold Right Now

Gold Price Close Today : 887.20
Gold Price Close April 18: 912.20
Change: -25.00 or -2.7%

Silver Price Close Today : 16.85
Silver Price Close April 18: 17.802
Change: -95.2 cents or -5.3%

US Dollar Index Today: 71.927
US Dollar Index April 18: 72.668
Change: 0.741 or 1.0%

Rough week for metals fans, and not much fun for others.

STOCKS fell back this week to test their breakout over 12,750 made last Friday, and only today closed above last Friday's close. Rally from here should carry as high as 14,000. Frankly, this makes good news for silver fans, because generally silver outperforms gold when the stock market is strong. Stay out of stocks.

The DOW IN GOLD DOLLARS closed today at G$300.38 (14.531 troy ounces), which comes within a gnat's eyebrow of correcting the slide that began last December by 50%. The end of stocks gaining against gold? May be. At any rate, it hints that stocks do not have much more room to rise against gold. If so, and if stocks are rallying, then gold ought to be near rallying as well.

The US DOLLAR INDEX finally closed above 72.50 yesterday, and confirmed that close today with a higher close -- not much higher, it's true, but higher by 13 basis points. Look for a rally over the next 2-6 months, probably to 75. Euro could drop to $1.465. A rising dollar is not fatal to silver and gold prices by any means, just not favourable.

SILVER and GOLD PRICES have performed much differently than they did at their 2004 and 2006 peaks. Since neither reached the overbought peaks of 2004 and 2006, and since the GOLD/SILVER RATIO has not made a new bear market low, I have to conclude that this is a larger correction than I thought at first, but the rally for metals has not ended.

This contradicts the usual seasonal pattern, though, which calls for lows in June - July, and rising prices into October-November. Some years patterns are reversed, although I can't ever recall seeing silver and gold price yearly highs in June - July.

So the most likely outcome is lows then, with strongly rising prices into the fall. If that's true, then we ought to be buying silver and gold right now. Since the silver price fell 4 out of the last six days by at least 46 cents each day, we are somewhere very close to the bottom.

Support for the silver price lies at $16.80 (near today's closes) and $16.30. The gold price might stop here, leaving a double bottom with the April low at $882.90, or drop to $850 or even $800. Whatever lows they log, they will most likely occur next week -- if we haven't seen them already this week.

About now the croakers and Wall Street cheerleaders-for-hire will begin bad-mouthing silver and gold, and you'll see all sorts of headlines stoutly proclaiming "Metals bull markets dead!" If you need something to wrap fish in, that would work well, but as a conclusion about reality, it's not worth much. The bull markets in silver and gold have 8 - 10 years to run. Keep your eyes on that horizon, and keep singing to yourself, "A rising tide lifts all boats!"

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.