Wednesday, October 22, 2008

The Gold Price Could Be Breaking Down Below its Last Low for a New Fall Or it Could Be Making a Double Bottom

Gold Price Close Today : 733.30
Change: -32.80 or -4.3%

Silver Price Close Today : 9.452
Change: -59.8 cents or -6.0%

US Dollar Index Today: 85.39
Change: 0.96 or 1.1%

All the magic cures the Fed & the US treasury have applied have yet to work their magic, as stocks continue to droop. The US Dollar index perked up again today, rising nearly 100 basis points at close to 85.40 and another 22 basis points in the aftermarket. Stocks closed at 8,519.21 (basis the DJIA), a new low for the move. No support much lies between here & the Oct. 2002 low at 7,286.27.

Clearly, all that wasn't good news for gold. It closed down 32.80 at US$733.30, while silver dropped 59.80 cents to close at 945.20 cents. Markets are at a point of panic & turmoil that charts hardly help. My 200 day moving averages, which are supposed to smooth out daily price fluctuations, actually show vibrations -- zig-zags.

Let's do "bad news-good news."

The bad news is that silver today dropped nearly to its last low at $9.31, and that $10.50, which had been the line in the sand, gave way. Gold also closed today at $733.30, marginally below the 11 September low at $741.30. Those could be breakdowns that would carry -- where? Pick a number, any number, but lots lower.

The good news is that the Gold/Silver Ratio has turned down, dropping from its high of 82.349 last Friday to 77.581 today. Gold's low today can be parsed in two ways. First, it could be breaking down below its last low for a new fall. Second, it could be making a double bottom -- a close 1.1% below previous low close certainly lies within that range. In fact, it could reach all the way to 3% ($721.97) & remain in the running for a double bottom.

Finally we know that paroxysms -- panics -- don't last long, 6-8 weeks at most. They simply exhaust themselves and everyone else. Figuring this stock market panic began about end-September, it ought to have blown itself out by end-November. Yeah, I know -- that's pretty cold comfort.

I had a long conversation with someone this afternoon who asked the heartbreaking question, "Is everything that we think has value going to disappear?" No, no, the things that cannot be shaken won't disappear, but the phoney values are disappearing, & will disappear, & you'd better be ready for it.

Awww, pie in the sky, Moneychanger! What about silver & gold? Will they come back? Talk straight. Well, I was talking straight, but the same applies here. When all is bewilderment, you have but one choice: return to first principles. Check the foundation. Inflation is an increase in the money supply. Can the Nice Government Men & the Fed pump $2 trillion in new credit into banks & money supply, and inflation not occur? Can the Federal government take on $5 more trillion in the debt of Fannie & Freddy & inflation not occur? Have they bailed out everybody but the local deli, without creating more money? No. And not one stroke of this government intervention will help the economy; it will only prolong & worsen the depression. However, it will create an intense inflation or hyperinflation, which guarantees that silver & gold will return with a vengeance.

These are the days that will separate phoney "wealth" from real wealth, the bogus piling up of electrons & numbers versus real wealth that produces something. I'm staying with silver & gold, but then, I've got milch cows & pigs & goats & sheep, too.

I finished by telling my friend that I feel like I am driving down a dark road in a driving rain at 80 mph. I can't see one thing in front of me & can't slow down, but someone utterly trustworthy, someone who has driven this road before told me that it is straight. If I just don't swerve or turn, if I just keep driving straight, I can stay on the road & reach home safely. I have to trust that. Outside is only leering darkness & howling silence.

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.