Friday, November 14, 2008

Key Reversal in the Gold Price put in Yesterday and Today with Today's Higher Close is a Very Reliable Sign of a Bottom

Gold Price Close Today : 742.40
Change: 37.50 or 5.3%

Silver Price Close Today : 9.490
Change: 69 cents or 7.8%

Gold Silver Ratio: 78.23
Change: -1.873 or -2.3%

Dow Industrials: 8,497.31
Change: -337.94 or -3.8%

US Dollar Index Today: 87.42
Change: 0.74 or 0.9%

Imagine that you loaned someone $50,000 to invest in a gold mine in Sierra Leone. Now imagine that he calls you after a month & tells you he spent $25,000 on the gold mine, but then changed his mind. He now thinks that's a bad idea, so he's going to invest in a hog farm in Iran.

You would probably get busy rummaging through your bureau for your .357 magnum to go eliminate this problem, but you can't do that when the incompetent who borrowed the money turns out to be secretary of the US treasury, & the loaner is congress, & the dough amounts to $700 billion.

So, now, tell me: how much faith do y'all have that the government & the Fed know what they're doing? Or that they are likely to find a quick "cure" for the economic crisis? Pondering how Paulson has been handing out money to his bank buddies, one wonders whether he's merely attempting to look incompetent while in fact looting the treasury for his friends.

But let that pass & let's think about markets this week. We got an object lesson in why a "key reversal" consists of TWO parts. First, there is the break into new low territory with a higher close for the day. Second, that must be confirmed by a higher close the next day.

Stocks didn't make the second step. Yesterday they traded to a new low for the move, then closed sharply higher. However, the profit takers didn't trust that gain to hang around until Monday, so sold like rip today, down 338 to 8,497.31 on the Dow.

If stocks drop again Monday, then the pain has not ended.

The US Dollar Index rose today, 74 basis points to 87.42, on no news or some news, I can't tell. Who knows what's moving it nowadays. My goal for the scrofulous currency is about 90, and then reality will set in.

Tomorrow the heads of state & finance ministers of the Gang of 20 will meet in Washington to re-arrange the "international financial architecture" to bless all of us peons. O, thank you, Massa, thank you! Watch out. Something really bad could be spawned there.

SILVER and GOLD shone this week. What? Y'all ask? The silver price dropped 47 cents this week. Means nothing. The gold prie rose $9.20 for the week to close at 742.40. The silver price closed at $9.49. More important, however, is the key reversal put in yesterday and today with today's higher close. This is a very reliable sign of a bottom, that can only be contradicted by a lower close. The gloom is off the rose for metals, so you can buy with much greater confidence now.

Long term outlook remains unchanged: much lower for stocks & the dollar, much higher for silver & gold. Look through the fog to the horizon. Steer straight.

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger

"Buy Silver and Gold Coins at:"

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.