Tuesday, April 07, 2009

We Can't Tell Yet Whether the Move in Silver and Gold Prices Has Ended or Not - Probably Not, So Brace for Lower Prices Tomorrow

Gold Price Close Today : 882.20
Change: 10.70 or 1.2%

Silver Price Close Today : $12.205
Change: 10 cents or 0.8%

Gold Silver Ratio: 72.28
Change: 0.287 or 0.4%

Dow Industrial: 7,805.96
Change: -169.89 or -2.1%

US Dollar Index Today: 85.24
Change: 0.51 or 0.6%

Personally I've been staring at charts and sweating bullets, checking and re-checking my premises. Presently I am being bombarded with articles screaming that deflation is about to overwhelm the world. These people are confusing dropping prices (usually an effect of deflation) with a cause (deflation, a decrease in the money supply). In this case, the effect arises not from monetary deflation but from collapsing bubbles (housing, commodities, and stocks). Meanwhile, the money supply is still increasing ("inflation") and a huge further inflation will occur as government makes good on all the bailouts. Chance of real deflation? Same as my being chosen next Miss America.

Still, I do not like the look of the Gold/Silver ratio chart. That could be a falling wedge (which threatens an upside breakout), or it could be a flat-bottomed triangle (breaks out usually downside). Nerve racking. Also silver made a lower low last fall (at 880) but I think the financial panic last fall excuses that. I keep thinking and thinking, and just can't get to deflation, or to gold rising alone and leaving silver wholly behind. Oh, that might happen for a passing time (it did last fall), but not permanently. In bull markets, silver always outperforms gold: same drivers as gold driving a smaller market guarantees that.

Better interpretation is that silver is completing the C leg of an A-B-C correction, and bottom of this leg will remain the last low for years to come.

Today stocks continued their correction. The Dow dropped 169.89 to 7,805.96 and the SandP 500 fell 16.93 to 818.55. Bad news was blamed, but the time just isn't full yet. Stocks still have to digest gains from the bottom, then will rise again. Keep on selling them and swapping the proceeds into silver and gold as you have opportunity.

The US DOLLAR INDEX closed at 85.235, up 51.6 basis points, another big jump after yesterday's. Has anything changed? Bernanke gone on the wagon? Geithner grown up? Is somebody serious actually in charge? Nope. Same old dollar, same old outlook. Top of this rally is probably 86.17, the 50 DMA.

The GOLD PRICE bounced back $10.70 to a Comex close at US$882.20. The SILVER PRICE rose a dime to 12.205 cents. Yet today's action was probably just a bounce of yesterday's weakness, so we can't tell yet whether the move has ended or not. Probably not, so brace for lower prices tomorrow.

Remember: "A bull market always climbs a wall of worry." You're getting the worrying part with silver and gold prices right now. The bull always wants to shake off as many riders as possible.

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

- Franklin Sanders, The Moneychanger


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.