Wednesday, August 12, 2009

Sideways to Higher Silver and Gold Prices Through August Likely

Gold Price Close Today : 950.70
Change: 4.90 or 0.5%

Silver Price Close Today : 14.578
Change: 24 cents or 1.7%

Platinum Price Close Today: 1242.90
Change: 3.00 or 0.2%

Palladium Price Close Today: 273.40
Change: -3.00 or -1.1%

Gold Silver Ratio Today: 65.21
Change: -0.750 or -1.1%

Dow Industrial: 9,361.61
Change: 120.16 or 1.3%

US Dollar Index: 78.85
Change: -0.30 or -0.4%

The Mystic Monks of the Mysterious Monetary Shrine, a.k.a. the Federal Open Market Committee, announced their action today after meeting and eating for two days. Like the pronouncements from Delphi, it is a riddle wrapped in an enigma, or, perhaps more accurately, rotten codfish wrapped in newspaper.

What saith the Oracle? Here are the Holy Words, along with my somewhat less than holy translation:

"The Committee expects that inflation will remain subdued for some time." Trans: we are inflating the money supply so fast that all those riding on it are liable to have their eyebrows blown off, but if we don't lie to you and tell you the opposite, there's a chance you might panic out of the dollar.

"The Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability." Trans: We are scratching the ground like a cat on concrete, but just can't get any traction. Therefore we will continue doing the same stupid things that didn't work in the 1930s and haven't worked to date, namely, inflate.

"The committee will maintain the target range for the federal funds rate at 0 to 1/4 percent." Translation: We are going to inflate some more, and by keeping interest rates low hope to lure more suckers into debt. We don't have a clue when we will try to raise rates, and in fact are terrified of even trying to raise them. The whole economy might lock up if we did.

"The Federal Reserve will purchase a total of up to $1.25 Trillion [with a T] of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition the Federal Reserve is in the process of buying $300 billion of Treasury securities." Translation: We are going to inflate some more, and here's proof of it, pouring $1.75 trillion into the money supply by year end. We have only one strategy, and only one weapon: inflation.

Enough of this fun, what about markets today?
The GOLD PRICE rose a lazy $4.90 to close on Comex at $950.70, up, but not above $954-$955 resistance.

The SILVER PRICE rose 24 cents to $14.578 cents. Okay, okay, so far, so good, but these closes are mid-range values, not break-outs up or down, so we are still watching.

I'm still looking at two outcomes. Less likely is a surprise US Dollar rally that slows gold's final thrust through $1,000 by 3 to 6 months. More likely is sideways to higher silver and gold prices through August, with a rise to pierce $1,000 in the fall. SOMETHING needs to break out of its range to make clear which to expect.

However, long term nothing has changed. As the FOMC statement today re-iterates, the Fed has inflated, is inflating, and will inflate. Therefore the dollar will continue to decline over the long term, and silver and gold prices will continue to rise, since they are the only stable alternative currencies.

The US DOLLAR INDEX dropped 29.7 basis points, which to me wasn't large enough to say much. What's that phrase all the gurus use? "A muted response." Yeah, that's it. News that dollar interest rates are likely to stay low until palm trees grow in Greenland isn't really good news for the buck, since relative interest rates are one of the primary determinants of short term exchange rates. And of course, the rest of the FOMC's statement was merely, "Inflation, inflation, and more inflation." Yet the buck only fell 29.7 bps, and not to next support which would have been 78.33. Let's see now what a couple of days' trading does. Events have not yet foreclosed a dollar rally.

STOCKS are feeding still off a dwindling dollar, and greeted today's FOMC announcement with a cheery 120.16 upmove to Dow 9,361.61. S&P 500 jumped over the 1,000 hurdle to close at 1,005.81, up 11.46. Rally continues, and will move higher. Use this last chance to get out of stocks.

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

- Franklin Sanders, The Moneychanger

© 2009, The Moneychanger. May not be republished in any form, including electronically, without our express permission.

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.