Tuesday, August 25, 2009

Silver and Gold Prices are in a Primary Uptrend that Began in 2001 and will Run Until 2014 or Longer

Gold Price Close Today : 944.50
Change: 2.20 or 0.2%

Silver Price Close Today : 14.30
Change: 11.5 cents or -0.2%

Dow Industrial: 9,565.36
Change: 56.08 or 0.6%

US Dollar Index: 78.26
Change: 0.05 or 0.1%

Today has been a nutty day: everything rose, gold, silver, stocks, even the US dollar. Makes no economic sense, and can't be made to make sense. I've been thinking about the see-sawing between the dollar and stocks and metals. I have concluded we are seeing a flight to tangibles and out of dollars as the dollar is debased. Under that circumstance, even stocks are viewed as hard assets, i.e., at least they are "backed" by bricks and mortar and machines or a going business. Dollar supply expands, dollar falls in value, and people rush to tangibles (real value). Dollar rises, that implies $ supply is shrinking, which implies improving dollar value, so people drop tangibles for dollars. Yes, I know that stocks can only suffer under a severe inflation because interest rates rise and economic calculation becomes nearly impossible, but still they have some tangible value, so are viewed as better than dollars. In every hyperinflation, stocks undergo huge rises, but unfortunately that is only a nominal rise, and never keeps pace with real value, i.e., purchasing power.

This won't last. Wait till this fall when Comrade Obama floats another stimulus package and needs more trillions. He just re-nominated Bernanke for another term as Fed-head. Does anybody think that means Obama expects Bernanke to turn independent and oppose monetizing the debt? To refuse to monetize it? Question answers itself.

The scrofulous US dollar index rose 4.9 basis points to 78.256, still below critical 78.33 resistance. That it hasn't yet fallen off sharply suggests some dollar strength. The Silver Price improved today, rose 11.5 cents to 14.31, above 14.25 resistance, but not by much. The Gold Price rose US$2.20 to US$944.50, but both these rises are essentially noise, back and forth in a trading range bounded by 928 and 954. Only a close outside those levels will signal a big move. Otherwise metals are range-bound until the next economic crisis or financial panic emerges.

Unless the dollar rallies, metals will break out and rally to new high sometime early this fall, and trade in a range until then. If the dollar rallies, metals will swoon until that rally evaporates (as it inevitably will), then resume their rise as the dollar marches onward to its grave.Bottom line: US dollar and stocks remain locked in a primary (15-20 year) downtrend while silver and gold are in a primary uptrend that began in 2001 and will run until 2014 or longer.

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.