Friday, January 29, 2010

Silver and Gold Prices May Have Exhausted Their Downside Inertia

Gold Price Close Today :1,083.00
Gold Price Close 22-Jan : 1,089.20
Change: -6.20 or -0.6%

Silver Price Close Today : 16.183
Silver Price Close 22-Jan : 16.918
Change: -73.50 cents or -4.3%

Platinum Price Close Today: 1,501.30
Platinum Price Close 22-Jan : 1,547.50
Change: -46.20 or -3.0%

Palladium Price Close Today: 418.25
Palladium Price Close 22-Jan : 430.90
Change: 6.80 or -2.9%

Gold Silver Ratio Today: 66.92
Gold Silver Ratio 22-Jan : 64.38
Change: 2.54 or 3.9%

Dow Industrial: 10,067.33
Dow Industrial 22-Jan : 10,172.98
Change: -105.65 or -1.0%

US Dollar Index: 79.482
US Dollar Index 22-Jan : 78.252
Change: 1.23 or 1.6%

The SILVER PRICE took a heavy wound this seek, the GOLD PRICE seems to be bottoming, stocks have broken down through important resistance, and the US Dollar Index finally pierced 78.8 resistance. Expect more dollar upside (to 81.50), more stock downside (to Dow 9450), and perhaps the end of metals' decline.

The GOLD PRICE has formed a double bottom with its 22 December low. Yes, it has closed a couple of bucks lower than 22 December, but not significantly. Yesterday and today closed at 60 cents difference, close enough to qualify as a double close. Those often mark a change of trend. On the daily chart the MACD and RSI look pretty well worn out on the downside, that is, ready to turn up for a change. But on the weekly chart they're enough to give you gray hair, because they could drop much further, which means price could drop much further. Today on Comex gold closed down 60c at $1,083.00.

SILVER'S momentum indicators paint much the same figure. Today the SILVER PRICE closed on Comex at $16.183, down 1.9c. Made double bottom with yesterday's low. Range was flat from $16.00 to $16.30, not much action.

Silver and gold prices may have exhausted their downside inertia. Now, whether that works for a bounce only or a genuine upside rally remains to be seen. That A-B-C correction I have been looking for since the December 2 peak has now been traced out. Question is, how low is low enough for that C-down-leg? Gold has made an A-B-C with the bottom of the A leg and bottom of the C leg equal. In silver's case, the C-leg is lower than A. Technically, that's enough, but can't say yet whether they will stop there. A handy indication they have stopped would be gold closing above $1,100 and silver above $16.80 - $17.00. In the other direction, if they break today's closes, the correction will last longer and prices will sink further.

Takes guts to buy here, but if you believe silver and gold are in a primary uptrend, which can't be gainsaid, then this point offers an opportunity to buy on a low. And that always wrenches your courage.

US DOLLAR INDEX, having at long last pierced 78.80 resistance, jumped another 50+ basis points today to close at 79.482. If that's a flag formation decorating the chart, then the upside target is 81.50. This tilts the playing field uphill for silver and gold prices, but 'twill eventually tilt back, in a month or two.

Regarding how directly other markets respond to the dollar ponder these numbers for performance from the first day of 2010:
US Dollar index, up 1.957 points or 2.5%
Dow, down 516.63 or 4.9%
Gold, down $53.40 or 4.7%
Silver, down $235.50 or 12.7%

As usual, silver is much more volatile than all else, but note that stocks and gold have fallen nearly twice as much as the Dollar Index has risen. Clearly, half of that price change has been influenced by other factors, mostly change in psychology and expectations. In other words, investments like other markets are the prisoners of fad and fashion. Be patient, it will turn our way.

Stocks have more to fear than silver or gold. Tradition holds that when stocks close January lower than they open, the ensuing year trends down. Today stocks barely held above the psychologically pivotal 10,000 mark today. Dow has already broken higher support levels, dooming itself to visiting 9,450 at minimum. I strongly suspect the Dow will drop below 6450 before 2010 ends. Look for the Nice Government Men to goose stocks on Monday, their usual practice.

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. Whenever I write "Stay out of stocks" readers inevitably ask, "Do you mean precious metals mining stocks, too?" No, I don't.