Monday, February 08, 2010

Was Friday a Key Reversal in Stocks and Silver and Gold Prices?

Gold Price Close Today : 1065.70
Change: 13.50 or 1.3%

Silver Price Close Today : 15.078
Change: 25.5 cents or 1.7%

Platinum Price Close Today: 1476.60
Change: -4.90 or -0.3%

Palladium Price Close Today: 409.20
Change: 9.20 or 2.3%

Gold Silver Ratio Today: 70.68
Change: -0.305 or -0.4%

Dow Industrial: 9,910.59
Change: -101.64 or -1.0%

US Dollar Index: 80.30
Change: -0.08 or -0.1%

Was Friday a key reversal in stocks and SILVER and GOLD PRICES? Remember that a key reversal occurs when a market breaks to a new low for the move, but closes higher that day, then the next day rises above the previous day's close. Merely stating the definition gives us an answer, not by the Comex closes, but by the aftermarket.

The GOLD PRICE Comex close Friday was $1,052.20. The SILVER PRICE Comex close Friday was $14.823 and Today the Comex closes were $15.078 (up 25.5c) and $1,065.70 (up $13.50). Does that fulfill a Key Reversal Part 2? Not quite, because in Friday's aftermarket silver traded up to $15.20 and gold to $1,068. I can't pronounce that a completed Key Reversal, because that really would require closing on Comex today higher than Friday's aftermarket.

Here's what we know. Gold had lateral support at $1,065, and after that spike close on Comex (redolent of dead mackeral), it leapt back to that level, although it gained no ground today. Likewise, always-more volatile silver Comex-closed above $15.00, good, but mum as to future intent.

When you make trading rules for yourself, you must follow them, or be forever pingponged by emotion. We reached this support level at $1,065, and that was one of our targets to buy, for both silver and gold. Now, having done that, we wait to see whether they will confirm to the upside by rising above $15.50 and $1,085, or whether they will sink to next support at $14.50 and $1,025.

Finally, don't panic. Even markets in a primary uptrend zig and zag up and down. Go back and check your premise that led you to conclude silver and gold prices are in a primary uptrend. Have any of those drivers changed? US government stopped deficit spending? Federal Reserve stopped creating money out of thin air? Stocks escaped their primary down trend? Dollar exceeded 100 on dollar index? No, none of that has changed, and neither has the primary uptrend in silver and gold prices.

STOCKS clearly had no key reversal, because in spite of Friday's suspicious recovery late in the day, today they failed to fulfill the all-important second half of a key reversal, namely the higher second day close. Stocks today closed down 101.64 at 9,910.59. S&P500 lost 9.2 to close 1,056.99. That close below the psychologically critical 10,000 tolls the death knell for stocks. Big break is coming soon. mnnn

The US DOLLAR INDEX stopped to catch its breath today, dropping 7.8 basis points to 80.302 right now. RSI & MACD momentum indicators are waaaay overbought, signalling that a pause will arrive soon. "Soon" of course is relative, & overbought can get way overbought more. For now, the panic has bitten deep about the Euro. That will turn around, but I'm not sure when. Truth is, dollar could climb to 89.5. If it does, 'twill be a long, hard, dry year for silver and gold.

I point y'all to, "Breakdown of the Gold Market" by Jim Willie. I bring this to your attention, as the lawyers say in cross examination, not for the truth of the matter asserted, but to show something else. I don't know Mr. Willie and am not familiar with his work, so cannot speak good or bad of either, but the thing speaks for itself. Whether his assertions about a shortage of physical gold are accurate or not, they will be. I have long expected that this bull market would prove the opposite of the 1970s', namely, that physical and not futures prices would drive the market. As demand explodes for holding physical silver and gold, the tiny size of supply and the shortfall will be made plain. Physicals will rise to a huge premium above futures, although many may not recognize it.

In fact, calling it a "premium to futures" clouds the issue, because in fact the market is discounting all paper silver and gold. It could also be termed a "backwardation" because the usual contango which makes futures months more expensive than metal for immediate delivery is reversed, and physicals become more expensive. Don't think it cannot happen, because it already did, in Fall 2008, when premiums on silver coin went to forty percent (40%) and gold coins to 20% and deliveries stretched out 4 - 6 weeks. That backwardation lasted from September through February 2009. Backwardation will strike again. It offers another reason to buy now, long before supply disappears, and don't be too squeamish about the price.

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.