Thursday, April 22, 2010

Once the Gold Price Closes Through the Last High at $1,161, 'Twill Run Fast

Gold Price Close Today : 1,142.30
Gold Price Close 16th April: 1,136.30
Change: 6.00 or 0.5%

Silver Price Close Today : 18.006
Silver Price Close 16th of April: 17.664
Change 34.20 cents or 1.9%

Platinum Price Close Today: 1,743.00
Platinum Price Close 16th of April: 1,690.30
Change: 52.70 or 3.1%

Palladium Price Close Today: 565.50
Palladium Price Close 16th of April: 1,690.30
Change: 52.70 or 3.1%

Gold Silver Ratio Today: 63.44
Gold Silver Ratio 16th of April: 64.33
Change: -0.89 or -1.4%

Dow Industrial: 11,117.29
Dow Industrial 16th of April: 11,018.66
Change: 115.63 or 1.0%

US Dollar Index: 81.03
US Dollar Index 16th of April: 80.832
Change: 0.74 or 0.9%

The STOCK market today has to leave a wry smile on your face. Dow opened down and stayed there till noon when it began a slow climb to unchanged. Then at 3:30, with just 30 minutes left for the day, it climbed above unchanged to close up 9.37 at 11,134.29. S&P500 rose 2.73 to 1,208.67. Not up much, but up still for propaganda purposes.

Some readers have been nipping at my heels about the continuing gains in stocks. I don't mind, I've been nipped by champions before, but I believe that the longer your perspective, the better your view, so I want to bring y'all up on some facts so that y'all can understand why I view stocks with such a jaundiced eye.

In any market, the investor's goal is to gain value. However, when the currency unit (not to mention markets) is being manipulated and inflated, how can you value anything? It's like shooting skeet off the back of a bass boat in a storm. Therefore, we need a gauge for investment performance that gives a reliable measurement. That's why I measure the performance of stocks in silver, or in Gold Dollars (a gold dollar is 0.048375 troy ounce).

In August 1999 the Dow in Gold Dollars peaked at G$925.42 (44.767 ounces). Today, it stands at G$201.49 or 9.747 troy ounces, so stocks have lost 78.2% or about 4/5 of peak value against gold. They will continue to drop until one to two ounces buys the whole Dow, or, in other words, until stocks lose another 80% to 90% of present value. That's the long term perspective on stocks.

Shorter term, the DiG$ bottomed at G$145.37 (7.032 oz) on 6 March 2009. Since then it has risen to G$201.49 (9.747 oz). That's a rise of G$56.12 or 2.715 oz, a 38.6% gain. Correcting the fall from G$318.84 (15.424 oz) where it started 11 September 2008 to its end at G$145.37 (G$173.47 or 8.392 oz), that a rise of only 32.3%. Sounds strong?

Not so fast, friend. Whichever way you want to view this correction, it is normal and routine. Worse yet, it is bound to fail, taking stocks down again. So it's not a very sound idea to judge stocks' performance against gold, silver, or the paper dollar, by the last 12 months. And it's never a good idea to invest for the next 12 months expecting a repeat of the last.

I'm not clever enough to capture every zig & zag of any market, so I have to follow the first fundamental rule of investing: always invest with the primary trend. Not flashy, but over time, it works.

The US DOLLAR worked through 81.30 and jumped 41.2 basis points to 81.573. That closes it right on the short term downtrend line from March. The RSI & MACD are hinting higher prices, but the test comes tomorrow. Can the dollar punch through that trend line? A close tomorrow above 81.90 sends the dollar climbing again.

This morning at opening bell someone body-slammed gold with selling and quickly pushed it down to $1,131.55. After a couple of hours' consolidation it bounded above $1,140 and has traded sideways since. Thus "down $5.90 to close on Comex at $1,142.30" doesn't tell the whole tale. Gold is much stronger than that lower close appears.

The GOLD PRICE remains above its 20 day moving average, and the 20, 50, and 200 DMAs are all rising. Last week's shakeout actually helped strengthen gold for the next rise. As long as gold doesn't close below $1,130 it is still preparing itself for a rally. Should close the week higher tomorrow. Once the gold price closes through the last high at $1,161, 'twill run fast.

SILVER shared gold's fate today. Overnight it sank slowly to 17.90, then the US market opened and Some Big Seller appeared and knocked gold to 17.76. No matter, silver consolidated, then rose to close on Comex down only 6.7c to a photogenic 18.006. Silver has not violated the underlying uptrend, so it remains in that trend. However, 18.10 is blocking the path of silver's progress. Silver must not close below 17.60.

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

- Franklin Sanders, The Moneychanger

© 2010, 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.