Tuesday, April 27, 2010

Today's Gold Price Move Qualifies as a "Break-Out"

Gold Price Close Today : 1161.70
Change: 8.20 or 0.7%

Silver Price Close Today : 18.119
Change -21.8 cents or -1.2%

Platinum Price Close Today: 1717.60
Change: -28.50 or -1.6%

Palladium Price Close Today: 551.00
Change: -16.25 or -2.9%

Gold Silver Ratio Today: 64.12
Change: 1.209 or 1.9%

Dow Industrial: 10,991.99
Change: -213.04 or -1.9%

US Dollar Index: 82.06
Change: 0.58 or 0.7%

Behold! Let us muse upon the free-ness of markets, the honesties born of government regulation, and what a cesspool of corruption the reality is. I am thinking, of course, about Options Expiry. Lo, what a coincidence. Every time options expire, "Somebody" trashes the market so that the most heavily traded options expire worthless.

Ponder the SILVER PRICE: if most of the May options (which expired today) were written at $18.00, and another big clot of them at $18.25, then the options writers wouldn't want
silver futures to close at $18.30. If they can get together and sell enough futures contracts to drive the price down, not forever but just for a single day, then the options expire worthless and they pocket the premiums paid by the gullible public.

Sure enough, today right on cue they drove the silver price down to $1806, although it closed at $18.119. Now, that wasn't perfect from their viewpoint -- a $17.99 close would have been perfect, but every penny move in silver futures translates to $50 value for an in-the-money call option. Perform the mathematics, and you'll see that options writers have a powerful incentive to drive down prices, only temporarily, on Options Expiry day.

Therefore, we can explain the odd concatenation of events, where the GOLD PRICE rises $8.20 but silver falls 21.8c to close on Comex at $18.119 then in the aftermarket the silver price climbs to $18.22 (and gold to $1,170.)

Now, having coughed up that bone in my throat, let's look at today's trading. Although today was Options Expiry, the gold price climbed $8.20 to $1,161.70, perhaps as a result of Greek government debt being downgraded to "Junk" status. The press into gold was simply too mighty to stop.

US Dollar Index drew nigh to 81, then jumped 57.9 basis points to 82.06 right now. Yet again, the wooden stake was pounded into the heart of the myth that gold's price moves in lock-step opposite the dollar. Not when people are scared, it doesn't, because they are looking for some alternative to the dollar.

Today's rise to 82.06 (81.179 high) brings the US Dollar Index back to that 82+ resistance that has twice before stopped the dollar. Chances are it will punch through this time, and continue rising. If it does not, then the dollar will write "Cancelled" over any rally for a long while. The path will not remain a secret; tomorrow the market will shout an answer.

STOCKS today finally succumbed to gravity. Note that all the gurus, analysts, talking heads, TV opinionaters, and all the whole media chattering class will be pointing the finger at S&P's downgrading Greed debt as the "cause." Right -- the same way wet streets "cause" rain. True, the downgrade happened coincidentally to stocks' falling, but to assume that one caused the other is to fall prey to the post hoc ergo propter hoc logical fallacy ("this happened after that therefore on account of that"). Rather, as I have been admonishing y'all for many days, stocks had already reached their extremely overbought top. They were a statue on a rotten pedestal, waiting for the first wind to topple. So a wind blew: the downgrade, but that didn't really cause stocks to fall. At most it only precipitated a fall that was ready to happen anyway.

So how bad was it? Dow fell 213.04 to 10,991.99. S&P500 was hit even harder, dropping 28.34 to 1,183.71, down 2.34% versus the Dow's 1.90% fall. For the Dow 11,000 was support, and now that has been ruptured. Next support materializes at 10,800. Dow today fell through its 20 day moving average (11031.90), first harbinger of a downturn. With markets you never know what will happen next -- especially with so many fingers manipulating markets today -- but today's break clearly fractures stocks' uptrend and turns them down.

What about silver and gold? Today's gold close was especially strong, considering the headwinds of Options Expiry and a strongly rising dollar. Today's move qualifies as a "break-out", so gold ought to gain tomorrow. Silver will tag right along, and lap gold.

If you've been waiting to buy, today you got your signal.

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.