Monday, June 07, 2010

Above $1250 the Gold Price Turns Sharply Up

Gold Price Close Today : 1,239.30
Gold Price Close May 28th: 1,212.10
Change: 27.20 or 2.2%

Silver Price Close Today : 18.153
Silver Price Close May 28th : 18.411
Change -25.80 cents or -1.4%

Platinum Price Close Today: 1,509.60
Platinum Price Close May 28th: 1,548.70
Change: -39.10 or -2.5%

Palladium Price Close Today: 433.40
Palladium Price Close May 28th: 462.70
Change: -29.30 or -6.3%

Gold Silver Ratio Today: 68.27
Gold Silver Ratio May 28th: 65.84
Change: 2.43 or 3.7%

Dow Industrial: 9,816.49
Dow Industrial May 28th: 10,136.63
Change: -320.14 or -3.2%

US Dollar Index: 88.516
US Dollar Index May 28th: 86.781
Change: 1.74 or 2.0%

Well, I picked a great week to vacation: markets went nuts. In short, silver and gold prices slammed from one side of the trading range to the other, and back today; stocks broke down, probably waving bye-bye to 10,000 forever, the US Dollar index broke out to the upside and added nearly 200 basis points. Meanwhile, I blithely bathed in the ocean..

Gold dropped hard and quick once it broke $1,215 support on Thursday, then scraped $1,197 twice (double bottom) on Friday, and climbed straight back above $1,215. Today the gold price opened around there, and gapped up, an extreme show of strength, sprinting clean to the last high close at $1,244, then closed Comex at $1,239.30, up 23.10

On Monday I sent y'all a message, which for mysterious reasons never was posted on my website, that said, " have to travel this week, so cannot send you a daily commentary. However, y'all know the guidelines: above $1250 the gold price turns sharply up, below $1,190 it turns sharply down." Sounds like hindsight now, but the gold price did NOT close below that $1,190 and it subsequently turned up.

Intentionally I said nothing about silver, because silver is so much more volatile than gold. Silver did fine until Thursday, when it broke 18.20 and plunged to 17.80. Logical, as that is strong support. What was no so logical was Friday's performance, when silver plummeted to 17.29. Okay, Okay, so silver is breaking down but gold is not? Not so fast, because TODAY silver cam roaring back, rocketing straight up from
17.42 to 18.20. On Comex it closed 18.153, up 86.3c.

Hogwash. How do you read a market like that? If every time these goofy things happen I blame the Nice Government Men, after a while I will hardly be using my head. Whatever happened, it un-happened today.

My friend Nick Laird of, best charting site in the universe, wrote to rattle his "gold/silver ratio is going back to 100:1" saber at me. Good -- he makes me re-examine my own position.

Once people get a lot of psychic capital invested in an idea -- like me and silver outperforming gold -- it is most difficult to observe it objectively, but I am going to do it anyway. The ratio may have made a big pennant since 2008 and may be ready to climb back to the all-time high at 100:1, last seen in 1941 and 1991/93. That certainly is possible, and the 2008 climb to 84 damaged the bearishness of the chart.

However, look at a couple of other things.

* A 50 year cycle swings from 100:1 to 16:1. That cycle topped in 1991 and 1993. Where's the 16:1 bottom?

* Did the 2008 peak at 84 grow out of the market, or did it result from a once-in-200-year financial panic?

* Since silver is money and always moves over the long term with gold, why would it change a 4,000 year a pattern and move against gold?

* The ratio did not remain at Friday's high 70.4, which was outside the triangle formation, but fell today back into the triangle. That makes it appear to be a head-fake, a false breakout. Today it closed at 68.4.

But what I am going to do, swap silver for gold at these levels, and be without the silver? Not a chance on your life. Even if silver is headed for 100:1, I would rather hold it and wait for it to resume its gains against gold. Oddly enough, Nick said the same.

From today's action, silver must rise above 18.20 and hold there. By the way, all the arguments that allege silver is an "industrial metal" and therefore subject to drop in the face of economic worry foretelling lower demand proves way too much. If that's true for silver, it will be true in spades for gold, where almost all industrial demand is actually jewellery demand. If the sorry economic outlook is curbing industrial buying, what will it do to highly-postponeable jewellery buying?

Silver is small market, and very volatile. That makes it jerkier than gold. Also, it is the preferred market for NGM interventions, and for predatory trader raids. That might explain a lot.

But silver truly is between Scylla & Carybdis. First the ratio ran up to 84 in 2008, a new high. Next in the rise off the Nov. 2008 lows, gold made a new all-time high in December 2009, but silver did not. These non-confirmationsnag at any silver bug.

Can I make a case for the NGM intervening in silver and gold lately? Can a duck swim? Is a pig's bottom pork? The euro is crumbling, the dollar is soaring, do Ben and his merry Euro Central Bank friends really want to see the system come apart and gold gain $100 or $200? The question answers itself. Yet, yet, silver must still prove itself by exceeding that 2008 peak.

Add to all this the seasonal pattern, which strongly pushes against silver and gold rises in June and July. That's not graven in stone, but it is a powerfully repetitious pattern.

Finally, "industrial demand," as almost no one understands, does NOT, repeat NOT drive silver and gold bull markets. Rather, monetary demand, demand for silver and gold as money alone, hitting the market with new demand at the margin drives gold and silver bull markets.

So from here, we sweat, with gold at the top of its recent (and all-time high) trading range, and silver lagging behind but needing to climb over 18.20.

We face the excruciating truth, and we sweat.

The US DOLLAR INDEX broke through 87 last week and ran, ending today at 88.516. We have to say it is headed for 89.5 at least, maybe 92 until the central banker pain becomes unbearable and the NGM whack it. Notice that even though the US dollar is rising, that's isn't slowing gold down. That suggests that scared money is fleeing not
only to dollars, but to gold as well.

Beneath the Dow Jones Industrial Average yawns a starving elevator shaft. This piddling stop has clawed onto the 50 day moving average (10,062.56), but unsuccessfully. No support appears below before, ohh, 8,000. Get out of stocks while you can still sell them.

By the say, the Dow in Gold dollars has crumbled to new lows at G$163.74 (7.921 oz). Dow in Silver Ounces is also breaking down at 540.86.

I have not stated one reason that might lurk behind a rise in the Gold/Silver ratio to 100: the biggest financial panic of all time. Complete stock market meltdown, instantaneous, around the globe. I am not forecasting any such thing, but if that ratio did climb that high, well, you'll be needing a stout helmet.

On this day in 1776 Richard Henry Lee of Virginia proposed a resolution in the Continental Congress that read, "these united Colonies are, and of right ought to be, free and independent States." The congress adopted the resolution.

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.