Saturday, June 12, 2010

Silver and Gold are Both Moving Toward a Rally

Gold Price Close Today : 1,228.90
Gold Price Close June 4: 1,216.90
Change: 12 or 1.0%

Silver Price Close Today : 18.222
Silver Price Close June 4 : 17.29
Change 93.20 cents or 5.4%

Platinum Price Close Today: 1,534.30
Platinum Price Close June 4: 1,525.30
Change: 9.00 or 0.6%

Palladium Price Close Today: 446.45
Palladium Price Close June 4: 430.50
Change: 15.95 or 3.7%

Gold Silver Ratio Today: 67.44
Gold Silver Ratio June 4: 70.38
Change: -2.94 or -4.2%

Dow Industrial: 10,211.07
Dow Industrial June 4: 9,931.97
Change: 279.10 or 2.8%

US Dollar Index: 87.277
US Dollar Index June 4: 88.274
Change: -1.00 or -1.1%

Sorry this is coming to you on Saturday rather than Friday, but yesterday was my once a year Friday with my sons & son-in-law on the Lake, so I couldn't hang around here.

This week's table shows dramatic changes from last week. Clearly gold and silver fended off attacks and regained all lost ground. Stocks even recovered in a Zombie rally, while the US dollar index lost 100 basis points.

Thursday and Friday the US DOLLAR INDEX may have found a bottom for its correction with 5 lows stopping at or just below 87. Dollar index has now nearly touched its 20 day moving average (86.91), which might satisfy a shallow correction. Intraday high has been 88.71, while the last major high in February 2009 was at 89.62. Does the dollar have 90, even 92, in sight? It might, but at least ought to reach 89.50 before turning down again. Moving averages on the weekly chart are bullish and getting bullisher but other indicators are strongly overbought. Let us be rational: this rally has nothing to do with the dollar's inherent strength, because it hath none. Like every fiat currency in the world (& that's all of 'em) the dollar is backed solely by confidence. Yes, that means that all fiat currencies are confidence games, & if those being conned -- the public -- catch on, they will not only be angry, they will jerk their support from fiat so fast it will make history -- big history.
So the dollar is not healthy, strong, attractive, it's only the best looking corpse in the morgue. In central-banking-land, I reckon they call that success.

STOCKS rallied large this week in a Zombie rally. Remember that with a Zombie, the walking dead, you are not so much amazed that he can't walk well, but that he can walk at all. So with stocks: I am not amazed that they rally weak or strong, but that they can rally at all, being already dead. I noticed reading Dr. Robt. McHugh at Main Line Investors, (well worth the high subscription price) is warning of a possible waterfall crash in stocks. Internal indicators of market strength are absent in this latest "rally", which in my mind points to Nice Government Men. Shortly, shortly, millions of investors will begin to learn the meaning of the phrase "bear market rally" and to weep. Don't let yourself be counted among their teary number.

Last week Gold fell to the bottom of its range at $1,195, fended off all attackers, rallied back to $1,250 and a new all time intraday high, but fell back toward range-bottom. Step back from the chart and look at this. What do you see? First, a market that remains in an uptrend from November 2008, corrected from its December 2009
high, and resumed an uptrend in February. The drop last week constituted merely a routine correction in a steadfast uptrend.

Quo vadis? Whither from here? Gold may bow to its seasonal pattern of June-July weakness and trade range-bound sideways for the next 45-60 days. Frustrating, but not the world's end. What would gainsay this? Any close below $1,190, followed by a close
below $1,160. Any break of $1,160 takes gold down for a terrible beating. Upside, any close over $1,247 sets gold on the upward trajectory of a rally that will not stop of $1,375. Remember that markets delight in surprising and catching everyone
off guard with the wholly unexpected. A summer gold rally would astonish everyone.

On Friday gold atoned for its lagging by rising 8.10 to close the week at $1,228.90. Down from the week's high, but still above support at $1200, $1,210, $1,215, and $1,225. Next resistance stretches from $1,235 to $1,240.

I was fighting off Nick Laird's silver pessimism hard last week, but he threw one punch that nearly knocked me out. (Nick runs, home of the best charts in the universe.) He wrote me that the gold/silver ratio had broken out to the upside. Indeed, it had, over 70:1, but the next day it dropped back into the even-sided triangle and kept on trading down most of the week. Therefore I hasten to classify that upside move as a "false breakout" until proven otherwise.

Think of it. Other markets, including gold, dropped Thursday and Friday a week ago, but none broke their lower support boundary save silver. Yet as fast as it fell, it rose, regaining all its lost ground from 17.20 to 18.50. Okay, I'll admit silver then backed off some, but closed the week above crucial 18.00 support at 18.222, up 12c
Friday. Thursday and Friday sent mixed, bewildering signals. Thursday silver rose strongly while gold fell. Friday, silver fell slightly while gold rose strongly.

That's a non-confirmation, but of what? I say these metals are non-confirming downward moves, that is, the divergence points to strength at resistance levels, not weakness. My most sensitive silver indicator, the premium on US 90% silver coin, is shouting that silver will not drop further, and is about to make a leap up. As crazy and misplaced as it sounds in summer, silver and gold are both moving toward a rally.

I repeat, however, that any break below $1,190 and 17.50 would carry precious metals down much further. Silver's upside target now is 18.50, then 19.80. When silver clears 19.80 the whole world will be set aflame to buy it.

On 11 June 1859 the fabulous Comstock Silver Lode was discovered near Virginia City, Nevada. Since that time I've had to listen to ignorant commentators claim that the abundance of silver coming from the Comstock forced the world's nations to abandon silver in a wave of demonetizations that began in 1873 in the US. Bye-bye, Bi-metallism.

This argument is Washington-grade hogwash. In the first place, half the value of the Comstock came from gold production, so that couldn't affect the ratio. Second, since the California and Australian discoveries in the 1840s, gold had been flooding onto the market, driving silver's price up and silver out of circulation! From 1848
until 1873 (year of the demonetization, silver's price on the world market never came close to the US statutory price of $1.2929, but rose as high at $1.36. In my little book, a silver price persisting above $1.2929 for 25 years does not indicate silver in oversupply.

Yet that is the way the gold-only propagandists -- working for bankers and other government bond holders who pushed deflation to make their bonds & earnings more valuable -- convinced the world to abandon silver, and thus set the world up for
global fiat money. Remember that no honest monetary system can retain its integrity unless it has two safety valves, namely, silver valued against gold and gold valued against silver. Once the monometallic gold standard was adopted, and the "dollar"
defined as 0.48375 oz of gold, the fiat-money camel's nose pushed under the tent, and it was only a matter of time until the fiat camel would push gold, too, out of the tent.

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.