Thursday, July 01, 2010

After this Particular Dog-Fight, Both Metals Will Turn Up Again

Gold Price Close Today : 1206.30
Change: -39.20 or -3.1%

Silver Price Close Today : 17.760
Change -91.1 cents or -4.9%

Platinum Price Close Today: 1501.50
Change: -35.80 or -2.3%

Palladium Price Close Today: 430.10
Change: -15.65 or -3.5%

Gold Silver Ratio Today: 67.92
Change: 1.215 or 1.8%

Dow Industrial: 9,732.53
Change: -41.49 or -0.4%

US Dollar Index: 84.61
Change: -1.41 or -1.6%

The SILVER PRICE today rolled back all its gains since 4 June; the GOLD PRICE since 25 May. Silly -- the root of the word means "empty" -- news reports talk about "deflation scares" and the sort of blather that usually foams from their mouths.

I think it's probably much simpler. The US dollar today hit that 85 support one time too many and fell 146 [sic] basis points to 84.606, down 1.82%. Yet meanwhile stocks fell -- well, as much as the Nice Government Men would let them fall -- and SILVER and GOLD PRICES fell, too. What gives? Look elsewhere: at the Euro. It rose 2.5% today, which sufficiently explains both the dollar and metals.

The Euro scare had been shooing investors by flocks into metals. Today the Spanish, one of the EU's financial invalids (not to say "terminals") managed to float a bond issue that somebody actually bought. Arriba! The game is alive again! Oh, help. Is everybody in the world that goofy? I'll come back to this, but first to silver and gold.

The silver price broke that $18.50 - $18.40 resistance and hit an elevator shaft. It dropped 91.1c to $17.76 by the time Comex closed. Low was $17.69. Now, here's the surprise: silver did not fall through its uptrend line from the 5 Feb to 4 June lows. The 200 DMA now stands at $17.58, so silver did what it so often does, revisited its 200 DMA. The gold silver ratio also jumped up to 67.92, but this is not escape from the reservation either. Silver remains in an even-sided triangle, and this is not yet a downside breakout.

The gold price gapped down $5 on the opening and never recovered. It sliced through $1,230 and $1,225 without slowing down, caught an hour or so at $1205, then faded again. Comex closed down $39.20at $1,206.30, but the low was $1,194.70. Aftermarket is oscillating around $1,200. Notice that none of this breaks that $1,190 support. The gold price rolled back to its trend line rising from the November 2008 low, and fell below its 50 DMA ($1,211.50). Not comforting, but no seismic evidence of the End of the World, either. It could foretell a visit to the 200 DMA at $1,128.75.

Certainly silver and gold prices both suffered technical damage and wounded investor confidence. Friends, this is what markets do. They swing back and forth, like pendulum do.

Today I had a conversation with a friend who is a successful investor. We weren't swapping tips, but sharing how much Richard Russell had taught both of us. See Mostly we were marvelling at the simplicity and indispensability, of a very few fundamental investing principles. And, of course, the most fundamental of all, the foundation that keeps the house from falling down, is always align your investments with the primary trend. Identify the trend that is carrying a market up or down for the next 15 - 20 years, and ride that trend. When that market drops, even brutally as silver and gold did today, you don't pull out your .45 and stare at it thoughtfully, you shrug it off and enjoy supper. You know you've done your homework: you've identified the primary trend. You bought the market, if it's rising like silver and gold, or sold it, if it's falling like stocks, and then you lean back and wait for it to happen. It takes patience, and that's where we all fall short of a full bucket.

Now, whether silver and gold prices take a big tumble from here or they rise to the moon, maybe y'all can patiently wait to see, because you know that after this particular dog-fight, both metals will turn up again. And y'all can slap me if you like (if you can reach through your computer screens), but silver still looks like a market waiting to make a huge move up. Sign me, "Unrepentant and Unreconstructed."

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.