Monday, July 19, 2010

Give Both Silver and Gold Prices a Couple of Days to Settle and Shake Off the Fear, then Begin Buying on Retreats

Gold Price Close Today : 1181.70
Change : 6.30 or 0.5%

Silver Price Close Today : 17.534
Change : -23.9 cents or -1.3%

Platinum Price Close Today : 1507.40
Change : -7.90 or -0.5%

Palladium Price Close Today : 445.70
Change : -7.65 or -1.7%

Gold Silver Ratio Today : 67.39
Change : 1.261 or 1.9%

Dow Industrial : 10,155.19
Change : 57.29 or 0.6%

US Dollar Index : 82.58
Change : -0.09 or -0.1%

Greatest hurdle in trading markets is to stop fooling yourself. We get bearish too late, and bullish too late, and so miss the turns. Right now seems a bit late to become too bearish on the metals. I'll explain below.

Although the US DOLLAR INDEX dropped today a tiny 7,6 basis points to 82.577, the small V-bottom from Friday remains unbroken. Dollar could rally at any moment, slapping the smugness out of all those long Euros. Euro rose 0.0041 to $1.2944.

My reading of the Dow in Gold Dollars on Friday may have been a bit unbaked, or let us save face and say "premature". DiG$could rally to G$183 (8.853 oz). What argues against that? Stocks are teetering on the edge of a cliff. It is a high cliff, and falling will bring pain galore. Stocks are hard to read when the 800 lb. government gorilla stands always ready to bend the outcome. Dow today rose 57.29 to 10,155.19, I reckon because it had gotten too sweating close to 10,000 for the Nice Government Men to abide S&P 500 rose 6.49 to 1,071.37.

SILVER pierced its 200 day moving average (1763.5c) with its Comex close at 1753.4c, down 23.9c. It followed through on Friday's embryonic breach of the February - March 2010 uptrend line. If the 200 DMA doesn't contain silver -- and often it doesn't -- then silver could fall to 1720c - 1710c where it encounters the uptrend line from the November 2008 low to the February 2010 low.

Awwww, silver's not as hopeless as it seems. The seasonal pattern calls for a low by this time in the year, rise into early fall, and low in October/November. But, lo! Be Warned! That seasonal pattern is a very rough yardstick, because the year's high sometimes comes in fall, and sometimes in spring, and sometimes in February.

Point is, silver ought to be near a low for the summer. Overbought/Oversold indicators (RSI & MACD) are mumbling out of both sides of their mouth, showing a relatively but not extremely oversold condition. To reach vastly oversold, silver would require a correction like July-November 2008 or December-February 2009, and I doubt that.

Silver may stumble and bounce along a bottom from here until mid-August when it begins rising into a fall high. On the other hand, it might decline into the fall for a November or December low and then rise into spring 2011. Mmmmmmm. I am trying, I'm trying, but I just can't picture silver finishing 2010 lower than it started. Since the bull market began in 2001, that has happened only once, in the wake of the 2008 financial panic.

The GOLD PRICE fell through $1,190 support by the time New York opened and then slid downhill till it reached a $1,178 low at 11:00. After an hour hovering around $1,180, it climbed to the low $1,180s. Comex gold closed at $1,181.70, down $6.30.

Gold has now reached the bottom boundary of the uptrend channel from November 2008. The worst correction since then, namely, Dec-Feb. 2010, did not fall out of this uptrend channel, & this is a correction of smaller degree. Possible targets are (1) this uptrend boundary, (2) $1,150 support, or (3) the 200 DMA ($1,139.46). That last is the most doubtful because gold doesn't tend to visit its 200 DMA as often as more volatile silver.

Give both silver and gold prices a couple of days to settle and shake off the fear, then begin buying on retreats. Buy at $1,180 (I assume tomorrow will see a small rise), then $1,150, then $1,140. Buy silver at 1750c & 1720c.

Remember the human tendency to wax bearish at bottoms and bullish at tops, and steel yourself.

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.