Wednesday, August 11, 2010

The Gold Price May Gag a Bit On a Stronger Dollar, But Don't Look For Significantly Lower Gold Prices

Gold Price Close Today : 1197.50
Change : 1.30 or 0.1%

Silver Price Close Today : 17.890
Change : (0.256) cents or -1.4%

Platinum Price Close Today : 1518.00
Change : -25.60 or -1.7%

Palladium Price Close Today : 467.00
Change : -8.70 or -1.8%

Gold Silver Ratio Today : 66.94
Change : 1.016 or 1.5%

Dow Industrial : 10,378.83
Change : -265.42 or -2.5%

US Dollar Index : 82.46
Change : 1.658 or 2.1%

Forget about waiting for stocks to break the bottom boundary of that wedge. They smashed right through it like a meteor through a glass roof.

Bad economic news out of China last night started stocks down worldwide. By the way, all the hype you hear about China being the new world economic leader, etc., etc., will eventually be exposed as pure-D, 100% hogwash. HUGE malinvestment in the Chinese economy will take years to work off, not to mention bad debts in state-owned banks. But think about the stupid presupposition of the claims of looming Chinese economic supremacy: a communist government can direct an efficient economy? Sure, when hogs fly and play violins. If the 20th century proved any one thing beyond all doubt, it is that socialism and communism can produce on one economic output with consistency: shortages.

Anyhow, piling on that bad news today that China is not, after all, about to drive a global economic recovery, the US Federal Reserve announces it is going to buy more US Treasury bonds directly. This amounts to monetizing US government debt, or, in layman's terms, cranking up the printing presses.

Yet it's a fool who looks for logic in the heart of a market, because contradictory effects materialized. The stock market, already poised to drop out of the bomb-bay into the ocean beneath, dropped a colossal 265.42 points to close the Dow at 10,378.83. S&P fell 31.59 to 1,089.47.

Meanwhile, the US DOLLAR INDEX rose a stupendous 165.8 basis points to 82.457, the largest one day jump since fall 2008. Let's see . . . The Fed announces it will begin inflating in earnest, and the Dollar CLIMBS two percent and the Euro falls 2.13%. Sure, yeah, okay, that makes sense. Right.

But we had been expecting the dollar to rise anyway. Today it cleared the 20 DMA (81.79) and smashed through 82 resistance. Clearly, the dollar will move higher for a time.

I didn't say it, but the Dow closed below its 200 DMA (10,436) and its 20 DMA (10,462). Stocks are now virtually certain to keep falling to 10,000, then 9,600, then lower. Stay away, stay away.

Today's dollar rise clouded the silver and gold markets, but not at all fatally. The GOLD PRICE closed on Comex at 1,197.50, up, yes, up $1.30 to $1,197.50, well above its 20 DMA ($1,188.55) but still below that troublesome 50 DMA ($1,210.53). Today did no damage at all to gold's uptrend. Yes, the gold price may gag a bit on a stronger dollar, but don't look for significantly lower gold prices.

The SILVER PRICE dropped 25.6c on Comex to close at 1789c. Not good, as it leaves silver below its 50 DMA (1821c) and 20 DMA (1804c), but a little worse is an MACD that turned down. 200 DMA lies at 1770c, and we may see that tomorrow.

But is silver broken? Will it return to 1450c? Will gold drop to $1,050? To believe that you must believe that gold is wallowing in a major correction, as in the correction of Fall 2008, but I just can't get that out of the chart. The recent $1,257 high close was not a long term top, just an intermediate top in the midst of a much longer upthrust. With markets anything is possible, but unless gold were to drop below $1,140, those lower prices just aren't possible.

Always more volatile silver is not quite in synch with gold, but clearly the goal of this bull market, the great barrier to breach, is that resistance around 2000c. Yes, it will worry everybody to death, because that's the job of bull markets, to climb a wall of worry, but at last it will conquer 2000c. Bigger worry right now is that silver remains above 1700c. Unless it drops below that, the primary trend is untouched.

On this day in 1860 the nation's first successful silver mine began operating near Virginia City, Nevada.

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.