Monday, September 20, 2010

At Some Point Silver and Gold Prices Will Correct, But When?

Gold Price Close Today : 1279.00
Change : 3.40 or 0.3%

Silver Price Close Today : 20.777
Change : (0.013) cents or -0.1%

Platinum Price Close Today : 1631.30
Change : 14.60 or 0.9%

Palladium Price Close Today : 533.80
Change : -9.05 or -1.7%

Gold Silver Ratio Today : 61.56
Change : 0.202 or 0.3%

Dow Industrial : 10,753.62
Change : 145.77 or 1.4%

US Dollar Index : 81.29
Change : 0.162 or 0.2%

If Dr. Pangloss were alive today he would be most thoroughly pleased with markets of the last two fortnights. Yes, the dollar is slowly sinking, but stocks are rising, and silver and gold prices are floating upward like your son's helium balloon, right into the wild blue yonder. 'Tis the best of all possible worlds -- or is it?

Last week silver and gold prices modestly corrected. The SILVER PRICE fell to 2040c and the GOLD PRICE to 1245.10 early in the week, but that embarrassed them not a bit. The gold price finished the week at $1,275.60, $30.50 higher than Monday. The silver price finished at 2079c, up 88c from Monday. Today silver fell 1.3c to close at 2077.7 on Comex, while gold rose $3.40 to another new all-time high at $1,279.00. Those new all-time highs are now a near daily occurrence.

Now ponder a moment: no mushroom groweth forever. At some point silver and gold prices will correct, but when? The charts are eerily progressive, with hardly a slip. They are unquestionably overbought, but overbought can abide a long time.

I stared at silver's chart and methought an inverse head and shoulders appeared from December 2009 thru August 2010. If I saw aright, it measures 482c from bottom of head to neckline at 1964c, which yields a target of 2445.7c. Yet surely first must come some sort of correction to work off the overbought-ness.

We are dealing with the razor-edges of the market proverb, "A bull market always climbs a wall of worry." Is it time to worry, or to buy and trust the bull? At this point nothing would surprise me, a big jump up or a stumble, but that stumble is overdue.

How do you play it? You have to ride it if you have silver and gold, and buy now if you don't, trusting the trend to bail out your bad timing. Oddly enough, we are seeing more sales to us than usual, often from folks we haven't heard from in 10 - 12 years. And premiums have subtly dropped at wholesale. But I humbly opine that anyone who sells now -- especially silver -- is only climbing out of the boat precisely when it is about to make its strongest race. Sure, I know silver made a new all-time high last week, besting March 2008's 2068c, but that doesn't mean a top by any means! It only means that silver has now confirmed gold's wildly bullish action. Why would you sell now? Look at the horizon. Primary uptrends (bull markets) last 15 - 20 years. The precious metals turned up in 2001. Neither by time nor price have they fulfilled bull market targets. They have much further to run.

Add to all those reasons the GOLD/SILVER RATIO. It has fallen out of the long even-sided triangle and is nearing longer term resistance at 60:1. Once it breaks that, 'twill accelerate.

The US DOLLAR INDEX made at least a short term bottom last Friday at 80.85, and didn't fall through the trap door at 80. Support today was tested and held at 81.10, the bottom of the inverse shoulder on Thursday. The dollar is now bumping against overhead resistance at 81.50. Were it to fail again, the consequences would be messy. More likely it will tomorrow pierce 81.50 and try to rally. Whether it makes good that try remains to be seen.

The Dow today reached 10,753.62, up 145.77, while the S&P500 closed up 17.12 at 1,142.71. That's about as far as I expected stocks to run. What argues for the rally continuing? That this top slightly exceeds the August intraday top at 10,719.94. My guess is that today will prove to be that burst of enthusiasm that looks like everyone on the world is jumping on, only to disappoint tomorrow or the next day with a sharp fall. Don't be gulled by this trick, stay out of stocks.

My whole family went to one of the South Carolina sea islands for vacation. Charming and exotic as that country is, when I got home last night, smelled the air and saw the moon on the ridges, I remembered that every place has its own peculiar beauty, but this is my place, and that always makes it more beautiful still.
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.