Monday, September 27, 2010

Silver and Gold Prices Continue to Move Relentlessly Higher - Watch for Sudden, Violent Corrections

Gold Price Close Today : 1296.70
Change : 0.70 or 0.1%

Silver Price Close Today : 21.455
Change : 0.072 cents or 0.3%

Platinum Price Close Today : 1632.30
Change : -9.20 or -0.6%

Palladium Price Close Today : 550.95
Change : -8.25 or -1.5%

Gold Silver Ratio Today : 60.44
Change : -0.171 or -0.3%

Dow Industrial : 10,812.04
Change : -48.22 or -0.4%

US Dollar Index : 79.54
Change : 0.183 or 0.2%

SILVER and GOLD PRICES continue to move relentlessly higher, eerily higher. No doubt hot money is driving them, too, so watch out for sudden, violent corrections.

Yet at the same time, bear in mind that we are now in the second stage of the silver and gold bull market. The first great wave up peaked in March 2008 and bottomed in November 2008. Now we have entered the Great Wave Three up, which is always a wild, volatile ride. As I saw stocks do in the 1990s, metals will move relentlessly, unstoppably forward. Sure, corrections will occur, but then metals will bounce right back. Truth is, the bull market has barely begun.

The SILVER PRICE today rose 7.2c on Comex to close at 2145.5c. The GOLD PRICE rose, too, 70c to $1,296.70. Plainly the market is watching $1,300, and gold is monstrously overbought, but no more overbought than silver. Fact is, they've both been overbought for two weeks and more, and can stay there a while, but every day brings the likelihood of a correction closer. I know my needle is stuck in the same groove, but I must repeat that this correction will not last long, and still more rally and much higher prices lie in January 2011 or spring 2011. Look for gold at $1,600 and silver at $33.70 before it ends.

'Twould be obstinate, blind stupidity to conclude from the US dollar's weakness that the euro is strong and fit. It's not. In fact, the euro is sicker than the dollar because it is subject to political stresses which the US$ suffereth not from.

Of the EU's 27 member countries, some -- Portugal, Ireland, Greece, Spain, for example -- have lived for generations as inflation addicts, or are only now awakening from bubbles with an inflationary hangover. Moronic Keynesian economics leads them to believe that more inflation will cure the sickness prior inflation caused. In the sweaty shakes of withdrawal, they are always threatening to make the whole Frankenstein euro project fly apart. The dollar at least, with its totalitarian government from Washington, doesn't suffer from that particular weakness.

Presently the dollar is suffering (assuming the market isn't seeing some catastrophe looming that the rest of us don't see) from the Federal Reserve's implied intent to employ Quantitative Easing (read: more and bigger inflation). The markets took Ben at his hint, and so are fleeing the US dollar and buying stocks and metals. Once the dollar has eroded to 74 or so, or even sooner, the pendulum will swing the other way and the dollar will rally. It is the battle of the feckless against the pointless, a tale of sound and fury, signifying nothing but the world wide failure of all fiat currencies.

Bear in mind, though, that not all inflation effects are equal. The effect of current inflation expectations will keep on driving metals, but not stocks. Why? Because metals are driven by flight from fiat currencies, but stocks respond to economic conditions. And over the long haul, inflation can never create prosperity, only poverty. Keynes notwithstanding.

Friday the US dollar index hit a new low below 79.30, then today the dollar bumped along that bottom and made a slightly lower low at 79.20. Nice, but problem is the dollar has broken down past the support of the last low. That implies a much lower target, at least to 78 and plausibly to 74.25. Not a bright future, and at the same time the winner-following craze baton has passed to the euro. Silly, but there it is. Bear in mind always that the US dollar is oversold enough to stage a snap rally and cut your head off at any moment. Still, the trend is down. Dollar today closed 79.53c, up 18.3 basis points.

STOCKS burped today on their way to Nirvana. The Dow dropped 48.22 to 10,812.04 and the S&P500 dropped 6.51 to 1,142.16. Hot money is driving them, and hot money will leave them just as fast. Can most of the world be benighted and misadjusted sufficiently to believe that more inflation can fix the globe's economic problems? Apparently so. As PT Barnum once said, "Nobody ever went broke over-estimating the gullibility of the American people." He might just as well have included investors world-wide.

On Wednesday, 29 September 2010 my wife Susan must undergo an operation on her foot. I will not be publishing a commentary that day. And I would deeply appreciate your prayers on behalf of a safe and successful surgery for her.

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.