Thursday, October 21, 2010

Gold Price Calls for Shallow Correction then Rise to $1,600 Early Next Year

Gold Price Close Today : 1324.70
Change : (18.60) or -1.4%

Silver Price Close Today : 23.123
Change : (0.725) cents or -3.0%

Gold Silver Ratio Today : 57.29
Change : 0.962 or 1.7%

Silver Gold Ratio Today : 0.01746
Change : -0.000298 or -1.7%

Platinum Price Close Today : 1675.00
Change : -7.80 or -0.5%

Palladium Price Close Today : 588.00
Change : 1.70 or 0.3%

S&P 500 : 1,180.26
Change : 2.09 or 0.2%

Dow In GOLD$ : $173.94
Change : $ 3.02 or 1.8%

Dow in GOLD oz : 8.414
Change : 0.146 or 1.8%

Dow in SILVER oz : 481.29
Change : 1.05 or 0.2%

Dow Industrial : 11,146.57
Change : 38.60 or 0.3%

US Dollar Index : 77.47
Change : 0.299 or 0.4%

The GOLD PRICE bounced a little yesterday, but today was whipped in the same pattern as the SILVER PRICE. It dropped from the open until 9:00, tried to recover and rose to $1,347.88, then played waterfall the rest of the day. Comex closed at $1,324.70, down $18.60. Aftermarket has risen a little.

After yesterday's dead cat bounce, the SILVER PRICE plunged again today. Silver opened only seven cents off yesterday's close, dropped to 2365c, then rose for a shot at 2400c. There it failed about 10:00 a.m., and that let loose the waterfall. By Comex close (12:30 Eastern), silver had fallen to 2312.3c, shedding 72.5c. Later it drifted to 2300c, but has scrabbled back to 2316c.

A drop to 2300 represents a 20% correction of the July - October run just finished. That might be plenty; might stop there. A 38.2% correction would reach 2175c. However, lateral support on the chart shows at 2295c and 2230c. The 20 day moving average, a possible target for a turnaround, stands at 2292, the 50 day at 2085c. The 50 DMA chimes and rhymes with a 50% correction at 2092.

Still, I believe this will be a shallow correction, and while it yet may see 2230, I don't believe it will drop further.

Targets, targets. The GOLD PRICE at $1,333 reached a 20% correction of the July-October rise ($218.70, by the way). The chart shows support at $1,320 (we left the 20 DMA behind at $1,336.12) and $1,300 and $1,260. $1,310 is also a candidate. Correction of 38.2% reaches $1,293.

We can only watch day by day. I re-iterate, this ought to be a shallow correction. A break below $1,290 would disabuse me of that notion. Don't get caught waiting for the perfect place to buy. SILVER and GOLD are already on sale.

Once again I remind y'all that my outlook calls for a shallow correction and afterwards a rise continuing to $1,600 early next year -- and 3400c silver.

Since I began talking to the late Charles Walters of Acres USA about it years ago, I have been trying to find the mechanism behind the axiom that "government money always de-capitalizes the taker."

Beyond all doubt I know that is true, but I have been struggling to understand how it works. Maybe it's this:

Those who accept government money are refusing to grow up and make their business work as a free-standing, profitable undertaking. They appear to make a profit, but when you subtract the government money, they have a loss. Therefore they never learn how to make their business work.

Over time government-money-takers become weaker and weaker, less and less able to stir themselves up to the exertion, the accurate thinking, and the diligent labour needed to serve their neighbours and make a profit. Their own capital is being consumed, but the government money stealthily hides the loss. Eventually their capital is all eaten away, and the government-money-taker goes bankrupt, wondering what happened to him. He didn't become unprofitable the year he went bankrupt. He was unprofitable all along, but the government money hid that and sapped his will to learn and his will to fight until it was too late to cure.

Today the SILVER and GOLD PRICE crashed through their previous lows, so we have to scratch our heads and guess how low this correction might carry. More below.

The US DOLLAR INDEX gained 131 basis points today, lost 99 yesterday, and gained back 29.9 today. Right now it's trading at 77.47. The five day chart says that as pitifully scrawny as yesterday looked, the dollar has only made a correction and in the process touched back to Monday's 76.85 low for a final kiss good-bye. More plainly, it looks like a double bottom at 76.85. Dollar still faces resistance at 77.60, but should easily clear that tomorrow.

Here are the limits: Dollar must not drop below 76.85 and upside needs to o'erleap 78.40 to confirm an uptrend. Odds favour a dollar rally now. It should reach 80, and could reach 82. After all the camp-followers fled into SILVER and GOLD and stocks from the dollar, this will slow silver and gold down.

Now The Moneychanger is sitting here chewing his lip and trying to figure out why stocks are resisting the dollar's push better than silver and gold. Had I only a small imagination I would reply, "Nice Government Men keeping stocks up and pushing metals down," and that might be true, but I have a greater imagination than that.

Remember, yea, recall carefully, that in April and May the Dow stalled at 11,150 -11,200, with a one day high of 11,520 (6 May) that sent it scooting downhill. My operating interpretation says that stocks have formed a big head and shoulders (left shoulder peaked Jan. 2010, head in May, right shoulder forming now) that targets a break to 8,000. So why should stocks be holding up better than SILVER and GOLD against a dollar rally? Well, stocks form a much larger market than metals and they turn more slowly, but that doesn't quite answer. Whatever the correct and recondite answer, I know that before long the fundamentals -- a bear market -- and the technicals will catch up with stocks.

Today the Dow gained 38.6 to close at 11,146.57, last spring's resistance level. The S&P500 closed 1,180.26, up 2.09.

If he had lived, today would have been my father's 100th birthday. He was born at Michie, Tennessee, about 7 miles from the Shiloh battleground. As a boy he spent Saturdays wandering through the woods picking up buttons, canteens, bayonets, belt buckles, Minie balls, and who knows what else. He hung around re-doing the 10 grade until the school added the last two grades. Never had played football until he went to college at West Tennesee Normal in Memphis, but was such an athlete that he lettered in football, basketball, baseball, and track. Tried to make it through medical school but his sponsor died halfway and he found he couldn't work full time and study. Became a high school teacher and football coach, then a principal and superintendent until he retired. He had the greenest thumb I have ever seen. His garden looked like he had opened the back door and thrown handfuls of seed out the door at random. No order at all, but all of it thriving. I thank God for my father's life.

On this day in 1929 was born Ursula LeGuin, a joy to all you science fiction fans.

On this day in 1805 at the Battle of Trafalgar the British Admiral Horatio Nelson defeated the French and Spanish fleet, but was killed in the fight.

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.