Monday, October 18, 2010

If the Gold Price Breaks $1353 It Will Continue in the Same Direction

Gold Price Close Today : 1371.20
Change : 0.10 or 0.0%

Silver Price Close Today : 24.397
Change : 0.125 cents or 0.5%

Gold Silver Ratio Today : 56.20
Change : -0.285 or -0.5%

Silver Gold Ratio Today : 0.01779
Change : 0.000090 or 0.5%

Platinum Price Close Today : 1696.50
Change : -2.50 or -0.1%

Palladium Price Close Today : 589.25
Change : -2.75 or -0.5%

S&P 500 : 1,184.71
Change : 8.52 or 0.7%

Dow In GOLD$ : $168.00
Change : $ 1.22 or 0.7%

Dow in GOLD oz : 8.127
Change : 0.059 or 0.7%

Dow in SILVER oz : 455.96
Change : 2.49 or 0.5%

Dow Industrial : 11,143.69
Change : 80.91 or 0.7%

US Dollar Index : 77.19
Change : 0.186 or 0.2%

Here's a small correction to my Friday note about the performance of US $20 gold pieces 3/2009 to 10/2010. In terms of "dollars per ounce" calculated from the premiums averaged over all grades of the Liberty type and the St. Gaudens type, the Liberty US$20s lost two percent and the St. Gaudens gained 5%. Simple gold bullion gained 46% over the same time, showing once again that numismatic coins do not outperform bullion.

Having cleared that up, let's look at today's markets. I had to take Susan this morning to see her heart doctor in Nashville, so I only got a glance at the market early. At that point the US dollar index was up over 40 basis points and metals were down slightly. Looked like the US dollar index really had made a bottom and would rally, but when I returned at 3:30, 'twasn't quite so.

For the whole day the US dollar index held on to only 18.6 basis points of its gains. High struck about 4:00 a.m. at 77.65, but the rest of the day the dollar steadily rolled downhill. The five day chart shows a seeming double bottom around 76.20, so that now becomes the dollars must-hold point. From Friday over the weekend the dollar made an impulse wave, so today was most likely only correcting that first leg up. That correction ought to have been completed today, meaning the dollar ought to levitate tomorrow. First barrier is today's high, 77.65. A failure now would make the dollar appear even weaker than most everybody already believes. Euro's rise may have broken today.

Let me make clear that dealing with the dollar is like picking up presumptively dead rattlesnakes: they may not be dead enough yet. It is by no means clear to me, at least, that Bernanke is quite mad enough to go through with Quantitative Easing. Why does he need to, since without doing very much more than talk about it the markets have already taken flight? Some radical reversal by the Fed here would really wound silver and gold, so you have to keep braced for that. I'm not predicting that, only pointing out the ever-present possibility of a Surprise Party from the Nice Government Men.

Which proves the point that only a socialist or a Keynesian or an economist could miss, namely, that all government and central bank meddling with the economy only creates more uncertainty, confusion, instability, and in the end, more poverty.

The dollar did not rise enough to scare buyers out of GOLD. The silly Comex close, 10 cents higher at $1,371.20, came at the end of an informative five days. Thursday gold peaked at 1386, then corrected until a low early today (same time as the dollar high, 4:00 a.m.) at $1,353.50. From that low gold steadily marched higher, reaching a $1,375 high at 4:00 p.m. (no cyclicality or deeper meaning suggested by the time). It has backed off that high, but should be ready to roll again come tomorrow morning. Upper boundary of gold are the aforesaid $1,375 and $1,386, while the lower boundary is $1,353. If gold breaks through either of those boundaries, it will continue a ways in that same direction.

Down below lies the 20 DMA at $1,329.79 and a little support at $1,325. since this rally began in August by crossing above the 20 DMA, that same 20 DMA has served as the floor for every correction. Below that lies the 50 DMA, generally a stout backstop for corrections.

Discussing these downside targets does NOT mean that I am looking for a correction. In fact, the 5 day gold chart literally wrests from me a conclusion that it will continue rising. Yes, I know it sounds loony after the long climb we've already witnessed, but the warning signs of breaks aren't there yet, other than the persistent overbought condition. In other words, the only reason to suspect silver and gold is their success. How goofy does that sound?

SILVER also peaked Thursday at 2490c, and has since backed off to a low of 2370c over the weekend. Today it rose all day, closing Comex at 2439.7c, adding a modest 12.5c. Here another range presents itself, from 2490c to 2370c. A break above or below will carry a ways in the same direction as the break. By the way, looking at the old charts leaves one with a 2500c short term target.

The proverb says, "A trend in force remains in force until violated." Uptrend in silver and gold has not been violated, so it remains in force.

STOCKS climbed today. Chart looks uncomfortably like gold's chart, but differs, too. Dow has reached 11,150 twice now, and must either break through or break down. Dow added 80.91 today to close at 11,143.69 while the S&P500 rose by 8.52 to 1,184.71. Do not trust stocks.

On this day in 1469 Ferdinand King of Aragon married Isabella Queen of Castille uniting Spain into one nation. It was the beginning of Spanish magnificence and accomplishment.

On this day in 1685 Louis XIV revoked the Edict of Nantes, which for nearly 100 years had guaranteed toleration for the Protestant Huguenots. The revocation sent most of the remaining Huguenots scattering across the world, to South Africa, Germany, Holland, Virginia, South Carolina, and Alabama. Since they were mostly craftsmen and businessmen, France's loss was everyone else's gain.

On this day in 1767 the boundary line between Pennsylvania and Maryland was at last finished by Mason and Dixon.

On this day in 1989 Hungary was proclaimed a free republic.

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.