Tuesday, October 19, 2010

Worst Part of the Fall Usually Happens Right off the bat, So Give Metals a Few Days to See Where they Will Settle

Gold Price Close Today : 1335.10
Change : (36.10) or -2.6%

Silver Price Close Today : 23.674
Change : (0.633) cents or -2.6%

Gold Silver Ratio Today : 56.40
Change : -0.017 or 0.0%

Silver Gold Ratio Today : 0.01773
Change : 0.000005 or 0.0%

Platinum Price Close Today : 1663.80
Change : -32.70 or -1.9%

Palladium Price Close Today : 569.65
Change : -19.60 or -3.3%

S&P 500 : 1,165.90
Change : -18.81 or -1.6%

Dow In GOLD$ : $1,699.90
Change : $ 42.44 or 2.6%

Dow in GOLD oz : 82.232
Change : 2.053 or 2.6%

Dow in SILVER oz : 4,697.84
Change : 54.59 or 1.2%

Dow Industrial : 109,788.52
Change : -165.07 or -0.2%

US Dollar Index : 78.25
Change : 1.311 or 1.7%

When I take a fall, it's a big one. I knew a correction loomed, but missed it last night. Today the dollar finally rallied and whomped other markets soundly. At least the surprise happened as I warned, biting like a rattlesnake prematurely pronounced dead. Turns out I got bitten myself.

The US DOLLAR INDEX rose 131.1 basis points today (1.69%) and is now trading at 78.245. That is above the 20 day moving average (78.10) and proffers first confirmation of a rally.

Minimum target for this rally is 80, the last low. That rhymes with the 50 DMA at 80.66. Maximum target is 82.25, just above the 200 DMA at 81.85.

If the Dollar index recoups only 38.2% of its previous fall, it will stop at 78.92. If 50% of previous fall, then 80.64, rhyming again with the 50 DMA.

The euro closed at 137.29c, down 2.15c or 1.54%.

Yesterday, coincidentally or not (you decide), Little Timmy Geithner who is playing at being US Treasury Secretaty, announced the US would not engage in currency devaluation as a strategy to make its exports more competitive against other countries'. "Not a viable, feasible strategy," quoth Little Timmy, waving his wooden crutch. No, wait, strike that last phrase. That's Tiny Tim who does that. Anyhow, in Tennessee I was glad at least to discover that Little Timmy had at least learned that competitive devaluation is a strategy not (a) capable of living or workable, and not (b) capable of being accomplished. (I am translating because I see those two words viable and feasible together so much I had begun wondering whether they really mean anything.) Little Timmy's discovery raises my hopes that perhaps somebody else in Washington across the Styx might learn something else, like, none of the Keynesian nostrums they are now trying are "viable" or "feasible" either.

On this the 23rd anniversary of the 1987 stock market crash, STOCKS proved they haven't changed much by dropping 1.48%, 165.07 Dow points to 10,978.52 and 18.81 on the S&P500 to 1,165.90. A dollar rally will hurt stocks much worse than silver and gold over time.

The SILVER PRICE plunged through 2420c shortly before the New York open, then kept falling until 9:00 a.m. when it found feet at 2345c. It rallied to 2400c by noon, but couldn't hold on. By the time Comex closed at 1:30 Eastern silver had shed 63.3c to close at 2376.4c, down 2.6%. Aftermarket trading has carried it to 2337c, a mite panicky, I'd say.

Violating 2370c and 2350c implies silver will descend further still. The decline-confirming 20 DMA lies 60c lower. Let us ponder targets:

If this is a shallow correction (which might last 4 -6 weeks, a 38.2% correction would carry to 2200c; a 50% to 2100, and a 61.8% correction to 20.18.

If this is a more serious correction, the commensurate levels would be 38.2% at 2094c, 50% at 1975c, and 38.2% at 1854c. Those lower figures seem very unlikely to me, even as volatile as silver is.

When the GOLD PRICE shortly after opening at $1,366 dropped through $1,353, it fell clean to $1,332 in 30 minutes. From there it rallied to $1,345 by noon, then rolled downhill below $1,330. Comex closed down a colossal $36.10 (colossal for gold) at $1,335.10, down 2.64%, more than stocks.

The gold price cascaded to its uptrend line and its 20 DMA ($1,331.78). If it slides through that line for a shallow correction, it might stop at $1,325, or $1,300, even $1,297. A 50% shallow correction arrives at $1,270. 50 Day moving average chimes in there at $1,278.05.

A deeper correction could take the gold price to $1,255.

Worst part of the fall usually happens right off the bat, so give metals a few days to see where they will settle.

Before all the croakers come out of their rocks to announce the end of the silver and gold bull market, y'all need to remember that markets zig, and markets zag. Most commentators seem to wake up every morning like a goose in a new world, forgetting that volatility is a fact of life, unless you live under a Soviet system. There prices never change, but there's nothing to buy, either.

Y'all keep your eyes on the horizon. Seasonally silver and gold prices often put in lows in October or November, so this dip shouldn't last longer than Thanksgiving. Go home, kiss your wife or husband, enjoy your supper and your children, and know that the world is not about to fall off the rails yet. Then sleep soundly.

On this day in 1987 the Dow Jones Industrial average plunged 508 points or 22.6%. It was the second worst percentage drop in history until that time. Gold rose $15.50 to $486.50/oz.

Alan "The Wizard" Greenspan had only shortly before taken office as Fed Chairman. Gold rose swiftly above $500, and I will never forget seeing it manipulated downward the day they broke it. They did it by shorting platinum futures in the aftermarket, trusting that to suck down gold. It did. They manipulated stocks up by a similar tactic, buying S&P future to force arbitrageurs to buy up the underlying stocks. As I remember, Robert Ruben was chief hatchetman.

The manipulation was gigantic, but what became so instrumental in my personal education was the bragging they did later. I used to keep, but have since misplaced, clippings from the several part Wall Street Journal December report on the manipulation. It was an astounding admission and recounting of government intervention. They had not even sufficient couth to be ashamed. Not long after that plunge the Reagan administration formed the President's Working Group on Financial Markets, a.k.a. the "Plunge Protection Team," to intervene on a more permanent and less ad hoc basis. That is all accepted and justified as normal now.

Doesn't matter how many centuries pass, it will never be normal for governments to manipulate markets, and it will never bring prosperity, and it will never become just.

Please excuse me tomorrow. I am busy finishing my October Moneychanger monthly newsletter, so won't return with a commentary until Thursday.

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.