Tuesday, November 09, 2010

The Gold Price Posted First Half of a Key Reversal, Any Gold Price Close Above $1,425 or Silver Price Above 2933c Sets Off Another Balloon Ride

Gold Price Close Today : 1409.80
Change : 7.00 or 0.5%

Silver Price Close Today : 28.902
Change : 1.474 cents or 5.4%

Gold Silver Ratio Today : 48.78
Change : -2.366 or -4.6%

Silver Gold Ratio Today : 0.02050
Change : 0.000948 or 4.9%

Platinum Price Close Today : 1787.80
Change : 20.30 or 1.1%

Palladium Price Close Today : 719.10
Change : 34.65 or 5.1%

S&P 500 : 1,213.40
Change : -9.85 or -0.8%

Dow In GOLD$ : $166.38
Change : $ (1.70) or -1.0%

Dow in GOLD oz : 8.048
Change : -0.082 or -1.0%

Dow in SILVER oz : 392.59
Change : -2.28 or -0.6%

Dow Industrial : 11,346.75
Change : -60.09 or -0.5%

US Dollar Index : 77.75
Change : 0.723 or 0.9%

The GOLD PRICE and the SILVER PRICE today posted what I have to interpret as a downside reversal. It looked like the first half of a key reversal (rise into new high territory with a lower close) if you take in the entire day's action. I'm inclined to do that as the Comex close becomes less and less a shibboleth with 24 hour computerized trading moving in.

Looking at the Comex closes it was a banner day. Silver rose a lung-emptying 147.4c to a new high at 2890.2c and gold struck another new all-time high at $1,409.80, $7.00 higher than yesterday. Yet about Comex closing time (1:30 p.m. Eastern) it began falling, and kept on falling, from a high of $1,424.30 down to $1,409.80 at close to $1,382.70 at 3:45 Eastern. It quickly bounced off that low to about $1,394 now.

Silver reached 2933c about 1:00, then fell sharply. By closing it had only fallen to 2890.2c, but afterwards it kept on tumbling to a low of 2643c, and has since traded up to 2694c.

As silver and gold dropped, the ratio soared, ending as I write this at 51.73.

All that action resembles the first half of a key reversal, but the second half must also be fulfilled, namely, a lower close the following day. That we will have to wait to tomorrow to observe.

Repeatedly I have warned that this is a crazy market with dangerous volatility, so this shouldn't surprise any of y'all. I still believe that the top of this long move that began in February 2010 at 1,044.50 will not strike before it reaches $1,600.

This correction will not unfold as a major event unless it breaches $1,315. 50 DMA lies at $1,317.50. Last intraday peak was $1,387.10. This may be nothing more than a one or two day affair, and even this move that began at $1,155.90 should move considerably higher before it ends.

Silver might drop to support around 2500c, or even to the 20 DMA at 2464c or the 50 DMA at 2255c. It's wild, it's volatile, but it has not finished rising.

One of those emotions you must control is the wild fear that grips your heart in a swiftly rising market. Here is the event you planned for, you waited for, you envisioned when everyone else could see only empty space and cigarette butts, and now it's happening! But it's so parabolic, so fierce and monstrous, it leaves even you wondering whether it's a bubble. Recall: bull markets always climb a wall of worry.

Remember that you climbed on to ride the 15-20 YEAR primary trend, and we are only 9 years into that.

On the upside, any GOLD PRICE close above $1,425 or SILVER PRICE above 2933c sets off another balloon ride.

Why do we make rules for ourselves, especially trading rules? So that when the time comes to act, our emotions won't overcome and defeat us. Otherwise -- I promise -- at peaks or at troughs your emotions and indecision will paralyze you. That also explains why we tear the top off any chart we are analyzing, so our desires and fears won't warp our judgment.

So today I came in to find the GOLD/SILVER RATIO at 48.3 to 1 (48.3 ounces of silver buy one oz of gold), and my stomach wanted to jump out of my mouth and run down the road. Whoa! I thought, I haven't had time to re-examine that ratio, maybe we ought to move that trigger down to 41:1! We don't want to leave 16% lying on the table!

As it turned out, the market took me off the hook, but I'll explain that below.

The US DOLLAR today made good its escape from the chains of 77 (remember yesterday late it was trading at 77.032) but first had to dip in the overnight market to 76.70. Thereafter the buck marched straight up all day, bouncing off 77.87. It added 72.3 basis points (0.93%) to 77.75. That's a meaty, respectable rise, and it carries the dollar above the previous high at 77.40, and adds another confirmation to a dollar rally. Dollar also closed above the 20 DMA (77.15) today, another confirmation of an upmove.

Dollar's first target is 78.25, then 80. Seems to be aiming higher.

STOCKS reached new lows against silver and gold today. Dow in Gold Dollars hit G$166.44 (8.052 oz); Dow in Silver Ounces hit 392.59 [sic]. In raw dollar terms, the Dow today lost 60.09 points to close at 11,346.75. S&P500 lost 9.85 to 1,213.40. I say it again as I have said it before, like Cato demanding the destruction of Carthage, stay away from stocks. Don't own 'em, don't short 'em (unless you have plenty of patience and deep pockets).

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.