Friday, January 07, 2011

Gold Price Correction Likely, Watch For Buying Opportunities

Gold Price Close Today : 1,368.50

Gold Price Close 31-Dec : 1,421.10
Change : -52.60 or -3.7%

Silver Price Close Today : 2866.1

Silver Price Close 31-Dec : 3091
Change : -224.90 or -7.3%

Gold Silver Ratio Today : 47.75

Gold Silver Ratio 31-Dec : 45.98
Change : 1.77 or 3.9%

Silver Gold Ratio : 0.02094
Silver Gold Ratio 31-Dec : 0.02175
Change : -0.00081 or -3.7%

Dow in Gold Dollars : $ 176.35
Dow in Gold Dollars 31-Dec : $ 168.35
Change : $ 8.00 or 4.8%

Dow in Gold Ounces : 8.531
Dow in Gold Ounces 31-Dec : 8.144
Change : 0.39 or 4.8%

Dow in Silver Ounces : 407.34
Dow in Silver Ounces 31-Dec : 374.42
Change : 32.92 or 8.8%

Dow Industrial : 11,674.76
Dow Industrial 31-Dec : 11,573.42
Change : 101.34 or 0.9%

S&P 500 : 1,271.50
S&P 500 31-Dec : 1,257.52
Change : 13.98 or 1.1%

US Dollar Index : 81.141
US Dollar Index 31-Dec : 79.173
Change : 1.97 or 2.5%

Platinum Price Close Today : 1,735.80

Platinum Price Close 31-Dec : 1,768.60
Change : -32.80 or -1.9%

Palladium Price Close Today : 751.90

Palladium Price Close 31-Dec : 802.00
Change : -50.10 or -6.2%

The GOLD PRICE had a rough week. It hit a high on Monday, but not a new all time high, at $1,422.60. Tuesday the attack began overnight, and in the US gold fell from $1,408 to $1,375. Gold has spent the rest of the week trading sideways, from $1,380 to $1,353.95 today. If $1,350 - $1,360 support holds, then gold will make one more leg up. Otherwise, and more likely, is another drop. Gold already stands below its 20 and 50 DMAs, and has exceeded its December intraday low at $1,362.30. This leaves us looking at targets with names like "$1,330" and "$1,315.50" and "$1,300."

What a difference a week makes! Clearly, silver, gold, and the white metals hit a snag this week, if they haven't topped for this move. Stocks managed to rise nearly 1%, but remain the ptomaine poisoning on the investment steam table. Dollar Index, as I have been hinting, rose a hefty 2.5%.

Gold's failure to reach a new high with the push that began mid- December suggests this correction may not be as deep as it would have been had it run rally amuck with a much higher new high. We will have a clearer idea as the correction unfolds next week. Keep looking over your shoulder for the outside chance that gold bounces off $1,360 for one last trip skyward before entering a lengthy (6 or more months) correction. Comex gold closed down $2.90 at $1,368.50.

Right along with gold the SILVER PRICE took its whipping this week. Most of the wounds were taken on Tuesday, when silver dropped from 3070 to 2930c. Rest of the week levelled off between 2950c and 2830c. On Comex today silver lost another 44.9c to close at 2866.1c.

During the day silver attempted to rally, and even reached 2935c by 11:00 a.m., but it simply could not hold on to those gains and fell by 2:00 p.m. to 2860c.

Behold! Silver also labours under the burden of falling below its 20 DMA (now 2951), and is not far from its 50 (now 2800c). This brings visions of 2650c, 2500c, and even 2285c dancing in my head.

None of that nags at me as much as the GOLD/SILVER RATIO and it relation to its 20 DMA. Since 25 August the ratio has been under its 20 DMA, and that signifieth much. Whenever it dives under that 20 DMA, big things are liable to happen. Longer it stays under, the bigger the happening. Yesterday the Ratio climbed thru the 20 to 100.1%. Today it is 101.5%. I don't know of any other instance (and I checked back ten years) when the ratio dove under its 20 DMA and then poked above that it did not continue moving up. And "the ratio moving up" also implies "silver and gold move down."

I'm not a cheerleader; I try to be a truth-teller. (Why does English have a word for people who lie all the time, "liar", but no word for people who tell the truth? Would that be a "truther"?) The charts say what the charts say. Shoot not the chartreader.

Take this much home: Whatever depth this SILVER PRICE and GOLD PRICE correction reaches, however long it takes, it amounts to no worse than a correction in an ongoing bull market with much longer to run. Those who have already swapped gold for silver have locked in big gains against gold and are ready to swap back when the time comes in the next four months. I wish I could say that the ratio rebound high always coincides with the price lows, but it's much sloppier than that. Topping for the ratio can last two months or more, with multiple tops near the same point, accompanied by multiple silver and gold lows. When the time comes, we'll just have to pick a point and jump. But if you don't already own lots of silver and gold, watch out for this approaching buying opportunity. And if you own silver and gold, sit back and enjoy the correction, remembering how much your courage in buying them has won for you. Yep, I say "courage," because if you bought silver or gold anytime before the last six months, your neighbours, your financial advisor, your stock broker, and probably your brother-in-law thought you were crazy. But you went for the truth you saw -- rising silver and gold and a dying dollar -- rather than yield to the mob's intimidation. Good job! Now when the mob approaches during this correction to twist down that courage, just smile, wave, and remember.

The Dow in Gold Dollars, which tells you how much gold you need to buy the entire Dow Jones Industrial Index (one share of each component stocks) has nearly hit its 200 day moving average (G$176.60). Since it is a market in a primary down trend (bear market), it spends most of its time beneath the 200 DMA. But typical behavior calls for it to break out to the upside, climb to the 200 DMA, then reverse and resume its fall. This hints that the next week or so won't be kind to stocks. Stay out of stocks.

Dow fell 22.55 today to 11,674.76. S&P 500 fell only 2.35 to 1,271.50.

The US DOLLAR INDEX has boldly confirmed its uptrend this week by pushing through 79.50 resistance, 80.40 and 80.50 resistance, and climbing over 81. Today it floated another 35 basis points to close at 81.141. Not only does that place the Dollar Index above its 50 and 20 DMAs, but also above its last intraday high, and within spitting distance of its 200 DMA (now 81.66). Last trip (in late November) the 200 DMA stopped the dollar. This time it probably won't, so that paints a target at 83.50, the last high (August). A dollar trending higher places heavy weights -- chains, anvils and steel wheels -- on silver, gold, and stocks. Euro is free-falling, closed today below 1.3000. Is there a bottom?

Y'all enjoy your weekend.

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger
Phone: (888) 218-9226 or (931) 766-6066

© 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.