Monday, January 10, 2011

Gold Price Trading Sideways, is it Consolidation or Reversal Pattern?

Gold Price Close Today : 1373.00
Change : 4.50 or 0.3%

Silver Price Close Today : 29.010
Change : 0.349 cents or 1.2%

Gold Silver Ratio Today : 47.33
Change : -0.419 or -0.9%

Silver Gold Ratio Today : 0.02113
Change : 0.000186 or 0.9%

Platinum Price Close Today : 1745.00
Change : 9.20 or 0.5%

Palladium Price Close Today : 748.50
Change : -3.40 or -0.5%

S&P 500 : 1,269.75
Change : 3.75 or 0.3%

Dow In GOLD$ : $175.21
Change : $ (1.12) or -0.6%

Dow in GOLD oz : 8.476
Change : -0.054 or -0.6%

Dow in SILVER oz : 401.15
Change : -1.33 or -0.3%

Dow Industrial : 11,637.45
Change : -37.31 or -0.3%

US Dollar Index : 80.90
Change : -0.250 or -0.3%

The GOLD PRICE today closed Comex at $1,373, up $4.50. The SILVER PRICE closed at 2901c, up 34.9c and above the psychologically important 2900c line, but not by enough to crow about. After five down days, one 34.9c up day doesn't count for much. It's below its 20 DMA (29.31) but above the 50 (28.10).

Rats! I misspoke. On Friday I wrote, "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." Clearly (or maybe not so clearly) I meant, "Those who have already swapped SILVER for GOLD." Sorry, sometimes my tongue plays tricks on me, especially when it's typing.

I feel really good about gold because big time analysts are talking about the end of the gold boom, gold rolling over, and so forth. Whenever you hear those tales, you know you are far from a long term top, because at the top you won't be able to find a radioactive pessimist with a Geiger counter.

Today gold again traded sideways and rangebound, between $1,375 and $1,365. Gold's refusal to break down further leaves me somewhat antsy. Construing gold with the GOLD/SILVER RATIO leads me to expect gold and silver to fall, because after a ratio low they usually do, and fast.

The ratio hit a low and has since clearly broken through its downtrend line. This sloth in rolling over and bouncing up leaves me scratching my head. For obvious reasons I would like to see the ratio re-visit its 200 dma, now at 60.32. It remains above the 20 dma tripwire, but below the 50 dma at 49.32.

Time to re-think the fundamental expectation. The SILVER PRICE and the GOLD PRICE should have made a higher high, but failed on 3 January 2011 at a level lower than gold's last high, but not silver's. Ergo, both ought to drop. Silver dropped about 300c, but that is nothing as dramatic as it has done after past ratio lows. Since October gold has traded sideways between $1,315 and $1,430. Is it a consolidation for a continuation, or a reversal pattern? Don't know, but the question keeps buzzing around like a pesky fly. Silver vastly outperformed gold over the past 5 months, which typically happens toward the end of a long rally. Yet the sharp reaction after the ratio low hasn't occurred. So far, that indicates great strength, but a break below $1,350 would change that. If gold jumped above $1,430, that would also change the outlook to "rally mode," but this correction surely has more time before it.

Today the US DOLLAR INDEX gave up 25 basis points to close at 80.895. Considering that it climbed last week from Wednesday, it has earned a rest. It bobbled along 80.8 at the day's end, so tomorrow may push down toward 80.40, but dollar gives no indication of turning back its decision to rise.

Dollar nearly reached its 200 day moving average, now at 81.66, and 'twas probably that nearness that turned it back. Once it clears that mark it should run strongly for 83.50 if it truly intends to keep climbing. 20 DMA stands at 80.13, so dollar must hang on above that.

STOCKS today were confused. Dow and S&P500 dropped, Nasdaq Comp rose. Nothing about stocks attracts me: they have traced a bearish upward wedge, come off of shockingly overbought RSI (above 70), and have an MACD turning down and sputtering. More than that, this next year will not be kind to the economy. More corpses will float to the surface in the Banking Swamp, all in states of advanced decomposition. The real estate bodies have not been buried, only put on the ice in the Fed and the basement, and they must be interred yet. Municipalities are likely to begin going white side up like so many poisoned alligators, taking muni bond holders with them. None of this makes me cheer for stocks. They remain the e. coli lettuce lurking in the investment supermarket's produce section.

The Dow dropped 37.31 points today to 11,637.45. S&P500 lost 1.75 to end at 1,269.75. Dow in Gold Dollars jumped back from that 200 DMA like I did this morning when I picked up a hot cast iron skillet by the handle. Naaw, I didn't burn myself. It just doesn't take me long to look at a hot skillet.

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.