Wednesday, January 12, 2011

If The Gold Price Were to Break Through $1,390 or Even $1,400, it Would Jump Merely From Sending all Those Shorts Scurrying to Cover

Gold Price Close Today : 1385.70
Change : 1.70 or 0.1%

Silver Price Close Today : 29.532
Change : 0.042 cents or 0.1%

Gold Silver Ratio Today : 46.92
Change : -0.009 or 0.0%

Silver Gold Ratio Today : 0.02131
Change : 0.000004 or 0.0%

Platinum Price Close Today : 1800.60
Change : 32.90 or 1.9%

Palladium Price Close Today : 810.00
Change : 22.30 or 2.8%

S&P 500 : 1,285.96
Change : 11.48 or 0.9%

Dow In GOLD$ : $175.37
Change : $ 1.05 or 0.6%

Dow in GOLD oz : 8.483
Change : 0.051 or 0.6%

Dow in SILVER oz : 398.06
Change : 2.82 or 0.7%

Dow Industrial : 11,755.44
Change : 83.50 or 0.7%

US Dollar Index : 80.03
Change : -0.820 or -1.0%

The GOLD PRICE added another $1.70 on Comex today to close at $1,385.70, but that feels like a slowing, rounding trajectory. Also it merely brings gold back to $1,386 resistance. If gold were to break through $1,390 or even $1,400, it would jump merely from sending all those shorts scurrying to cover.

My attention right now is focused more on the long term chart, and asking why since October Gold has been trapped between $1,315 and $1,430.60. (By the way, first of those peaks occurred at $1,387.10). Is this a top, where gold burns up buying power battering at $1,425 and fails? Or is it gold stretching and coiling for another spring upward?

Today gold did manage to close above its 50 DMA ($1,383) but below its 20 DMA ($1,387.02). All this feels better than falling through a trap door, but doesn't tell us much yet. Tomorrow or Friday will come the crisis, where gold must either go forward or fall back. But here gold is merely marching back and forth over territory already traveled.

The SILVER PRICE rose yesterday and today, but only by another 4.2c today to close Comex at 2953.2c. Again, this shows slowing momentum. In truth, silver merely traded sideways today, between 2970 and 2937c in US trading. Silver has crossed that first trip wire of a rally, the 20 day moving average (2936c) but done little else. Until silver climbs above 3121c, it is in a downtrend.

DMA, 20 day moving average, 200 day moving average, what's all that about? A 200 day moving average takes prices of the last 200 days and averages them. Next day, it drops the oldest and adds the latest, hence it is a "moving" average. Same method but shorter periods work for 50 and 20 DMAs.

Markets trending generally upwards will remain ABOVE their moving averages. When they dip below the first tripwire, the 20 DMA, they signal a possible trend change. At longish intervals upward trending markets correct and return to kiss off their 200 DMA, which marks the long term uptrend. All of this works upside down for markets in primary down trends, that is, they spend most of their time BELOW their moving averages.

I went back and looked once more at that GOLD/SILVER RATIO data from the last 10 years. Occasionally the ratio will peek above its 20 dma and then resume its downward move, but only rarely. More, the number of days the ratio has spent below its 20 DMA this trip is nearing the maximum number of days for such moves. That argues that we probably won't see a lower ratio for this move.

US DOLLAR INDEX took a whipping today, apparently because sufficient suckers -- Whoa! Scotch that! Make that "investors" -- were found to buy a $1.5 billion Portuguese bond offering. Since this -- for the nonce, at least -- means that Portugal won't default on its sovereign debt, that took pressure off the euro. Hence speculators sold the dollar and bought euros. Right, it IS a silly game of musical currencies.

But the dollar broke important support at 80.40 and lost 82 basis points (1.05%) to end trading at 80.025, on the day's low.

Shocking as it was, it's not the world's end yet for the dollar. Today's fall took the dollar only to its 20 day moving average (DMA, 80.09). More, the dollar index is still reacting downward to its touch of the 200 DMA. Then I look at the euro chart and wonder strenuously why anybody would want to own euros. Aren't dollars bad enough? Euros are clearly -- in spite of today's rise slightly above the 200 DMA and to the ten day moving average -- locked in a downtrend toward the centre of the earth.

Dollar's slip today may have condemned it to a trip to 79, but maybe not. Dollar's most likely path remains upward.

STOCKS did well today, passing that historic 11,722 year 2000 high and closing up 83.56 at 11,755.44. S&P rose 11.48 to 1,285.96.

Dr. Robert McHugh at last night noted that in the 11 years beginning in 2000 the Dow has topped and declined from 4.43% to 29.81% at the beginning of every single year for 11 years in a row. Oddly enough, a lot of technical evidence suggests that's about to happen again.

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.