Monday, February 07, 2011

The Gold Price Must Clear $1,353, Then Move Above $1,362, Longer it Lingers Here the Weaker it Becomes

Gold Price Close Today : 1,347.60
Gold Price Close 28-Jan : 1,340.70
Change : 6.90 or 0.5%

Silver Price Close Today : 2934.8
Silver Price Close 28-Jan : 2793.4
Change : 141.40 or 5.1%

Gold Silver Ratio Today : 45.92
Gold Silver Ratio 28-Jan : 48.00
Change : -2.08 or -4.3%

Silver Gold Ratio : 0.02178
Silver Gold Ratio 28-Jan : 0.02084
Change : 0.00094 or 4.5%

Dow in Gold Dollars : $ 186.56
Dow in Gold Dollars 28-Jan : $ 182.31
Change : $ 4.25 or 2.3%

Dow in Gold Ounces : 9.025
Dow in Gold Ounces 28-Jan : 8.819
Change : 0.21 or 2.3%

Dow in Silver Ounces : 414.39
Dow in Silver Ounces 28-Jan : 423.27
Change : -8.88 or -2.1%

Dow Industrial : 12,161.55
Dow Industrial 28-Jan : 11,823.70
Change : 337.85 or 2.9%

S&P 500 : 1,319.04
S&P 500 28-Jan : 1,276.34
Change : 42.70 or 3.3%

US Dollar Index : 78.034
US Dollar Index 28-Jan : 78.135
Change : -0.10 or -0.1%

Platinum Price Close Today : 1,839.80
Platinum Price Close 28-Jan : 1,792.40
Change : 47.40 or 2.6%

Palladium Price Close Today : 817.65
Palladium Price Close 28-Jan : 812.50
Change : 5.15 or 0.6%

The GOLD PRICE and the SILVER PRICE, I mind not confessing, have me baffled. What keeps me from throwing in my bearish towel is gold's toe-kicking and heel scuffing refusal to climb above that last $1,353 intraday low. This smells all the more suspicious when silver has climbed 5.1% while gold has climbed only 1/2%.

Why am I fighting this rise when gold's MACD and RSI have turned up? More, gold has broken through the downtrend line from the 3 January high. Last two days gold has sparred with the 20 day moving average ($1,352.15), but not penetrated it. Mayhap gold's fecklessness in crossing that line has merely been wrestling to get through the 20 DMA.

Thursday, Friday, and today gold traded range-bound by 1355 and 1345. Ranges are zones where opposing selling and buying pressure match evenly. When one side or the other flinches, the breakout comes.

Gold weekly chart still points down, but that moves slower than daily.

What can I say? Gold must clear $1,353, must close above that and more, must clear $1,355, then move smartly above $1,362. Longer it lingers here, weaker it becomes. Downside gold must not pierce $1,343.

Contradictions bother me. What's behind them? Friday gold fell $4.00 while silver rose 33.1c. Hmmm. Today silver added another 28.4c while gold lost 70c. Why are they gainsaying each other?

The GOLD/SILVER RATIO has fallen quickly nearly to its 3 January low. Comex today closed 45.92, just above 3 January's 45.75. If the ratio breaks 45.75, it implies BUT DOES NOT NECESSARILY GUARANTEE that silver and gold will reach new highs. If a new ratio low appears, then it throws my expectations for reaction price lows out another month, or, I might have to scrub that and think it all through again. Historical data says that it is not unknown for the ratio to trifle along as much as a month, making two lows near each other, before turning and shooting up.

Platinum and Palladium are knocking at their last highs, which as yet tells us nothing.

The SILVER PRICE jumped up on Thursday from a 2790-ish low to 2900c in a single bound. Friday it tested that 2900c support, then bolted fro 2925c. Since then it has gently risen to a ceiling at 2940. Comex today gained 28.4c to close at 2934.8c.

The silver/gold contradiction is not yet, as some allege, rooted in a silver backwardation.

"Backwardation" occurs when any futures market shows higher prices for the spot or closest month than the normal contango. Normal contango reflects the carrying cost of interest, insurance, and storage, so the months further out in time cost more. From February, you ought to have to pay more for silver if you want to buy it for September delivery, because of that carrying cost.

So whenever a market backwardates it shows a shortage of deliverable metal, perhaps a short squeeze where those who have shorted silver can't find the metal to deliver against their obligations, and so pay more and more to get their hands on it.

Only problem with the backwardation/shortage of silver theory is that today the market was not backwardated. Rather, it showed normal positive contango. One ought also recall that interest is the largest component of contango, and right now interest rates, thanks to Big-Hearted Ben Bernanke, are unnaturally low, which keeps contango low.

On Friday something appeared more like a zero-contango, with the March 2011 contract at 2905.9. and the Cash market at 2907.5c Might be a harbinger, but it's a tee-tiny one.

If I am wrong, gold will break through $1,362 in the next day or two and silver will keep on rising while the ratio sinks below or matches 45.75. I can only watch.

My trip to Maryland was very restful, and I enjoyed meeting some of you subscribers. Thanks for your encouragement and courtesy.

I don't know which is more bewildered, the markets or me. One of two things is happening with SILVER and GOLD. Either they are about to break out for another big rally, or they are about to fail and complete their correction of the 3 January 2011 high. Stocks? Well, you tell me. Nobody every went broke overestimating the gullibility of American Investors. Dollar hangs on, but barely. What hints and clues do the markets give?

US DOLLAR INDEX bottomed (intraday) last Wednesday at 76.88, and has clumb ever since. Today it stands above 78 at 78.034. It fell only 2.3 basis points today, 0.03%.

What signs point up for the dollar? MACD has turned up, and RSI is rising. 76.71 was the next to the last low, so there's lateral support for a bottom here. Over last 4 days dollar has painted a muscular upmove but slowed down today. High nearly touched the 20 day moving average (78.44 vs. 78.35). If the dollar crosses that line, it would flash the first warning confirmation of an uptrend. I expect the dollar to rise again tomorrow, but watch that 77.85 low from today. Dollar must not dip down there and surely must not close below 78. Euro also appears to have topped and today touched its 20 DMA from above, first warning of a downmove.

STOCKS don't move me with greed, fear, desire, or joy. I know I am watching a sucker trap, and want nothing to do with it. They can go higher, although they are already heavily overbought. Do yourself a kindness and stay away from stocks.

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.