Wednesday, April 13, 2011

If Gold Price Trades Below $1,450 Tomorrow, it Will Likely Signify Lower Prices Coming

Editors Note: Please note we posted incorrect gold and silver prices in Franklin Sanders Commentary yesterday, due to no fault of Franklin Sanders. The correct prices are now posted. Our apologies for any confusion caused. If only gold was 1242 and silver 18.59, I think we can safely say you will never see those prices for gold and silver again on!

Gold Price Close Today : 1454.90
Change : 2.00 or 0.1%

Silver Price Close Today : 40.235
Change : 0.177 cents or 0.4%

Gold Silver Ratio Today : 36.16
Change : -0.110 or -0.3%

Silver Gold Ratio Today : 0.02765
Change : 0.000084 or 0.3%

Platinum Price Close Today : 1772.50
Change : -0.70 or 0.0%

Palladium Price Close Today : 763.10
Change : -0.40 or -0.1%

S&P 500 : 1,314.41
Change : 0.25 or 0.0%

Dow In GOLD$ : $174.35
Change : $ (0.12) or -0.1%

Dow in GOLD oz : 8.434
Change : -0.006 or -0.1%

Dow in SILVER oz : 304.98
Change : 0.17 or 0.1%

Dow Industrial : 12,270.99
Change : 7.41 or 0.1%

US Dollar Index : 74.99
Change : 0.139 or 0.2%

If you were waiting for a meaningful message from the US DOLLAR INDEX today, you might as well go search the Collected Speeches of Barak Obama for wisdom. Today it rose 13.9 basis points to trade now at 74.992. Notice, if you are not already bored to death by this performance, that it just could not QUITE close over the magic 75.00 number. The stench of death and weakness clogs the air.

The dollar's leprous colleagues, the euro and yen, did not edify, either. The euro closed at 1.4441, and appears to have hit its new high yesterday and reversed, but follow thru must confirm. The yen has with great spirit and verve rallied up to its 200 day moving average. Don't count on it penetrating. Lats price I saw was 83.86Y/$ (119.24c/Y100).

A reader rebuked me for my clumsy description of the relation between bonds and yields. It is true that the nominal value of a bond depends on the interest rate stated on its face, but that wasn't what I was trying to point out. Rather, the price of bonds varies inversely with market interest rates. If rates rise, bond prices fall; if rates fall, bond prices rise. Yield is what the bond will in fact return, taking into account its stated interest rate and market rates. Stated rate never changes, but yield changes with market interest rates. So when bond prices fall without the Federal Reserve changing its benchmark interest rate, that implies the market expects (1) lower dollar prices, or (2) higher interest rates.

Test on Friday.

STOCKS did nothing to build confidence today. Dow's low came at 12,224.45, a little below its 20 day moving average (12,231), then closed 7.41 gigantic points higher at 12,270.99. S&P500 darted, bobbed, and weaved at a perfectly glacial pace, adding 0.25 -- yes, 1/4 of a point -- to close 1,314.41.

I feel sort of ashamed about all badmouthing stocks so much -- feel sorry for them, so I'll try to say something really nice about them today. STOCKS are the mercurochrome in the Investing Medicine Chest, but they could hurt worse. They could be the tincture of iodine.

I don't have a lot of good news about GOLD and SILVER for y'all, but I do have some richly exciting suspicions.

The GOLD PRICE rose $2.00 by the time Comex closed, to $1,454.90. High struck at $1,462, low at $1,450.95. This is not strong at all, but it's not a breakdown, either. Two things can happen from here: gold can rise, or gold can fall.

Wait, wait, that's not as dumb as it sounds. Gold's behavior could be consistent with two opposite outcomes. First, the 5 day chart might be showing us a completed A-B-C correction, with the low yesterday at $1,444. Arguing for that is the uptrend in place (higher highs and lower lows) since Tuesday's low. The rise we saw from yesterday's low to today's high could be the first leg up of a renewed rally. Exciting suspicion, but I have yet another. First, tho, the "Gold can fall" outlook. Gold failed to meet, let alone better, this week's high, so Monday's key reversal has still capped the market and will force it further down.

If gold trades below $1,450 tomorrow, it will likely signify lower prices coming. Trading above $1,465 makes higher prices and a renewed rally more likely.

The SILVER PRICE offers more exciting suspicions still. As with gold, the 5day chart shows an embryonic uptrend from Tuesday's low. It may have completed a correction. More than that, silver closed up 17.7c (no big deal) at 4023.5cd, yet in the aftermarket has traded up nearly 40c to 4062c. And that trading from yesterday's low looks like a rallying move.

Yet these remain only exciting suspicions, o'ershadowed by that gold's Monday key reversal, and silver's failure to rise today above yesterday's high.

Silver must hold 3960c or tumble quickly earthward. Overhead, clearing 4080c and trading on up would signal the correction is very small and the rally is resuming.

On this day in 1742 Georg Fredric Handel's Messiah was performed for the first time in Dublin. The fellow who wrote the libretto, whose name nobody remembers, wrote to a friend saying that his libretto was magnificent but he wasn't so sure about Handel's music. He might have spoken a bit prematurely.

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

- Franklin Sanders, The Moneychanger

© 2011, 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.