Friday, June 03, 2011

The Next Week or so Should See Higher Silver and Gold Prices

Gold Price Close Today : 1,541.70
Gold Price Close 27-May : 1,536.30
Change : 5.40 or 0.4%

Silver Price Close Today : 3618.7
Silver Price Close 27-May : 3785.7
Change : -167.00 or -4.4%

Gold Silver Ratio Today : 42.604
Gold Silver Ratio 27-May : 40.582
Change : 2.02 or 5.0%

Silver Gold Ratio : 0.02347
Silver Gold Ratio 27-May : 0.02464
Change : -0.00117 or -4.7%

Dow in Gold Dollars : $ 162.93
Dow in Gold Dollars 27-May : $ 167.41
Change : $ (4.48) or -2.7%

Dow in Gold Ounces : 7.882
Dow in Gold Ounces 27-May : 8.098
Change : -0.22 or -2.7%

Dow in Silver Ounces : 335.79
Dow in Silver Ounces 27-May : 328.65
Change : 7.14 or 2.2%

Dow Industrial : 12,151.26
Dow Industrial 27-May : 12,441.58
Change : -290.32 or -2.3%

S&P 500 : 1,300.16
S&P 500 27-May : 1,331.10
Change : -30.94 or -2.3%

US Dollar Index : 73.727
US Dollar Index 27-May : 74.940
Change : -1.213 or -1.6%

Platinum Price Close Today : 1,813.70
Platinum Price Close 27-May : 1,798.50
Change : 15.20 or 0.8%

Palladium Price Close Today : 781.75
Palladium Price Close 27-May : 757.50
Change : 24.25 or 3.2%

Look at the scoreboard: gold/silver ratio gained 5% while the SILVER PRICE lost 4.4% and the GOLD PRICE gained. Stocks took a licking with a big, knobbly stick. Platinum and Palladium perked up, and the US dollar index turned its back on its friends again.

From the number of questioning emails y'all sent, I confused you yesterday. when I wrote this:

"Lift your eyes and listen. Don't miss this. If the present European financial crisis sneaks out from the pen the Nice Government Men presently have it trapped in, then silver will lose badly against gold. and this correction business will drag out a long time. If the NGM and their running dogs do their job and keep the panic penned up, then the gold/silver ratio will bottom sometime by end July, probably end-June. Thus the worse the crisis gets, the further silver will drop. Oh, and stocks, too, but we don't really care about those."

Some even wrote asking whether they should sell their silver. No, no, no, no! My comments only pointed out what drives silver's performance relative to gold.

Because gold is viewed worldwide as the primary alternative money refuge, a financial panic drives people into gold. In its performance against gold, silver generally follows stocks. When confidence in financial markets is strong and stocks are rising, silver rises against gold. When confidence in financial markets weakens, stocks fall and silver falls against gold.

Wherefore, when the dominos of European panic begin to fall with Greece defaulting, gold will outperform silver. Not coincidentally, this will shortly bring on the peak of the gold/silver ratio correction and low in silver's price. My point was, if the panic is contained, that gold/silver ratio peak (based on previous performance) will occur by end-June possibly and end-July latest. If the panic escapes and the NGM do not contain it, it will last longer and carry the ratio higher than we would expect otherwise.

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Today the US DOLLAR INDEX beyond all question broke through the last support to resume its down trend and turn its face to revisiting 72.95. One (me, namely) suspects that the US Nice Government Men and the European NGM are working overtime to keep the euro from collapsing in the face of Greek, etc., defaults. I would if I were them, and I'd be working at taminging the euro price of gold, too.

Dollar Index closed down 60.6 basis points (0.78%) at 73.727, smashing that right shoulder promising to form. Euro stretched up to 1.4637, up 1.01%. Yen rose barely, up 0.9% to Y80.22/$ (124.66c/Y100).

STOCKS, I reckon, are in more trouble than you were when your mama came around the corner of the house and caught you lighting the cat's tail on fire.

Where do I find nerve enough so boldly to state that doom? Didn't have to look far, just look at the descending trade channel for the Dow since 1 May. Today the Dow broke that channel's bottom line at 12,200. Generally when a market breaks support like that it's minded to travel a long road.

Dow closed at 12,151.26, down 97.29 or 0.79%. S&P stopped dead on psychological round number support at 1,300.16, down 12.78 (0.97%).

Confirming that breakdown is the Dow in Gold Dollars (DiG$) closing G$162.93 (7.882 oz), lowest close since June 2010, and at the dead bottom of the long, narrow falling wedge a-building since 2009. Here, too, one has to expect that the DiG$ will drop sharply.

Now ice that cake: the Dow posted a key reversal this week, i.e., broke into new high territory, then closed lower that same day, followed by a lower close the next day.

Stocks will fall further, and remain the Jimson weed in the Barn Lot of Investment Forage.

The gold/silver ratio's rise this week, from 40.582 to 42.604 hints with no subtlety that the SILVER PRICE will drop further and that a peak in the ratio is not more than 60 days away.

GOLD offers us a tricky dance. It ought to be rising in euros faster than in dollars, yet today EuroGold dropped below its 20 DMA. In US dollars the GOLD PRICE is only $30 from its high.

Today gold thumbed its nose at all its detractors and enemies by rising on Comex $9.70 to $1,541.70. During the day gold was shoved and elbowed down to $1,524, but popped up like a basketball held underwater, clean to $1,545. Now the gold price has traced out rising lows since yesterday, and tested and confirmed $1,520 and $1,530 support. That signals higher prices next week, although the week might begin with lower prices for a day or so.

The SILVER PRICE pulled an astonishing trick today. Dropped down to 35.14 before New York opened, roused, then fell back about 9:00. Spent rest of the day clambering steadily, gaining 104.7c by Comex close at 3618.7. Now that close showed the silver price down 1.3c today, but that tells a deceitful tale. In fact, silver posted the first half of a key reversal upward, namely, a fall to new low ground for the move with a higher close on the day. If silver closes higher on Monday (the second piece of a key reversal), then its decline has ended for a while.

Silver also managed to close barely above its 20 DMA (3615c), another hint that we can look forward to higher prices next week.

There you have it: stocks and the US dollar have broken down, foretelling lower prices. Silver and gold prices refused to break down, and although they might not have wholly completed their correction, the next week or so should see higher silver and gold prices.

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.