Friday, September 23, 2011

Be Calm, Hold Your Silver and Gold Positions

Gold Price Close Today : 1,637.70
Gold Price Close 16-Sep : 1,812.10
Change : -174.40 or -9.6%

Silver Price Close Today : 3006
Silver Price Close 16-Sep : 4078.1
Change : -1072.10 or -26.3%

Gold Silver Ratio Today : 54.48
Gold Silver Ratio 16-Sep : 44.43
Change : 10.05 or 22.6%

Silver Gold Ratio : 0.01836
Silver Gold Ratio 16-Sep : 0.02250
Change : -0.00415 or -18.4%

Dow in Gold Dollars : $ 135.96
Dow in Gold Dollars 16-Sep : $ 131.29
Change : $ 4.67 or 3.6%

Dow in Gold Ounces : 6.577
Dow in Gold Ounces 16-Sep : 6.351
Change : 0.23 or 3.6%

Dow in Silver Ounces : 358.33
Dow in Silver Ounces 16-Sep : 282.22
Change : 76.12 or 27.0%

Dow Industrial : 10,771.48
Dow Industrial 16-Sep : 11,509.09
Change : -737.61 or -6.4%

S&P 500 : 1,136.00
S&P 500 16-Sep : 1,216.01
Change : -80.01 or -6.6%

US Dollar Index : 78.356
US Dollar Index 16-Sep : 76.623
Change : 1.73 or 2.3%

Platinum Price Close Today : 1,610.40
Platinum Price Close 16-Sep : 1,805.90
Change : -195.50 or -10.8%

Palladium Price Close Today : 641.10
Palladium Price Close 16-Sep : 732.90
Change : -91.80 or -12.5%

When I saw today's prices, I rushed back to send y'all a commentary. Since I claim to be nothing more than a natural born fool from Tennessee, I might not have anything to say worth hearing. Might just add more fog to an already foggy situation, but here goes.

No way to tell what final straw will break a market's back. Markets are human phenomena, and who knows what causes crowds to panic? Stocks, silver, and gold were all set to drop and the US dollar to rise. Something pushed them over the edge.

Bloomberg News, which always tells the truth (when it's convenient), said today US stocks fell for their biggest weekly loss since 2008. In four days stocks lost $1.1 trillion in value. Wednesday and Thursday alone the Dow lost 5.9%. Cause they assigned to this effect was the Fed's warning Wednesday that risks to the economy have increased. Right, and fire is hot, too. Clearly, the public perceives that nobody in authority on the North American or European continents has a clue what to do.

Today the Dow dead-cat-bounced to 10,771.48, up 37.65 points or 0.35%, hardly amounting to a rounding error. S&P500 rose 0.61% or 6.87 to 1,136. Today's 10,638 low took the Dow back to its August low, setting it up for a fall THRU that low on Monday. Point and Figure chart gives a target of 9,600 [sic]. Big break. Follow thru Monday will confirm whether it will fall much further, but I don't know how you could draw any other conclusion.

Stocks -- as much fun as pouring vinegar on a broken tooth.

Thursday the US DOLLAR INDEX broke through 78 resistance and rose 118.5 basis points to 78.489. Today it rose pennies to 78.50, but the trend is confirmed. Dollar index has now (1) broken through its upper trading channel line, (2) traded through its 200 day moving average, now 76.10), and (3) broken above 78, a height not seen since last February. Man'd be a fool to stand in the way of this. Dollar is rallying, and may reach 81.50 OR EVEN MUCH HIGHER. That throws a headwind into the paths of silver and gold.

This will keep up until falling stocks and screams of deflation scare Ben the Bernancubus so badly that he pumps out more dollars.

What y'all must not do is lose your head while everybody else is panicking. Don't become confused, mistaking short term moves for long term changes. NOTHING HAS CHANGED. SYSTEM IS UNALTERED. The Keynesian fools (takes a fool to know one) in government and central banking will keep on applying the same failed "cures" and keep on avoiding any real medicine. Thus after a correction, silver and gold will come roaring back.

Euro bounced a little today, up 0.23% to close at 1.3491 on its way to 1.2000 [sic]. Watch and see if it doesn't. If the yen can remain above 130c (Y76.9 = $1) it will prove a breakout and move even higher.

Danger with looking at past performance is that your mind inevitably forces that pattern onto today's movements, so that you expect things to follow the past exactly. Doesn't work that way: it only gives us a general comparison.

With that waning, let's look at how GOLD and SILVER PRICES acted back in 2008. Remember that the mortgage bubble popped then, precipitating a banking crisis in the US, like that today in European banks with sovereign debt. GOLD topped 18 March 2008 at $1,003.20, then

** The GOLD PRICE fell to a correction low 1 May at $848.90

** Climbed to a correction high of $977.70 on 15 July,

** broke down at about $900 on 4 August, and

** waterfalled to $786 (down 14.5%) by 18 August

** went lower, then rose to $900 on 22 September, and

** fell to a final bottom at $704.90 on 13 November, down 30%

from the March peak.

** from the August break to the November low 97 days passed. The SILVER PRICE topped 5 March 2008 at 2068.50c, then

**fell to a 1 May correction low at 1612c

** rose to 14 July at 1917.5c, then dropped gently and

** broke on 6 August at 1650c into a waterfall

** plunging to 1049c (down 36.4% in that break) on 11 Sept,

** dropped more, then rose to 1345.8c on 26 September, and

** fell to double bottoms 28 Oct and 13 Nov. at 880c,

down 57.5% from the March peak.

** From the August break to the November low, 98 days elapsed.

SILVER and GOLD will not repeat these exact numbers, but should follow that same general pattern. Tops in 2011 came in May, and events have not played out exactly the same. This time gold's first correction recovery high (top of B wave) ran much higher than the previous $1,577 peak, but once again silver's recovery has not been nearly as vigorous as gold's.

Okay, smart guy, if all this is so, why didn't you tell us before? Because I couldn't be sure metals were following the same pattern until they broke this week. More than that, scared money was running into gold, driving it up all summer.

Big question to deal with now is whether this is a relatively minor correction, or whether it will correct the entire move from the 2008 lows to the 2011 highs.

Not so fast, Jack! Gold's $1,637.70 closing price today was only about 15% lower than its peak -- not a major correction yet. Today's silver close, 3006c, is 38.1% lower than its 4858 peak last day of April. Not huge for silver. Yet this waterfall makes me expect lower prices still. Based on 2008's performance, a bottom can be expected sometime in December, if silver and gold are following that 2008 track.

Most of all, 2008 offered us a gigantic opportunity to swap gold for for silver when the ratio reached 83.5. Applying that 2008 correction of the gold/silver ratio from 46.677 to 83.5 or 179% of the low, the ratio this time around would reach 57.24. Whoa! Today's ratio was 54.481, taking it higher faster than expected. That reminds me that this correction ought not to take as long as 2008's because the market is in a later, more violent and speedier stage of development.

So we will want to trade gold for silver very shortly. Watch it every day. That break through 45 in the ratio over the last 2 days will send it rocketing upward.

Today's market in gold was raw, bloody carnage. Comex gold dropped $101.70 (5.8%) to $1,637.70, on top of losing $66.40 yesterday, a total of 9.5% in two days.

Low today came at $1,629.50. Targets are the 150 day moving average, which has contained every decline in the last year. It's now at $1,573. Another target is the 200 dma at $1,522.65. The 150 dma nests with lateral support about $1,575. If gold falls through $1,478, it could drop to $1,432.50, down about 25% from its $1,920 high.

The SILVER PRICE lost 674c today or 17.7%. I don't recall seeing any drop that large in since 1980. That was added to a 9.7% loss yesterday, or 27.4% in the past two days.

Silver has broken to a new lower low in the correction from its end-April high. May intraday low was 3230c. Low today was 2999c, and Comex close came at 3006c.

What about targets? Silver has dropped through its 300 day moving average (now 3143c), which hasn't happened since 2008. Lateral support stands at 2630c, the February 2011 low, then at a congestion area about 1950c - 2000c. A 57.5% correction repeating 2008's performance would take silver to 2064.7c. The area from 3127c to 2630c offers considerable support. Point and Figure target is 1600c.

Again I warn y'all not to lose your heads. Be calm, hold your silver and gold positions, alertly watch for the opportunity to swap gold for silver and to buy more gold and silver at panic prices. Lift your eyes up to the horizon, look at the long term, not at the bumpy road right in front of your hood, otherwise you'll run off the road into an oak tree.

It's been a hard week. Y'all go home, kiss your wife or husband and your children, and think about this:

"Behold, it is good and comely for one to eat and to drink and to enjoy the good of all his labor that he takes under the sun all the days of his life, which God giveth him: for it is his portion.

"Live joyfully with the wife whom thou lovest all the days of thy vanity . . . For that is thy portion in this life, and in thy labour which thou takest under the sun."

Y'all enjoy your weekend!

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.
WARNING AND DISCLAIMER. Be advised and warned:

Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that short term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures.

NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day one or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps.

NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced.

NOR do I recommend buying gold and silver on margin or with debt.

What DO I recommend? Physical gold and silver coins and bars in your own hands.

One final warning: NEVER insert a 747 Jumbo Jet up your nose.