Friday, July 27, 2012

The Gold Price Broke Out Gaining 2.2 Percent and Must Now Close Above $1,642 to Warrant a Rally

Gold Price Close Today : 1,618.00
Gold Price Close 20-Jul : 1,582.50
Change : 35.50 or 2.2%

Silver Price Close Today : 2747.8
Silver Price Close 20-Jul : 2727.9
Change : 19.90 or 0.7%

Gold Silver Ratio Today : 58.883
Gold Silver Ratio 20-Jul : 58.012
Change : 0.87 or 1.5%

Silver Gold Ratio : 0.01698
Silver Gold Ratio 20-Jul : 0.01724
Change : -0.00026 or -1.5%

Dow in Gold Dollars : $ 167.06
Dow in Gold Dollars 20-Jul : $ 167.50
Change : $ (0.44) or -0.3%

Dow in Gold Ounces : 8.082
Dow in Gold Ounces 20-Jul : 8.103
Change : -0.02 or -0.3%

Dow in Silver Ounces : 475.87
Dow in Silver Ounces 20-Jul : 470.05
Change : 5.81 or 1.2%

Dow Industrial : 13,075.88
Dow Industrial 20-Jul : 12,822.57
Change : 253.31 or 2.0%

S&P 500 : 1,385.98
S&P 500 20-Jul : 1,362.66
Change : 23.32 or 1.7%

US Dollar Index : 82.676
US Dollar Index 20-Jul : 83.462
Change : -0.786 or -0.9%

Platinum Price Close Today : 1,406.70
Platinum Price Close 20-Jul : 1,412.10
Change : -5.40 or -0.4%

Palladium Price Close Today : 571.05
Palladium Price Close 20-Jul : 574.85
Change : -3.80 or -0.7%

'Twas a big week for silver and the GOLD PRICE. Gold gained 2.2%, but much more encouraging, it broke out of the even-sided triangle we have been watching so long, and confirmed that today with a second day's close outside the triangle.

A great start, but by no means a sure guarantee of a rally. Might be a false breakout. Today gold knocked on the next resistance, $1,625 - $1,630, with a high at $1,629.50. Couldn't hang on there, though, and closed at $1,618, up $2.90.

To warrant a rally, the GOLD PRICE must now close above $1,642, the 150 DMA and a resistance level, then move in a week or two to $1,680. More battles will fall there, as that marks the downtrend line from gold's August 2011 peak.

It is reasonable to buy this breakout, or you can wait and buy when gold overcomes $1,640. Either way, you'd better be converting US dollars, euros, yen, and all the rest of them to gold and silver.

Only nagging detail here is the SILVER PRICE failure to break through the top of its triangle. It pierced that line, but did not close above it. Today it gained 4.7 cents to close at 2747.8c.

At its high today of 2784, silver for the second day touched its 50 DMA (2777c) but did not close above it. Momentum is up, so we ought to see that last week. GOLD/SILVER RATIO at 58.883 shows silver holding back, but it's liable to play snap-back when it moves. If you are EVER thinking about swapping gold for silver, do it NOW.

Great week, but although we can see the light through the tree trunks, silver and gold have not yet left the woods. Correction lows and seasonal lows are probably behind us, and August should be a month of modest but steady gains.

This week markets got off the dime and acted. Dow jumped 2%, S&P500 jumped 1.7%. The good offices of the US Dollar precipitated these gains, catalyzed by an "official announcement" from ECB head criminal, Mario Draghi.

This week the dollar did in fact burst through 83.60, hitting an intraday high of 84.10 and the top of a long-standing trading channel. Bear in mind that position left it vulnerable to a correction at a minimum. Then, as one could see in the cards, that dollar/euro exchange rate was running too perilously like a panic for the dollar. Now add to that technical vulnerability a huge short position in euros. The set-up was perfect for some manipulation to yield maximum impact. Some "official announcement" was due.

(I pause in this meditation to footnote the inventory of central bank weapons against panic: (1) blarney, and (2) inflation. They have no other weapons. "Blarney" includes any and all methods of calming the public's fears, and is backed by nothing at all but hot air. Blarney is Ben the Bloviator or Obama the Prevaricator or Warren Buffet the Resplendent appearing on TV chanting that the "economy is basically sound.")

The official announcement came by way of ECB head Mario Draghi, who in a speech at a London investment conference made the hollow promise that the ECB would do whatever was necessary to keep the euro together. Why is that a hollow promise? Because the ECB would need about $1 trillion even to begin to do that, and if it creates that many new euros it will panic investors out of euros and Europe.

Yet no rational person today expects markets, miseducated, misdirected, and misled as they have been for decades by banks and central bankers, to react rationally to such announcements, or to see through them. Thus the dollar broke, sending the euro and stocks up. Manipulation accomplished.

Now for the nonce the pressure is off central bankers, but only for the nonce, because Draghi can deliver nothing. After wasting over $2 trillion in LTRO, nothing is better, nothing cured.

Thus the dollar fell from the top of the channel, and today through the 20 day moving average (83.05) and nearly to the 50 DMA (82.51), losing another 19.2 basis points (0.25%) to end today at 82.676. Look for this to slow down around 81.50, but it might reach all the way to the channel bottom. today around 79.40. See my Friday commentary last week for more explanation of central bankers' need for stability.

Draghi's intervention raised the euro, which gapped up from a $1.2042 low on Monday to end today up another 0.29% at $1.2305. That carries it barely above the 20 DMA ($1.2300).

A chastened yen abandoned today its pretensions to rally by dropping 0.33% to 127.45 cents (Y78.45). Japanese NGM want that front to stay quiet a while. Euro/Yen cross rate has jumped, too, after declining since April 2011. Not rallied, mind you, just ceased plummeting.

STOCKS jined in the gen'ral jubilation. Dow closed today at 13,075.88, up another 187.95 (1.46%). S&P500 rose 25.96 (1.91%) to 1,385.98.

Behold! The controlling technical formation in stocks is the Jaws of Death, or megaphone topping formation. This shows higher or level highs with ever falling lows -- a trumpet of disaster opening its mouth eastward. Today's close took the Dow up through the neckline of the Head and Shoulders top formed within the greater Jaws of Death. Two things can happen. (1) that's as far as the move extends, and it drops back, or (2) it reaches all the way to or slightly past the last top at 13,350. Either way, eventually the Jaws of Death will sink their teeth in stocks and a grand grawing will begin.

Markworthy, however, is that stocks in Dow in Gold Dollars terms only reached their position last week. Shortly stocks will diverge from gold again and the DIG$ will commence plunging.

During the War for Southern Independence Confederates, beset by munitions shortages, frequently used Quaker cannon. These were logs, emplaced and carved and painted to look like cannon, to make the enemy believe they had much more artillery than they did. What Draghi shot this week was a Quaker cannon. He has no artillery, and most he can do is keep pitty-patting at the problem, hoping to slow burn it for another 10 years and keep the panic from generalizing. He can't.

As I wrote last week,

"I'm telling y'all, as I have told y'all, this is past saving, past reforming, and you are smoking meth if you believe the measures tried so far will resuscitate severely debt-poisoned and debt-addicted economies."

Only way I know to save your capital from these criminals is to put it into silver and gold.

On this dismal day, 27 July 1694, an act of parliament granted the Bank of England a 12 year charter. Within two years they had experienced their first bank run, but the incubus was firmly fixed on England by then, and England became the beneficiary of a permanent national debt. Once you get that devil on your back, it's hard to get rid of.

Y'all enjoy your weekend.

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

- Franklin Sanders, The Moneychanger
10:00am-5:00pm CST, Monday-Friday

© 2012, 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 bubble has burst, primary trend down.

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. No, I don't.