Sunday, April 29, 2007

Recipe For Stagflation

Growth rate down in first quarter; prices up
WASHINGTON — Economic growth slowed to a near crawl at a 1.3% annual rate in the first three months of 2007, the worst performance in four years. The main culprit: the housing slump.

Hey, isn't that the recipe for STAGFLATION?

DJ MARKET TALK: Comex Gold, Silver Up After Thursday Sell-Off1358 GMT [Dow Jones] - Comex gold and silver are higher as some traders usedThursday's profit-taking pullback as a buying opportunity, says Paul McLeod,vice president with Commerzbank. Much of the focus is also on the euro, whichhit a record high against the dollar. Overall, trading conditions have beenquiet, he says. "Both metals are still in their upward channels that havepretty much been in place since January," McLeod says. "Even though they soldoff fairly large yesterday, it hasn't really changed the trend established overthe last three months. The size of the correction yesterday has people thinkingit's a good time to be purchasing again."

As noted here and elsewhere on the Internet, Gold has held up remarkably well in the recent tsunami of Central Bank Gold sales. 75+ tonnes of Gold and counting have literally been dumped on the market in a effort to hold it in check below $700 and attempt to persuade the knuckleheads glued to their CNBC feed that "...the Fed has everything under control..." Yeah right. Gold is now the defacto barometer of inflation. Efforts to pull on it's reins and keep it in the barn are futile. The more the Fed, US Treasury, and European Central Banks try to stifle the rise in Gold, the harder they press on the inflation accelerator and the higher the price of Gold will ultimately go.

Bob Chapman, The International Forecaster :

The dishoarding continues, but all the bankers are doing is buying time and losing their most precious asset at ridiculously low prices. This is a terrible price to pay for confidence and illusion. They want us to believe their lie that their fiat currencies have value when they do not have value. Only gold has value. That is why government tries to shut us up. They do not want anyone to know the truth. This you see in their phony war on terrorism. In their pursuit of your liberty by naming you an enemy of the state if you disagree and expose them.

Just who has been buying all this Gold being foolishly dumped on the market. The obvious marks are the OPEC countries, most of Asia, wise investors, speculators, and the Russians. My sense though is that a lot of it is being bought via short covering. Producer dehedging is running ahead of forecasts so far for this year, and there is news that Goldman Sachs short position on the Japanese Tocom is at it's lowest level EVER. Perhaps a lot of the "smart" money is finally coming to the realization that the jig is up and that an explosion in Precious Metals prices is imminent. Now I don't mean to suggest that Gold is going to $1000 next month, but I do believe that in the next 6-8 weeks dem Rat Bastids are going to get an ass whuppin like no other yet. Facing extinction come late Spring, the Rodent Vermin will be given one FINAL opportunity to square their books and cover their shorts at losses that will allow them to keep their institutions afloat, but cost most of them their jobs. Sometime in August of 2007 the lid is going to blow off the Precious Metals and the trip to the Moon we have so patiently looked forward to will have lifted off.

I expect Silver to be the biggest beneficiary of Gold's move thru $700. In terms of "percent", silver's gains in the coming Mother Of all Short Squeezes will dwarf the gains of ALL other metals. Continuing to maintain a short position in Silver is a death sentence. Dem Rat Bastids will NEVER survive what is lurking just below the surface in this tiny market. Oh sure, there will be some "survivors". But..., they'll either walk with a limp, sign their name holding the pen in their mouth, or both. Bearing that in mind, let's take a look at The Big Picture of Silver:

Please click on the chart to enlarge.

This week's slump was just another buying opportunity for Silver. Silver held the 20 Day Moving Average as the Bollinger Bands continue to narrow. Narrowing Bollinger Bands usually proceed powerful moves in a market [up OR down]. Using the trend lines in blue, I have projected an intermediate high for the next leg up in Silver using Fibonacci Lines and the June 12, 2006 low of 9.55 as 0%. 14.04 is at 61% of the projected top at 16.80. I could blah-blah some more, but I'll let the picture do most of the talking.

I will throw in a note about the Gold/Silver Ratio here. As I have noted in past posts here, 45 on the Gold/Silver Ratio is HUGE resistance to advances in the Metals. A 16.80 high in Silver would equal $756 at 45 on the Gold/Silver ratio [16.80 X 45 = 756] Nothing goes straight up...if you have not accepted that yet, perhaps you should choose another hobby. There is always downside risk in any bull market. If we are unable to crack 45 on the next intermediate high in Silver be prepared to protect your profits. $750 Gold would be the "obvious" next area of resistance after taking out $700.

The run up in Silver off the June 12, 2006 low has contained 4 mini-legs. And each of these legs to date has been 6-8 weeks in length. 6-8 weeks from this past weeks low would take us to June 8 or 15th. Obviously this takes us thru and past the timing of the usual Spring Dump in metals...I'm just doing the math here. But that crappy GDP number Friday only strengthens my's a BULL MARKET stoopid. Expect the unexpected...and expect dem Rat Bastids to cry uncle soon. Be patient.

Silver Resistance: 13.55 / 13.69 / 13.88

Silver Support: 13.39 / 13.30 / 13.20
_____________________________________All prices SPOT

Gold Resistance: 681 / 686 / 691

Gold Support: 675 / 670 / 666

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