Sunday, June 3, 2007

Dem Rat Bastids: On The Eve Of Destruction?

"It does seem clear from yesterday's Fed minutes that the Fed is downgrading its outlook for the economy," reckons Michael Woolfolk, currency strategist at Bank of New York, "which is not seen returning to trend growth until 2008."

"We could see some further Dollar weakness," he adds – and as ever, the Dollar is the United States' currency, but it's the world's problem.

And the world is awash in US Dollars...

What the Dollar Means for Gold...
- Lance Lewis

The trade-weighted dollar made another new multi-year low yesterday and closed on a monthly basis below its 200-month moving average for the first time since the 1970s (see the chart here).

Is it a coincidence that gold has suddenly awakened just when everybody was convinced that it was time to get bearish because the "US dollar Index" was bouncing and anybody with a ruler saw a trendline on the metals chart get broken? I think not.

The US dollar Index is irrelevant for gold. The trade-weighted dollar index holds the key to future inflation and the purchasing power of the dollar, which is what determines gold prices at the end of the day, and the trade-weighted dollar continues to tank.

Don't be fooled by the euro-heavy "US dollar index" that the folks in the media keep yapping about. The "dollar" isn't bouncing. It's collapsing, and that's bullish for gold...

Gold Rises as ECB Cuts Sales
6/1/2007 12:01 PM EDT

The ECB said it had completed its planned sales of 60 tons of gold and receivables already this fiscal year and wouldn't offload any more until the new period starts Sept. 27.

"I think this ends up helping the market a tremendous amount because sales will dry up," says Neal Ryan, director of economic research at New Orleans coin dealer Blanchard.

Let's also not forget, as these sales are disappearing off the market, we're still looking at the increasing likelihood of a major strike action in the largest platinum and gold producing country in the world. This is indeed going to be a much different summer than years past.
-Neal Ryan

In effect, I believe this announcement by the ECB throws the gold shorts under the bus. If you sold your GLD shares in the Gold ETF to chase the Dow over the past two weeks, God bless you. The shorts in the Dow have thrown in the towel, how unfortunate for them as well. Just as the Bulls so often throw in the towel at the bottom, so to for the shorts at the top of a market. This sudden announcement by the ECB may just be the straw that breaks the world of fiat currencies back. A "perfect storm" of economic chaos may be on the World's door step as I type this.I have a number of charts today. Please click on each of them to enlarge.

In their complacency, I think the geniuses on Wall Street have completely underestimated Oil's effect on the stock market. Historically, falling Oil prices have lead to rising stock prices, and rising Oil prices have lead to falling stock is no different. Let's travel back to July of 2006. Please refer to the charts above...

On July 14th, 2006 Oil peaked at $79.88 a barrel. On July 18, 2006 the Dow double bottomed at 10683.32. At it's low on January 17, 2007, Oil had retreated 36%. To date, the Dow has advanced 27.5% since Oil peaked. On March 22, 2007, Oil breaks the neckline on a Reverse Head and Shoulders Bottom and has traded in a tight range between 63 and 67 in an Ascending Triangle consolidation ever since. The Dow made a new all-time high, and has been overbought and rising since April 18, 2007. It is my contention, here and now, that when Oil finally cracks $67, a major top in the Dow will be in, the US Dollar will plummet, and the prices of both Gold and Silver will never be this cheap again...EVER.

Some of us use Charmin, some of us use Northern, and some of us settle for the "store brand"...but no matter what you wipe your ass with, it's probably worth more than the US Dollar is today. As noted above by the "Trade-weighted Index" of the US Dollar, it is today reaching ALL-TIME lows. The media, of course, [and too many Dollar Bulls] focuses on the US Dollar Index. It is hovering just above all-time lows, hanging by a thread...and some weak handed Dollar shorts. The jig is just about up...

Speculation that China was over supplied with copper was just that. Falling stocks in Shanghai and on the LME should put that thought to rest. The chart above speaks for itself...

This ratio and it's chart has clearly shown it's value in pointing out intermediate tops and bottoms in Silver. The chart above may be telling us that we are on the cusp of a major move up in Silver. The next 6-8 weeks in Precious Metals could be breath taking.

As shown on the chart above, Silver posted a major breakout Friday. Our next hurdle, as it has been for weeks now, will be 14.04. Clearing this major resistance line held by dem Rat Bastids could propel Silver to a near term-top in the vicinity of 16. This "could be" an opportunity to take some profits in the likely hood, and anticipation of a quick and violent retrace back to the mid 14's. This retrace would set the stage for a run to a possible intermediate top in the 17s prior to the Sept/Dec contract rollover period in August. This is purely speculation on my part, but I believe the chart above says the possibility that this scenario may develop exists. Time, as always, will tell.

Today's Gold picture reminds me more and more of the summer of 2005 as each day passes. Should history repeat itself, [And of course there is no guarantee that it will.] Friday's ECB announcement may have lit this rockets fuse. WARNING...doubters will be left at the station. Once this baby leaves the pad, $650 Gold will be history. You can never say you didn't have a chance. Bearish sentiment in Gold and Silver has been overwhelming for the past'll know we're near an intermediate top when Bullish sentiment becomes equally overwhelming. Could $750+ Gold be just weeks away?

As you can see by ALL the charts above, a number of "technical" scenarios may be about to coalesce into a "perfect storm" of economic chaos that may destroy the US Dollar and launch Precious Metals skyward. They won't go straight up, of course...but this next leg up in the metals could shock even the most die hard Gold Bugs.

Silver Resistance: 13.69 / 13.83 / 14.04

Silver Support: 13.55 / 13.49 / 13.37
__________________________________All prices SPOT

Gold Resistance: 672 / 675 / 681

Gold Support: 667 / 664 / 662

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