Over the years I have become a chart junkie. One of the pitfalls of being beholden to your charts, is that sometimes you can be misled by them because you have ignored the simple "fundamentals" that underlie the object of your chart. All a chart really is, is a picture of the sentiment of a given market based on the interpretation of known fundamentals and/or concurrent news affecting the particular market. Bearing that in mind, one must wonder if Gold and Silver are really breaking down here technically, or just being pushed around at the behest of the evil Gold Cartel, aka PPT...Rat Bastids in an attempt to steal your metals from you.
I have been scouring the Internet for "thoughts" on the Precious Metals current predicament for the past five days. Well respected technical analysts are suddenly all doom and gloom, but the fundamentalists seem to be very serene about the current situation. Being the chart junkie that I am, it should be difficult for me to switch camps here from charts to fundamentals, but folks...it really is all about the fundamentals now when it comes to Gold and Silver. In the end, the crooks on the Comex are going to get steamrolled by the fundamentals no matter how hard they try to "paint the charts" after the LME closes each day in London at 11AM.
Below are some of the more interesting pieces I have come across in my "research". Perhaps one of the most intriguing "pictures" I came across during my reading was the correlation between Gold and the Japanese Nikkie Index. That was a bit revelation for me. The picture is posted above.
No other national stock market tracks Gold the way the Nikkie does. And Greg Silberman makes an interesting hypothesis about this relationship as it pertains to falling bond prices:
Why Falling Bonds Are Good For Gold
So what’s happening? Why are bonds tanking? ...why are interest rates rising in the face of a slowing economy?
The major holders of long-term US bonds are Japanese investors. A slowdown in the USA is causing Japanese investors to sell US bonds (raising rates) and repatriate their funds back home to invest in Japanese stocks with offer more promising prospects. More promising because Japan is a net exporter and the weak Yen is a boon to Japanese Corporations.
The upshot for gold investors (as the above chart shows) is that gold is very closely tied to rising Japanese stocks. Interest rate sensitive banks and housing stands to be the most negatively effected.
A slowdown in growth is causing a shift out of US long-term debt into the Nikkei and by correlation into counter-cyclical gold.
Peter Grandich is a very well respected commentator on the prospects of Gold. In a special post to gata.org this weekend he explains and expresses why "Golds fundamentals will trump technicals. This is an excellent read and I encourage you to read the entire post here: http://news.goldseek.com/Grandich/1181574060.php
Now the recent argument is that interest rates are rising and that’s good for the U.S. Dollar. It would be if they were just rising here, but they aren’t. And unlike in Europe, for instance, where the main reason for the rise is strong economic growth, the U.S. is possibly entering the worst of all worlds last seen in the 70s-stagflation.
There’s absolutely nothing but hot air to support the argument that the U.S. Dollar is going much higher. Not only has it been on a continuous long-term slide from 120 basis the U.S. Dollar index, but there’s nothing to suggest on the weekly chart that it’s doing anything more than correcting a very oversold condition. The testing and eventual breaking below the 80 level on the U.S. Dollar Index is, in my mind, not a question of if, but when? Believing this and knowing how well the inverse relationship has worked in the past, the single most bullish factor for gold remains staunchly bullish.
James Turk is another well respected commentator on Gold. He is the founder of Gold Money. His brief post this weekend hits the nail on the head fundamentally and technically as well. He alludes to the Gold/Silver ratio I spoke about last week. I said a close below 49 would signal an explosion is Silver prices, he says 48.70. Hey, I like this guy! I have included the entire text of his post below because I believe it's important that everybody read what he has to say. His entire post with charts can be found here: http://goldmoney.com/en/commentary.php#current
Will History Repeat?
What do January 5th, March 2nd and June 8th, 2007 have in common?
The answer is that all three are Fridays, and gold dropped like a rock each day. Also, each day marks the end of the week in which gold incurred its three largest weekly losses this year. Gold dropped $30.30 the week ending January 5th, $41.60 the week ending March 2nd and $25.70 last week.
These three days have other similarities. All three have elements that are typically present in a selling climax. Importantly, as one would expect from a selling climax, both January 5th and March 2nd marked important lows in gold at $604.90 and $641.50 respectively. Will history repeat, with June 8th becoming this year's third important low?
Only time will tell of course, but the odds favor gold for many reasons. To name a few of these reasons:
- rising inflationary pressures worldwide,
- strength in commodity prices in general and crude oil prices in particular,
- a weak dollar, which people are fleeing in order to hold safer assets,
- growing federal deficits that need to be funded by dollars created out of thin air,
- central banks diversifying out of the dollar, etc.
Also, the technical patterns favor gold...
Gold is still climbing within its uptrend channel. Importantly, this year's two previous selling climaxes I refer to above were stopped on the bottom line of this uptrend channel. We will know within a few days whether the June 8th decline also proves to be an important turning point. I expect that it will.
Silver also is very strong from a technical point of view. Silver is testing support around its 200-day moving average. If gold turns higher from here, we can expect silver will lead the way, given its better relative strength. Therefore, a decline in the gold/silver ratio will signal that a rally in the precious metals has begun.
So watch the gold/silver ratio carefully here. The key level is 48.7. When the ratio falls below this level, the rally that I am expecting will have begun in earnest, and it will mark June 8th as the third Friday this year that made an important turning point.
Lastly, you may be wondering, why gold has made these lows on a Friday? There are two main reasons. Both are contrived, with one based on practical factors while the other is aimed at inflicting an adverse psychological impact.
Trading gets very thin and illiquid on Friday afternoons, particularly after 4.00pm London time, which is 11.00am in New York and 2 1/2 hours before Comex trading closes. If you want to "paint the tape", that is the best time to do it. The following intraday Kitco chart shows that the tape was painted last week on both Thursday and Friday.
It doesn't take a lot of selling pressure on the Comex (i.e., from paper promises to deliver gold) to drive gold lower when the market for real, physical gold is closed in London, particularly on Friday after many traders have already left for the weekend. This observation in turn touches upon the second reason lows are often made on a Friday.
Big sell-offs are purposefully intended to cause gold holders to worry over the weekend. The thinking goes that one is so filled with angst by Monday morning worrying about their position that they can hardly wait for trading to begin on Monday to dump their gold, which will of course be bought by whoever was "painting the tape". And who could that be? Of course it is the gold cartel looking to cover their short positions by preying on those selling their gold for the wrong reasons. Don't let that be you.
The Precious Metals look to be struggling a bit here this morning on the back of the "slowing inflation" numbers out of the UK this morning. Things will get really interesting Thursday and Friday as the CPI and PPI numbers come out here is the States. The most important number will be the the TIC report and the first quater Current Account numbers. The media will of course focus on the inflation numbers. TIC and Current Account may firther expose the US Dollar for what it is...CRAP.
Key numbers for Gold and Silver to overcome to move higher are:
GOLD - 655
SILVER - 13.26
Key support numbers remain the 50 week moving averages:
GOLD - 639
SILVER - 12.67
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