Tuesday, July 31, 2007

It's Gold Season!

Dow Surges 93 Points After Pullback

NEW YORK (AP) -- Wall Street found a foothold Monday as investors, still anxious that a credit crunch could crimp U.S. growth, took advantage of low prices after last week's steep losses. The Dow Jones industrial average surged more than 90 points.

Yeah right, "Surges". The Dow spent most of the day trying to decide whether it should go down further, or hop on the cats back after it hit the pavement. The 93 point "surge" was a tiny bit of short covering...and that's it.

Gold and Silver didn't "surge" higher Monday, but both had solid bounces. Whether my prediction last Thursday that Gold would bounce hard Friday "or" Monday remains to be seen. So far, maybe just an educated guess? It should be noted that both metals solid moves Monday really didn't take hold until the Stock Indexes made up their minds to move higher. Moves even higher in the aftermarket where very impressive.

This morning Gold is attempting a run thru the first Fibonacci resistance line at 668. Recall that 668 proved formidable resistance mid month as Gold rallied higher off the June low. 672 would be the next line of resistance followed 676. 676 could be potentially a battle ground as a great number of paper shorts via the Vermin Of The Comex were spewed on the market towards the end of last week. For more on that please read Dan Norcini's commentary from JSMineset:

Clearly, some powerful entity was opposing the price rise with a vehemence that has not been seen for some time.

Those of us who have seen this drill for the last six years know exactly who that entity is and it was again confirmed today as the COT data was released. Once again, the INCREASE in the new shorts came from the commercial category, which are dominated by the bullion banks. That group alone added a whopping 29,327 new short positions.

This is the largest weekly increase in new shorts in one week since June 2005!

Silver's bounce yesterday mirrored that of Gold, but in percentage terms Silver had a better day. As we move forward in time, and the Fall Precious Metals rally takes root, do not be surprised to see Silver regularly outperform Gold in percentage terms.

This morning Silver has engaged the first Fibonacci resistance line at 12.93. Recall that Silver launched from a dip to 12.93 in mid-July during it's last rally off the June low, and quickly vaulted to 13.49. 13.04 and 13.15, both lines of resistance in last month's rally, again appear to stand in the way of Silver moving higher as we enter August.

Gold "seasonality" starts becoming a positive influence of the metal as we enter August. Adam Hamilton discussed this at length in his July 13 essay Gold Bull Seasonals 2

In late July, in the next couple weeks here, gold tends to bottom and then start powering higher as autumn gold demand builds worldwide. The second big seasonal rally in gold occurs between late July and late September.

With August and September typically weighing in strong in seasonal terms, the obvious implication here is to get long gold, silver, and precious-metals stocks now if you are not already deployed. If late summer buying drives gold higher as usual, the more-speculative silver and precious-metals stocks will follow it up. Investors and speculators alike should take advantage of the seasonally weak summer to add positions ahead of the big seasonal rallies expected in the second half of the year.

Please read the entire essay if you haven't already. Dem Rat Bastids are in for a nasty "Fall".

Adam also posted another exceptional essay this past Friday. Gold and USDX http://www.zealllc.com/2007/goldusdx.htm This is yet another exceptional piece of research done by this guru of gold.

If you are an investor or speculator, this is a very important distinction to understand. Almost everywhere I look today, from CNBC to analysts on the Internet, there is a ubiquitous assumption that the gold bull only exists due to the dollar bear. The logical extension of this flawed idea is that if the dollar does not fall, then gold will not rise. In other words, gold’s fortunes are held hostage to those of the dollar.

Thankfully a careful examination of this chart immediately dispels this false notion. From their respective beginnings in 2001 to their parallel interim extremes of late 2004, gold rose 77% while the dollar fell 33%. Now if the dollar bear was the sole driver of the gold bull, there should have been rough parity between gold’s gains and the dollar’s losses. Instead we saw gold outpace the dollar by about 2.3 to 1.

This essay is an absolute MUST READ.

Posted above is a chart I made yesterday while watching the markets to see if "my bounce" was going to occur. And it did...right at 661.50 as the 20 period moving average crossed over the 40 period moving average on the hourly chart of Gold. It was fun to watch. I began then to wonder if this observation may have any predictive value for traders. I opened up the chart to cover that last two months time in hours. What I found was quite revealing. Please click on the chart above to enlarge and see for yourself.

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