Friday, September 28, 2007

Time To Pause And Refresh?

It's the end of September, the end of the Third Quarter, and the end of most Mutual Fund's fiscal year. Time to sweeten those balance sheets and do some sector specific "window dressing" for the the funds share holders.

Window dressing is an arguably shady practice employed by many mutual fund managers. Mutual fund managers typically report to the public on their funds' holdings once per quarter. Managers want to look savvy to impress their existing shareholders and attract new shareholders. Therefore, they'll sometimes sell lackluster investments they've held for a while and buy recent stellar performers -- just so the fund's holdings on the day of record look good.

Wizards of Wall Street resort to "shady practices" to impress their shareholders? This is shocking! Who would have ever expected deceit from such world renowned financiers? That's right, those folks that unleashed an alphabet soup of financial toxic waste upon global investors, as a rule lie to their share holders regularly.

Gold and Silver are two of the smallest markets on the planet, and it is unlikely there is a great deal of assets related to these markets are being put up in many windows this quarter. But then, because the markets are so small, it wouldn't take but a few "windows" to pump up the prices as we close out September.

October, historically, has not been kind to stocks. And I suspect that this October may be VERY unkind to stocks. The Fed induced bounce in the markets is about to turn into a never ending hangover. Recent history has shown that a dumping stock market tends to put a put a cap on Precious Metals. Combine this anomaly with overbought Metals, and an oversold Dollar, and it may be time for a pause in the Metals recent rise and the Dollars recent tumble.

A pause in the Gold and Silver would be welcome, and should be looked at as an opportunity to collect some profits, and or add to our positions at sale prices. Market Psychology suggests too that we should expect a pause, the dollar on the downside and gold on the upside, in the near term.

Please click on the chart above to enlarge.

The US Dollar is clearly oversold here, and may become even more so as we close out the month, but technically the Dollar is due for a bounce. It may be a very short lived bounce, but if it results in some consolidation of it's recent loses down here, Gold and Silver would likely pause in their ascent as well. Remember always, NOTHING goes straight up...or down. Could the Dollar just keep going down from here and Gold and Silver up? Certainly, but one should always prepare for all contingencies when fighting a war. And folks, when it comes to dem Rat Bastids...THIS IS WAR.

Long Term Looks Attractive
Adrian Day

The markets are now due for a pause, the dollar on the downside and gold on the upside; the metal could come off $30-$40, but the fundamental direction is clear. We would expect gold to continue to react very positively to further credit problems, weak economic news, and interest rate cuts.

Going forward, the continued weakness of the U.S. dollar is going to have the biggest impact on gold. That's really what's been driving gold for most of the last couple of years and that's going to continue to be the main factor. There's little doubt that the dollar is going to turn downwards, rather than strengthen.

If you look at gold on a fundamental basis, despite the fact the price has moved up a lot, it's still cheap relative to the dollar. In fact, gold is cheap relative to the money supply. It's cheap relative to stocks and financial assets as well as to oil and other commodities. So, gold remains fundamentally cheap.

I am very bullish on silver. Silver is much more of an industrial metal, and it's also a by-product. When the economy is doing well, we tend to produce a lot more silver than we use, because silver is a by-product of copper, lead, and zinc. The companies that produce it tend to just sell it at any price and hedge it because they're not primary silver producers. But having said that, I think that if the global economy remains relatively strong - and I think it will - silver has the potential to outperform gold on a percentage basis partly because there's so much less of it. Silver doesn't have the huge stockpiles that gold has through the central banks, the IMF, and so on. With gold there is always the potential of some kind of overhang that we don't have with silver.

When I am looking at the balance between the two investments, I think that gold is probably a much surer thing. It has less of a downside, whereas silver, although it has much more upside, is less certain. So, I would definitely balance it between silver and gold.

Lone Anomaly to Ignite Gold
By Jim Willie CB

The USDollar DX index has remained below the key 79 level for almost a full week. My take is that foreigners continue to sell it, while the US ministries buy it with printing press phony money. The implications to higher systemic USEconomic costs are total and complete. Price inflation is locked into the next chapter. In no example of past history has the USDollar fallen a quantum level without a surge in cost inflation. Some call it price inflation. Not me! When wages do not rise in coordination, then the system does not experience price inflation in a general sense. The US$ decline ushers in higher costs for energy, food, materials, metals, and all imported product prices which comprise 16% of the USEconomy. Rising costs without pricing power (even in wages) results in squeezed profit margins and economic slowdown. The USFed will surely fight it with easy money.


If you are long Precious Metals today, sit tight. If you're a trader, maybe book a little profits on some of your positions. If you're looking to buy Precious Metals, they "may" be on sale in October. And if you're short Precious Metals, this may be you last chance to cover and save your precious ass.

Wednesday, September 26, 2007

I Need A Nap

Gold and Silver look at this point to be a little tired. Consolidation, including a shallow dip for each, may be imminent. Both will offer many trading opportunities on the trip to the moon. This may be one of many. Click on the charts above to enlarge.

As you can see by the RSI on both charts, Gold and Silver have become overbought. The long wicks on the top of the candles up here are a sure sign that the Bulls have been unable to push prices higher, and are in need of a break. MACD on both has begun to rollover and the RSI uptrend in both has been broken, as has the steepest uptrend in price. A break in the trend of RSI is often predictive of a reversal in price.

I have suggested over the past couple days that Gold would meet a head wind at 735, and so it has. Unable to press higher in the face of resistance here, Gold would do well to pause here for a "consolidative dip". Gold typically finds support at it's 50 day moving average during powerful uptrends, and tests of that moving average should be looked at as a positive reaction until it does not serve as support. Use tests of the 50 day moving average to replace portions sold for profit or add new positions. Gold tested it's 50 day moving average on four separate occasions as it rose from September 2005 to it's then high at 730 in may 2006. Expect the same as Gold shoots for the Moon in the coming months. Golds 50 day moving average is rising AND it is above it's 200 day moving average. I anticipate Gold consolidating through the month of October until it's 50 day moving average catches up with price above 700. A 38% retracement of our recent high off the August low would be 702.

Silver has made a 23% move up off it's August low. As much as I'd like to see it rocket higher, I can understand the Bulls being a bit tired here. It is interesting to note that Silver's 50 day moving average is still below it's 200 day moving average. Many Bulls won't even touch a market until the 50 day is above the 200 day. Silver has only in the past week broken thru it's 200 day moving average. A retest of the 200 day moving average would almost be expected with the 50 day moving average still below it. Silver would also benefit from a "consolidative dip" here. Silver's 200 day moving average "should" provide firm support as it coincides at this time with the established uptrend in Silver off the August low. However we all know the "insanity of silver", and a dip to the area around the 50 day moving average and 38% retracement of the recent high should not be too alarming...but a great buy opportunity. Silver follows Gold, and a consolidation through the month of October can be expected as well.

Those considering a short trade here be warned: It is dangerous to short in a Bull market. Both Gold and Silver have established strong Bull moves off their August lows and September to December is seasonally bullish for both metals. In today's global economic mess, these Bulls can wake from a nap at a moments notice, and bury a short trade just scrambling to get to their feet. Gold AND Silver a going much higher this Fall. Don't get caught in a sucker's bet.

Tuesday, September 25, 2007

Rest Stop Ahead

Exhaustion Gaps
Exhaustion gaps are those that happen near the end of a good up- or downtrend. They are many times the first signal of the end of that move. They are identified by high volume and large price difference between the previous day's close and the new opening price. They can easily be mistaken for runaway gaps if one does not notice the exceptionally high volume.

It is almost a state of panic if the gap appears during a long down move and pessimism has set in. Selling all positions to liquidate holdings in the market is not uncommon. Exhaustion gaps are quickly filled as prices reverse their trend. Likewise, if they happen during a bull move, some bullish euphoria overcomes trades, and buyers cannot get enough of that stock. The prices gap up with huge volume; then, there is great profit taking and the demand for the stock totally dries up. Prices drop, and a significant change in trend occurs. Exhaustion gaps are probably the easiest to trade and profit from. In the chart, notice that there was one more day of trading to the upside before the stock plunged. The high volume was the giveaway that this was going to be, either, an exhaustion gap or a runaway gap. Because of the size of the gap and the near doubling of volume, an exhaustion gap was in the making here.

Despite our wishes to the contrary, it may be time for the Precious Metals and their mining brethren to pause here, catch their collective breath, and consolidate some of their mighty gains achieved over the past six weeks. This should be considered a "normal" development, and an opportunity for traders to look to book some short term profits before we move higher into the Fall.

Continued weakness in the Dollar should limit any imminent pullbacks here, but the Dollar is very oversold here and da Vermin of the Comex are always looking for a sucker punch opportunity. Protective stops are well advised for those sitting on hefty profits here.

Monday, September 24, 2007

The Big Picture: Silver

Silver Bugs are definitely an odd lot. Masochists might be a better description. There is no market on the planet that is as volatile and bi-polar as the World's Silver markets. No roller coaster has yet been built that comes close to recreating the perilous highs and lows the Silver Market has, and can dish out to it's participants. Silver is NOT for the feint of heart, but for those brave enough to climb aboard the ride, it is guaranteed to be a thrill a minute...literally.

Silver is the black sheep of the commodity world. Forever in the shadow of its big brother Gold, it gets little respect these days as a "precious" metal. Too often lumped in with all of the worlds "industrial" metals , it is ignored as a hedge against inflation until all the other metals and Gold become "too expensive". Silver is the "poor man's" Gold. Silver is for nuts...

And one look at the weekly chart of Silver above does little to dissuade one from the "Silver is nuts" mentality. Clearly Silver has trouble making up its mind. Up or down? Plenty of that. Silver is a trader's best friend one month, and his worst enemy the next. Whether up or down, traders on the right side of the trade in Silver can reap huge rewards.

Today, Silver is clearly telling traders that the right side to be on, is the UPside. Silver has broken the downtrend line that has been established since the reaction high in Silver off the June 2006 lows. This reaction high occurred in February 2007.

Silver had fought to set itself up for a breakout to new decades highs, when suddenly China's Stock Market Sneezed, and the entire World's financial markets caught a cold. Most if not all markets quickly shook off their sniffles, and have since gone on to new highs. All that is, but Silver.

Silver has remained ensconced in what seems like a never ending consolidation of those long ago May 2006 highs. Looking between the lines on the weekly chart of Silver above, we can identify a Rectangle Consolidation marked by the two parallel green lines. This Rectangle Consolidation has been controlling Silver since Thanksgiving of 2006. With 14.06 as resistance and 12.18 as support, Silver has meandered sideways for the past 10 months. A false breakout to the upside in February 2007 balanced by a false breakout to the downside in August of 2007 has inspired me to name this consolidation pattern Silver has been stuck in "The Bipolar Box". Sadly, as Gold has broken to 27 year highs above 730, Silver remains locked in The Bipolar Box.

But there is hope! Silver broke from a seven month long downtrend last week at 13.03. The breakout of the same downtrend on the RSI confirmed the validity of last weeks breakout. Now let's once again look back to September 2005, and the breakout that launched Silver from 8.50 to 15. Silver never slipped back below the breakout in 2005. There was a brief consolidation of the break, and then Silver, beginning in early November, moved swiftly higher over the following six months. Can we expect a similar reaction out of last weeks breakout. I think we can. But of course, this is Silver people, anything can happen.

October is generally a week month for general equities in most years. Despite the Fed's bold rate cut last week, I think we can expect the stock market to flounder as we enter October and as we move through the month as well. This weakness in stocks, coupled with the foolish musings of the shorts in the precious metals markets, could throw a bit of a wet blanket over Gold and Silver for the next 4-5 weeks. Both are overbought on their daily charts, and Gold has met a stiff headwind as anticipated at the 735 level. Consolidation is the name of the game now. And patience. Sit tight and you'll be alright. DO NOT attempt to short this market. The shorts are going to be the fuel for the leg up from here through the 800 level. Take some profits in here if you must, and buy your positions back on the dip, or add to them. Use stops to "take" you out of the market if you're uncertain as to what to do and you want to protect some of your profits.

Support in gold is at 714 / 705 / 694 .

Support in Silver is at 13.34 / 13.20 / 13.03

Saturday, September 22, 2007

The BIG Picture: Gold

Gold has clearly broken out. How significant is this "breakout", and where could it lead to? Is this a major breakout that will lead Gold to the Moon? Or is this just another dose of false hope that we Gold Bugs cling to?We can try to answer these questions, and maybe a couple more by going to the BIG chart...The Weekly Chart Of Gold. Please click on the chart above to enlarge.

The first thing I'd like to point out on this chart is that going back to 2003, Gold has risen each of the past four years between September thru December. It's Gold Season Baby! This makes the odds of Gold continuing higher this Fall pretty much in the Gold Bugs favor.

Next, let's look at the September 2005 breakout in Gold that eventually lead to it's 8 month meteoric rise to, and above, $700 in May 2006. The week of May 11, 2005 Gold broke from a 9 month consolidation of the then high of $456. The euphoria that erupted from this breakout by the Gold Bugs had Gold surging through the then mystical $500 line in short order. How disappointing it then became for the Gold Bugs, when Gold went into a consolidation of the breakout almost as quickly as it had broken out. For 8 weeks Gold moved sideways in a 5% range and retested the breakout. Only when this old resistance at 456 became new support did Gold move higher....much higher.

Following the $730 high in May 2006, Gold quickly rolled over into a free fall that over the past 16 months had become a Symmetrical Triangle of Consolidation. Oh the pain, the false hopes, and frustration. The shocking whoosh this past August that broke many die hard Gold Bugs backs... And then, as so often it is the case, when it is darkest before the dawn, and many a Gold Bug considers throwing in the towel, Gold blasts from that August low and smashes its way out of the never ending consolidation in less that 3 weeks time. This past Friday, September 21 Gold closed it's third week in a row above $700. Outstanding! Hello $1000 Gold!

Not so fast eager beaver. The last 6 months of this 16 month consolidation had Gold trading inside a box. Gold broke from this box at 688. It's measured move out of this box projected to 735. I have suggested over the past week that Gold would begin to meet some headwinds at this level, and it appears that it has. I suspect Gold may have another 4-5% of momentum left in the gas tank here before, just like in 2005, Gold pauses to rest and consolidate its gains and its breakout to new 27 year highs.

Gold IS overbought on the Daily charts, but a quick glance at the RSI on the weekly chart above shows that Gold has a long ways to go in The Big Picture. The breakout in the RSI confirms the breakout in price and the validity of the breakout. Let's look a little closer at the Symmetrical Triangle and try and determine where Gold may go from here.


The symmetrical triangle, which can also be referred to as a coil, usually forms during a trend as a continuation pattern. The pattern contains at least two lower highs and two higher lows. When these points are connected, the lines converge as they are extended and the symmetrical triangle takes shape. You could also think of it as a contracting wedge, wide at the beginning and narrowing over time.

While there are instances when symmetrical triangles mark important trend reversals, they more often mark a continuation of the current trend. Regardless of the nature of the pattern, continuation or reversal, the direction of the next major move can only be determined after a valid breakout.

Price Target: There are two methods to estimate the extent of the move after the breakout. First, the widest distance of the symmetrical triangle can be measured and applied to the breakout point. Second, a trend line can be drawn parallel to the pattern's trend line that slopes (up or down) in the direction of the break. The extension of this line will mark a potential breakout target.

Doing the math for the Symmetrical Triangle above I get a projection of 870 for the next "top" in Gold. This number just so happens to be in very close proximity to the January 1980 all-time high of Gold at 887. Doing the math? 730-542=188 [+682]=870. For more about Symmetrical Triangles see link included above.

Wow! 870. Wouldn't that be nice. Damn right it would. But DON'T fool yourself. Nothing goes straight up. Golds run from 456 to 730, despite "appearances" did NOT go straight up...there were dips along the way. And I think what this breakout here in September 2007 tells us is that as we move forward thru the Fall, Winter, and into next Spring, Gold bugs would be wise to only buy the dips and not even consider trying to short them. Leave shorting the dips in this next leg up in Gold to the amatures...there will be plenty of fools that will try to short this rocket ship, and pay dearly for it as well. There are a lot of these fools lining up right now to try and short this market...and it's them and their attempts that will cause this pause here, and a consolidation of this major breakout. These fools will quickly realize that shorting Gold here is a suckers bet, and it is their short covering that will be the next catalyst in Gold as we break orbit and get the "OK for trans lunar injection" and begin our trip to the Moon.

Thursday, September 20, 2007

Don't Look Back

Bush, meanwhile, believes the country will weather the financial storm.

"I'm optimistic about our economy," he said.

Wasn't he the same guy that stood on the deck of an aircraft carrier and declared "mission accomplished" after invading Iraq? LOL, our economy is doomed Mr.Bush. Everybody knows it, nobody dare to admit it.

The Dollar got bullied at the playground today and all the kids turned their backs on it. The Dollar is on an island, and that island is sinking fast. Gold, the USS Truthsayer, idling offshore for those seeking refuge from the Dollar.

Investors are quickly discovering the truth about the future of the Dollar and the US Economy. Investment demand will be the number one driving force behind the coming rise in Gold and Silver. As investors begin to lose faith in their money and trust in their banks, they will flock to Gold to protect their wealth. The smart money is there already. Soon Mom and Pop will wake up to the virtues of Gold and then they'll tell two people, and then they'll two people, and then they'll tell two more people, and soon there will be a stampede into Gold.

And as this stampede begins to swell across the country dem poor Rat Bastids on the ever insignificant COMEX will be destroyed. Desperate for somebody to sell them Gold to cover their ballooning losses, many will be seen jumping from windows and in front of buses as they face the fact that nobody is interested in selling Gold any more.

The mother of all short squeezes has begun in both Gold AND Silver. As prices rise, buyers become more anxious to buy forcing the shorts to bid up prices even higher to cover their shorts. The rising prices bring in even MORE buyers, and the Precious Metals markets become a runaway train fueled by increasing investor demand. The shorts get creamed...absolutely destroyed. Hallelujah!

Gold has reached the 735 projected move out of it's consolidation rectangle with amazing swiftness. Buyers are coming in and buying any little dip now. The shorts are being forced to cover at ever higher prices which have begun to put a floor under these prices. We may never see $600 Gold again. If you recall, in September of 2005 Gold broke the longstanding resistance at 456...and has not looked back.

Today Gold took out the May 2006 highs and set a new 27 year high for Gold. I suspect there may be another $25-30 of upside in Gold before we get a much needed consolidation. In the Big Picture this consolidation will seem brief, but a four week consolidation here may seem like forever. Be patient, Gold needs to catch it's breath before we get the go for "trans lunar injection" and a trip to the Moon. Silver will be the beneficiary of any profit taking in Gold as it remains 15% undervalued still. The more expensive Gold gets, the cheaper Silver will look to those that think they're late to the Precious Metals Party that Capt. Bernanke has so graciously picked up the tab for.

Support in Gold rests now at 714 and 705. For Silver, 13.34 is quickly building into support. Below that is support at 13.16 and 12.97.

The Dollar has no support, just those that want to take a swing at it standing in an ever lengthening line.

Oil. Oil is on a mission that nobody wants to talk about. Of note today was the Saudi refusal to cut interest rates in the Kingdom is step with the Fed as they have always done in the past. If the Dollar loses support from Saudi Arabia, the depths that it may plunge to by year end should scare even the most ardent Gold Bulls.

And from an email I received today from Peter Schiff, President and Chief Global Strategist, Euro Pacific Capital. This is a must see absolute must see.

Below is a link to a video interview with Jim Rodgers that took place about 3 days ago. It is one of the most insightful, logical, no nonsense investment discussions I have ever heard. Jim talks about the fragile state of the US economy, the dollar, gold, the risks to the US stock market, Bernanke, and why he has moved with his family to Singapore. Among other things, he urges investors to sell their dollars and buy foreign currency. If you would like to see Jim’s video CLICK HERE.

Die Rat Bastid, DIE!

Gold, Silver Gain on Speculation Fed Cut Will Weaken Dollar
Sept. 19 (Bloomberg) -- Gold and silver prices rose on expectations the Federal Reserve's cut in U.S. interest rates will weaken the dollar and boost the appeal of precious metals as alternative investments.

Did this guy just crawl out from under a rock? Of course the Fed cut will weaken the Dollar. Doh!

``The dollar is the most important factor driving gold prices,'' said Matt Zeman, a trader at LaSalle Futures Group in Chicago. ``Look for the dollar to make new lows and gold to continue higher.''

Is there toast burning is this guys kitchen?

``Gold and gold shares are the traditional refuges in times of financial trauma,'' J.P. Morgan Securities Inc. analysts said yesterday in a note. ``We continue to feel most portfolios should contain some gold.''

Really? Just two months ago I was told that Gold was a "risky" investment, are you sure?

``Gold is going to work for a few weeks around these levels,'' said Zeman of LaSalle. ``Gold can't make a real sustainable run higher without consolidating.''

It can't? Why, because you said so? Gold is going to shock people a lot more than the Fed did Tuesday with their desperate 50/50 interest rate cuts.

Larry Kudlow! Hey Bozo, listen up!

Beware - the Bernanke Fed could Ignite Hyper-Inflation!

Some Fed officials deny the linkage between the explosive growth of the M3 money supply, which the Fed is trying to hide from the public, and inflation. On Sept 11th, Fed governor Frederic Mishkin said he “did not find gold to be a particularly useful indicator of inflation.” But surprisingly, it is former Fed chief “Easy” Al Greenspan, would pegged the US fed funds rate below the inflation rate for three years, who is ringing the alarm bells about a resurgent gold market.

Greenspan advised his successor, Ben “B-52” Bernanke to avoid cutting rates too aggressively because “the risk of an inflationary resurgence is greater now” than when he was nurturing the sub-prime mortgage mess. “Our problem over the long run is the re-emergence of inflation. As economic globalization winds down, the forces that have kept prices down will disappear,” he said on Sept 15th.

“Inflation in the United States could rise to a rate of between 4% and 5% a year,” Greenspan said. In an interview in the Dutch newspaper NRC Handelsblad on Sept 17th, Greenspan predicted that inflation will also rise to 5% in Europe, adding that “the 5% inflation level is more fitted for an economy that functions on a paper standard, where the currency is not linked to gold. The Fed could keep inflation lower, but to do so, it might have to raise interest rates into the double-digits.”

Gold has been patiently waiting for the Bernanke Fed to cry uncle, and start cranking-up its money printing machines. Since the Fed halted its two-year rate hike campaign on June 25th 2006, the price of gold has climbed by 32%, and for most of this year, has been relatively stable, amid strong demand in Asia and the Middle East, and steady inflows into exchange traded funds, such as GLD and bullion.

Expectations of an easier Fed policy have crushed the US dollar, and discouraged other central banks from raising their interest rates, adding new sparkle to gold against all paper currencies. On August 6th, with gold trading at $670 /oz, Newmont Mining’s Pierre Lassonde said, “There is very strong demand right now so we are setting ourselves up for an attack on the $750 /oz level in early fall this year.”

Gold, Oil & Euros Pushed Higher by Fed's Rate Cut; "US in Deep Trouble"

"You can throw away your charts in these kind of market conditions," said one bullion dealer in Singapore to Reuters. "There's a chance we will see a new high this week.

"It was an aggressive move by the Fed to cut rates by 50 basis points," he added. "I think the US is in deep trouble.

"Gold should be your safe haven."

Larry, I think it's time for you to take some medicine. You really need to wake up. Inflation IS here, and hyper-inflation is on the way. A responsible journalist would be telling his listeners the truth and not tales of his hallucinating dreams. Dude, what is that your smoking anyways? Get that stuff outta here!

Gold and Silver up powerfully overnight a pattern developing? The Euro is flying high over 1.40 and the Dollar is swirling in the porcelain bowl at 78.80. Weeeeeeeeeeeeeeeeeeeee! More fun than a Barrel Of Monkeys!

Capt. Bernanke, thanks for the medicine!

As Gold approaches 735 we may begin to pick up a bit of a headwind. Mr. Jim Sinclair suggests that 761 will be the next rest stop for the Gold Bull. 735 is the measured move out of the box at 688. Nothing goes straight up, and it would be very beneficial to Gold if it were to pause and consolidate a bit. Fascinating thing about Gold though...the higher it goes, the more people want to buy it. And in a short squeeze such as we're witnessing now, a massive inflow of buyers will only squeeze the shorts harder and drive prices higher faster. A move thru 761 and Gold should receive the call from mission control, "OK for trans lunar injection." Thanks to Capt. Ben, the Gold Mothership is fully fueled now for that long awaited trip to the Moon. Expect several stops along the way to sight see, but passengers are warned not to leave the ship. Support in Gold now at 714 and 705.

Silver has finally broken free of it's 18 month consolidation triangle off the May 2006 highs. 13.34 looms overhead as our next "zone of resistance". Silver still remains hugely undervalued in relation to Gold, and all other commodities as well. This is the bargain of a lifetime! Silver support now at 12.90 and 12.70.

Both Silver and Gold are becoming overbought on their charts. But in a short squeeze of the magnitude we are witnessing and overbought condition may persist for a while as the shorts scream in pain.

Enjoy the day, we ALL deserve to watch dem Rat Bastids writhe in agony.

Tuesday, September 18, 2007

Thanks For The Meds Ben...

"It's time to take your medicine." And so the Fed today delivered a double dose of medicine. A 50 point cut in both it's Discount Rate AND the Fed Funds Rate. They were dancing on Wall Street. Little did the party goers realize that this medicine is really too little too late...the patient is terminal. This medicine mainlined to the patient by the Fed will only serve to mask the pain...briefly. For Gold and Silver investors today's medicine was just what the doctor ordered.

Investors will soon realise that the sub-prime crisis is simply the catalyst of a much wider breakdown, similar to the cigarette butt carelessly tossed from the car window that sets the entire forest on fire.

This is not a sub-prime crisis. Sub-prime has merely exposed the bigger scam of structured finance and over the counter credit and default derivatives; a scam that is about pretending that bad credit is good credit; a scam perpetrated by the shadow banking system innocently referred to as hedge funds.

The Fed did their best today to mask their panic as they caved into the demands of the crooks on Wall Street. This 50/50 cut they tossed out was much more than a bone...more like a Hail Mary pass to stave off defeat in the big game. The Fed is desperate, they did not want to do this, but what choice do they have? There's only one way out of this mess that they stood by and all but encouraged...spend your way out of it. And it's going to cost each and every one of us in America dearly.

The Dollar heard only one thing today at 2:15PM est. and that was the sound of a toilet flushing. Like the dead fish that it is, the US Dollar today was buried the old fashioned way. So long, it was nice knowing ya...

I had the misfortune today of coming across Larry Kudlow's evening program on CNBC. Look up idiot in the dictionary, and I guarantee this man's picture is right there next to the definition. Is it true that Larry worked his way thru the Perma Bull School of Economics in the late 60s as Bozo The Clown? Seriously, he sat there smug and patronizing, and proceeded to tell anybody that would listen that today's Fed cuts would NOT lead to inflation. Larry, what are you smoking? Please! DO NOT share that stuff! Anybody that believes today's fed actions will not lead to massive inflation down the road has got to be way too high.

The Fed's panic may have not been obvious to the casual observer today, but the panic buying in the markets following the Fed's announcement couldn't be missed. The hedge funds, short stocks in every market on Wall Street looking to take advantage of the "sell the news" crowd and recoup some of their many recent losses, were SHOCKED by the 50/50 cut and found themselves in a massive short squeeze, faced with a sellers strike, and forced to bid up stocks in a panic to cover their sorry asses.

The panic buying could not have been more obvious than it was in the Gold market. Shortly after the Fed announcement this alert appeared on the quotes page:

IMPORTANT:Due to technical difficulties Gold pricing being displayed is incorrect. We will not be able to honor any orders at this time. We are currently working on the issue and anticipate resolution shortly. We apologize for the inconvenience and appreciate your patience.

Over at the COMEX dem Rat Bastids were trampling all over each other in an effort to find the exit and cover their foolish shorts they put on all morning in the hopes that the Gold market would "sell the news". Gold hit 726.90 in minutes, up over $10 an ounce in the aftermarket as the Vermin got a much deserved ass kickin'.

In the Forex pits the Dollar got scalped and the Euro bulked up to new all-time highs vs. the piece of dookie. The Dollar sits just off the 79 handle as I type this at midnight.

Gold is quickly approaching the 735 target, estimated as the measured move from it's breakout at 688. Options expiration is Friday. Gold is fueled up and ready to break orbit for it's trip to the Moon. Silver is ready to tag along for the ride. The short squeeze can only take us so far. An influx of real investors wait in the wings seeking a safe haven to insure their wealth. It is on the faith of these desperate investors that we shall ride Gold and Silver to the promised land on the edges of the Solar System.

Thanks for the meds Ben...

The Future Is Now

This morning we find that Gold and Silver have made strong moves overnight. No doubt the "banking crisis" in the UK has lit a fire under the Precious Metals. When the government has to promise me that my money is safe, I have to wonder if it really is.

Trading in Northern Rock halted

Northern Rock, Britain's fifth-largest mortgage lender, issued a profit warning on Friday after the Bank of England agreed to provide it with liquidity.

The British Broadcasting Corporation reported on Sunday that customers had withdrawn nearly £2bn from Northern Bank accounts in recent days.

Treasury Secretary Alistair Darling again sought to assure Northern Rock depositors that their money was safe.

"Whatever happens, people can get their money out of the bank, they don't need to worry about that," Darling said in an interview on GMTV.

Silver finds itself at a crossroads this morning having taken out resistance at its 100 day moving average AND breaking its long downtrend line coming off the February 2007 high. Silver remains at least 15% undervalued in relation to Gold here, and should be trading in the high 14s imo. A major explosion in price for Silver could be near. Silver's close yesterday above 12.70 was key as Silver had tried to crack that line 4 of the previous 5 trading days. 12.70 now becomes near term support in Silver followed by 12.47.

Gold broke through 700 on September 6 and has hardly looked back since. Silver has been dragged along and remains the most undervalued asset on the planet. Oil has cleared 81 more on fears of a plunge in the Dollar than on continued strong demand if the Fed cuts rates today as some have suggested this morning. All commodities will benefit from a continued fall in the Dollar...particularly Gold and Silver.

Lost in all the Fed speculation are today's economic numbers. PPI will be released at 8:30AM this morning. The headline estimate is 3.2% and the core estimate is 0.1%. Weak inflation numbers will make it more "comfortable" for the Fed to cut its key Fed Funds Rate this afternoon. Also released today is the too often ignored TIC report. The Treasury International Capital report for July will also be released at 8:30 est. The July trade deficit was $59 Billion. A TIC number below 59 Billion will be very bad for the Dollar.

It should prove to be an interesting day. My one overriding concern is that IF the Fed cuts interest rates, Gold and Silver have a "sell the news" reaction to the much anticipated cut. Much of the run up in both the past two weeks has no doubt been in anticipation of the cut as the Dollar has fallen fearing the same. It's something to consider if the Precious Metals don't explode on "the news" as you'd probably expect. Any dip should prove short lived.

Also, please be informed that this Friday is Triple Witching in options and futures.

Triple witching hour (sometimes referred to as "Freaky Friday") is the final hour of the stock market trading session on the third Friday of every March, June, September, and December.

Those days are the expiry of three kinds of derivatives,
Stock index futures.
Stock index options.
Stock options.
The simultaneous expiration's often set off heavy trading of options, futures and the underlying stocks, which can cause large fluctuations or volatility in the value of their underlying stocks.
With the introduction of single stock futures expiring on the same days, triple witching has become quadruple witching.

Monday, September 17, 2007

Watching And Waiting

You'd think it was Christmas Eve. You're certain that you're going to get that interest rate cut you've been asking for all year, but in the back of you're mind you're afraid it may be "another box of underwear". Gosh, I miss Grandpa Al. You could always count on Gramps to deliver the perfect gift. Did you see Gramps on 60 minutes last night? In an interview with correspondent Lesley Stahl of the CBS News program "60 minutes," Greenspan said that over the long run, the biggest problem facing the U.S. economy is "the re-emergence of inflation," and rising interest rates. And he's absolutely right.

Unfortunately, inflation has long ago reared it's ugly head. Government flim-flam in the reporting of it has been all that has kept inflation in check...on paper. Americans have been living with rampant inflation for the past three years. Fed claims to be fighting inflation are utter nonsense. Inflation is caused by a rising money supply. In spite of what you are lead to believe by the media, government officials, AND the Fed, inflation is not caused by rising prices. Rising prices are a symptom of inflation and NOT the cause of it. A rising money supply is the cause of inflation. And who controls the money supply? The US Treasury and the Federal Reserve. In fact, Americans have been living with inflation in the money supply since the day the Federal Reserve was illegally created in 1913. Worried about inflation? Blame the Fed. Want to fight inflation, Whip It Now? Close the Fed.

Silver and Gold once again being whipsawed around by the Vermin of the Comex as both try to leave orbit. The nonsense we saw Friday morning will be nothing compared to what lies ahead as these crooks desperately try to hide the truth about Gold and Silver. Both metals will more than likely sit idle for the better part of the next two days as they wait for a dose of medicine from the Fed. The Vermin of the Comex will do everything to beat them down ahead of the great Captain's proclamation from the Fed's rooftop on Tuesday afternoon.

Silver needs a close above 12.70. Support lies at 12.47 and 12.28. Gold creeps ever closer to its 26 year high on the weekly chart at 714.50. Support around 705 and then 694. Silver remains 15% undervalued in relation to Gold...and the bargain of the century.

Friday, September 14, 2007

The GOLD Carry Trade

A Secret Time Bomb Made of Gold

THE VOLATILITY SEEN THIS QUARTER IN the stock and credit markets may be new to younger investors. But there is something lurking out there that can make things really dicey.

A little-known fountain of free money called the "gold carry trade" is in danger of drying up. And if it does, then markets from gold to bonds and even stocks can be in for a wild ride.

Before even explaining what the gold carry trade entails, let me first say that its demise has been forecast for nearly a decade. In researching this topic, I found articles as far back as 1998 looking for an explosion in gold prices and commensurate damage to other markets, if not the economy. In other words, this is a story that is as old as Methuselah.

But with a sinking dollar, soaring commodities, and several diverse technical conditions on the charts, the dynamics are coming together to make the end of the gold carry trade a lot closer to reality than ever before.

The gold carry trade is similar to the yen carry trade, which has been a hot topic in the markets this year. Basically, money is borrowed from one source at a low interest rate and invested elsewhere at a higher rate. As long as relevant exchange rates and asset prices remain stable, a profit is made with little effort.

Central banks are sitting on huge supplies of gold that earn them no interest and cost them money just to store securely. To earn a little revenue on these static assets, they loan their gold to banks, called bullion banks, at a ridiculously low interest rate on the order of 1%.

The banks turn around and sell the gold in the market, typically in the London bullion market, and invest the proceeds in a higher-paying asset, such as long-term Treasury bonds. If bonds pay 4.6% then the banks earn an easy 3.6%.

The problem is that if the gold price starts to rise, profits can be wiped out or turned to losses. And in today's market, a falling dollar not only boosts gold prices but it also makes Treasury bonds less attractive to foreign investors. That reduces demand and weakens prices to create a potential double-edged sword for carry traders.

The banks, of course, realize this and hedge their gold sales by buying gold futures. According to Kevin Schweitzer, senior vice president with Hudson Securities, a firm that makes markets in gold stocks, the hedge is not perfect. If central banks call in their gold loans, the banks cannot wait for contract expiration to take delivery on the gold they purchased via their futures contracts. They have to pay back their loans right away and if gold prices are stable, there is no problem for the banks going into the physical market to buy back their gold.

However, if gold starts to rise quickly, the added demand from the banks to buy gold can exacerbate the rally causing what amounts to a mad dash for the metal. The market will respond with steeply higher prices, and Schweitzer sees this pushing gold to $850 by the end of the year.

Somehow I don't think the central banks are going to be in a rush any time soon to "call in their Gold". With the current year CBGA selling agreement set to expire later this month, the central banks are more likely to increase their selling of Gold soon and continue their inept and futile attempt to suppress the price of Gold.

It should be noted that this Gold the central banks "lend" at a paltry 1% is in addition to the gold they continue to sell annually under the CBGA selling agreement. So the central banks have been dumping a lot more Gold into the market place than is being "reported". It also leads one to assume that the central banks control a lot less Gold than we believe they actually do. Heck, for all we know, they may just not have that much Gold left to actually sell. Considering the ever rising price of Gold I doubt they'll be loaning much, if any more, out at 1% either.

I do believe this...If the central banks ever do call in their Gold, dem Rat Bastids on the COMEX are going to wish they'd never touched the stuff. The potential short squeeze in Gold a central bank Gold repo would cause would incinerate these vermin, and all their next of kin as well. What a joy to witness that.

In the meantime, Gold sits idling around 705, gathering strength for it's next push higher. Silver, holding support at 12.47, needs a bowl of Wheaties and a double espresso to get it through 12.70 and on the road to war at 12.90. Both may be expected to flounder a bit over the next couple days as they await their medicine from the Fed next Tuesday at 2:15PM. Nearby Gold support should be found at 694 and then 688. For Silver, support shows up at 12.28 and 12 even. Strong Oil prices should continue to support all metals. Any strength in the Dollar should be scoffed at.

Wednesday, September 12, 2007

One Step At A Time

Oil Hits $80 a Barrel for First Time

NEW YORK (AP) -- Oil futures prices rose sharply Wednesday, briefly climbing above a record $80 a barrel after the government reported a surprisingly large drop in crude inventories and declines in gasoline supplies and refinery activity.

The report from the Energy Department's Energy Information Administration suggested oil supplies are tightening as demand remains strong. That's why oil prices are rising despite OPEC's decision on Tuesday to boost crude production by 500,000 barrels per day this fall, analysts said.


Despite Wednesday's jump, oil is still well below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.


Oil's recent advance has been largely due to speculative buying by big investment funds, who are responding to a price structure in which oil contracts for delivery in future months are cheaper than the current front-month contract, said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

That kind of structure signifies tight demand in the immediate future, and is a buying incentive. Investors who buy now will end up with more oil contracts later, when October futures roll over to cheaper contracts for delivery in later months, Ritterbusch said.


Prices were also being supported by worries a tropical depression that formed in the western Atlantic on Wednesday will become a hurricane and hit critical Gulf of Mexico oil and gas infrastructure.

"The National Hurricane Center says there's a good chance that could get into the Gulf," Ritterbusch said.

Oil is not difficult to understand. Like all commodities, it's price is driven by supply vs. demand AND the value of a Dollar.

Dollar Hits All-Time Low Against Euro

NEW YORK (AP) -- The dollar plunged to its lowest point ever against the euro Wednesday amid speculation that the Federal Reserve will soon cut interest rates and on a warning from the U.S. treasury secretary that turbulence in financial markets may linger.

The euro surged after Treasury Secretary Henry Paulson, speaking to officials from some of the biggest financial firms in the U.S., said volatility in financial markets will take some time to be resolved, particularly in the area of subprime mortgages.

"We have been experiencing market turbulence and as I have said for awhile, it is going to take some time to work its way out," Paulson said at a meeting at the Treasury Department. "We are going to work our way through this, in some markets more quickly than others."

Linger? Mr Paulson, could you please define "linger" for us? My feeling is that this "turbulence" [LOL...turbulance...LOL] will linger much longer than your tenure as treasury secretary. Much, much longer in fact. Thanks for the pep talk. Hey could I have a hit off that?

Gold had a constructive dip today and held the line at 705. Gold has now closed over $700 for ninth day in the past 26 years...and the past four days in a row. Gold has had a magnificent march higher from it's August lows. Click on the chart above and take in the beauty of it's powerful stair-stepping move higher over the past month as seen on an hourly chart. Each step on the chart now represents support in Gold.

Silver's chart is much the same. Silver also had a constructive "dip" today as it held near term support at 12.47. Silver is inching ever closer to multiple resistance at the 100 day moving average [12.83] , the Feb 2007 high downtrend line, and horizontal resistance at 12.90 [50% retracement of Feb 2007 high and August 2007 low.] Gun shy Silver Bulls are no doubt hovering over weary Silver Bears at this time in anticipation of a mega breakout here. Dem Rat Bastids may be in for a major flogging soon.

Surprising that both metals were not significantly higher today given the weakness in the Dollar and the strength in Oil. Precious Metals Bulls have earned the right to be skeptics here given the abuse they have endured the past 16 months. However, unless the Fed fails to follow through with a cut in the Fed Funds rate next week, Golds projected run to 835 has only just begun. Silver of course will be along for the ride.

Tuesday, September 11, 2007

Where's My Medicine?

Stocks End Higher on Hopes for Rate Cut- AP
Wall Street rose sharply Tuesday as investors grew more confident that the Federal Reserve will lower interest rates next week, even after its chairman gave no clues about the central bank's intentions.

It continues to amuse me that stocks go up when the threat of a recession looms over the economy. Won't a recession lead to falling corporate profits? And don't falling corporate profits lead to falling stock prices?

Oil Hits New Record on Supply Concerns
NEW YORK (AP) -- Oil prices rose to a new record settlement price Tuesday as traders turned their attention to a government inventory report expected to show tight supplies and shrugged off OPEC's decision to boost output.

It continues to amuse me that stocks are completely ignoring energy prices. Won't higher energy prices lead to higher expenses and falling corporate profits? And don't falling corporate profits lead to falling stock prices?

Trade Deficit Shows Slight Decline
WASHINGTON (AP) -- The U.S. trade deficit declined slightly in July, helped by record exports that offset the biggest foreign oil bill in nearly a year. But even a spate of recalls did not stop the deficit with China from climbing to the second-highest level on record.

The trade deficit edged down 0.3 percent in July to $59.2 billion, compared with $59.4 billion the month before, the Commerce Department reported Tuesday. It was the lowest monthly imbalance since April.

So far this year, the deficit -- which hit $758.5 billion last year -- is running at an annual rate of $711 billion. Many private economists believe stronger economic growth overseas, a weaker dollar that makes American exports more competitive and slower growth at home will help lower the deficit after five consecutive years of record imbalances.

This is just plain amusing. My head is spinning from all the spin. Oh my, the trade deficit shrunk by $200 million. Let's party! Yes we buy a lot of toys from China, and we will continue to despite the government propaganda to convince us to do otherwise. How long before the government tells us that it's "unpatriotic" to buy goods from China? And I don't care how low the US Dollar goes...if we don't make anything to sell to the rest of the world anymore, how are we going to sell more? Made In America? LOL! The only thing made in America and exported in the past five years has been bad debt, and monopoly money.

Did you know that Tuesday was ONLY the eighth day in the past 26 YEARS that Gold has closed above $700? I have a feeling that in the not too distant future, $700 gold is going to look like the bargain of the century. Only one thing stands in the way of Gold breaking $800 this year. If the Fed fails to cut interest rates next week.

Silver closed above it's 50 day AND 65 week moving averages today. It is imperative for Silver Bulls to maintain this high ground as we approach Thursday's "rollover day". Silver has yet to breakout of it's May 2006 consolidation as Gold did last week. Recall that on August 13th Silver's low of the day was 12.65. Over the ensuing two days Silver prices collapsed down to an intraday low of 11.07. Coincidentally, 12.65 is the 50% retracement of the October 2006 low and the February 2006 high of 2007. Silver has now spent the past three days wrestling with this significant zone of resistance. Should Silver break higher from here, expect minor resistance at 12.90. Silver's next "significant" zone of resistance should appear around 13.15. Silver [and Gold] prices should remain well supported if Oil prices continue to rise towards $80.

A move back below 705 in Gold may signal a move towards some consolidation of recent gains. Significant support for Gold begins at 694 and then 688. Silver may benefit from any profit taking in Gold as it remains undervalued still. Support in Silver begins at 12.47 and then 12.28.

With the bias in Gold firming to the upside, it may pay to be prudent in one's decisions to exit positions in both Gold and Silver to "take profits". Breaks to the downside should be minimal, unless the Fed fails to cut interest rates next week. The big money is made by "sitting tight" in a bull market.

Monday, September 10, 2007

Rollover Day Approaches

As Silver toys with it's 50 day moving average here, our thoughts wander to the September/December future contract rollover window that opens at 9:30AM est on Thursday the 13th. As if next Tuesday's Fed meeting isn't enough to think about.

Quick Facts about Rollover Day
The following applies to many (if not most) futures contracts especially those from the Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT).

  • Rollover is 8 days before expiration.

  • Expiration is the third Friday of each quarter month (March, June, September, December)

  • The contract letter associated with each month is: March=H June=M September=U December=Z

  • Rollover is on a Thursday.

  • Rollover is usually on the second Thursday of the month but will be on the first Thursday if the first day of the month falls on a Friday

  • Volume shifts to the new contract at market open (09:30 EST) on Rollover day

  • New day trading or swing trading positions opened on rollover day should use the new contract month irrespective of when you plan to close it.

  • New swing positions might be better opened using the new contract if opened within a few days of rollover day.

  • Market myths abound at rollover and expiration. Check the source and confirm the probabilities before believing anything

Rollover day is when we switch from trading the contract that will expire this quarter to the contract that will expire the following quarter.

The general rule here is that you want to get into the next contract as liquidity moves from one to the other. At this point in time (09:30 EST on rollover day) the spreads will be tightest and you will lose the least amount on the spread as you switch contracts. This is especially important for swing and longer term traders that may want to carry their positions past the expiry date.

Some observations of my own regarding "rollover day":

In September of 2005, Silver prices on "rollover day" were below prices on the previous quarters rollover in June 2005. Silver prices rose thru and following "rollover day" in September 2005.

September 2006, Silver prices were substantially above prices on the previous quarters rollover in June 2006. Silver prices fell thru and following "rollover day" in September 2006.

It's now September 2007, and Silver prices remain below prices of the previous quarters rollover in June 2007. Will Silver prices continue to rise through and following this Thursday's "rollover day"?

I have repeatedly referred to Silver's consolidation in 2005 of prices over $8 set in late 2004 and their similarity to Silver's consolidation of it's May 2006 highs over $15 in 2007. In September 2005 Silver was recovering from a late August price washout and was attempting to regain control of it's 50 day moving average just prior to "rollover day". Here were are today, September 2007, and Silver is recovering from a late August price washout again, and trying to recover it's 50 day moving average just prior to "rollover day".

I know, crazy isn't it? But look whats on the horizon should history repeat itself here in September 2007. Throw in a little "medicine" from the Fed in the form of a Fed Funds rate cut, and Silver may well be setting up for that trip to the moon so often dreamed of.

Silver must first regain a bullish posture above it's 50 day moving average, and survive Thursday's contract "rollover". It must then break the downtrend line from February's high and close three straight days above 12.97 . If Silver can achieve this tall order AND the Fed cuts it's Fed Funds rate, then Silver may actually be poised to break orbit and head for the Moon.

If this scenario plays out, I would expect Silver to run up into mid October 2007, pause, take out the May 2006 high in mid-November 2007 and continue higher until the "contract rollover" in December 2007.

Just some observations and thoughts about Silver on September 10th, 2007... on the eve of the September/December 2007 quarterly futures contract "rollover".

May the Force be with you...

Sunday, September 9, 2007

What's That Hitting The Fan?

Weak Job Report Fuels Recession Fears

Commerce Secretary Carlos Gutierrez, in an interview with The Associated Press on Friday, said there was a "low likelihood" of a recession and that the "most likely scenario is that we will get through this dip and we will continue to see growth."

Yeah, and there really IS a Santa Clause.

Oh Momma, NEGATIVE 4000 jobs created in August...and that includes all the phantom jobs the government creates each month. Oh the humanity! And June and July job creation was revised DOWN a total of 81,ooo. PATHETIC!

Strike Three for the US Dollar as it tests the 80 line for a third time since late July, and closes below it. Da shit will now hit da fan. [Hmmm, well it should...]

Gold blasts through resistance at 688 and asserts itself as The Truthsayer. Did you see that Carlos, Gold sez you are a liar. Not that it needs to be pointed out, you work for the US Government...And if ever there was a lair of liars on this planet, the US Government is tops in the BS Department.

Speculators claim that the Fed will DEFINITELY cut the Fed Funds Rate. They'll probably try and corral Gold first...unsuccessfully. The table for Gold to reach new all-time highs has been set. Just don't expect it to hit news highs overnight.

Silver, though strong, continues to languish in Gold's shadow at this time. Silver has yet to even breakout as Gold has. As a matter of fact, the last time Gold closed above 700 [714 on May 11, 2006], Silver was at 14.34. Silver has A LOT of catching up to do. Silver should be about 14% higher here, if all things were equal. It would not surprise me, if Gold were to retrace this breakout, to see profits in Gold shuffled into Silver during the retrace. Silver remains a superior value at these prices in relation to ANY asset. Back up the truck!

Near term Gold support is now at 688.

Near term Silver support in now at 12.08

Please click on the charts above to enlarge.

Thursday, September 6, 2007

There Is No Free Lunch

Stocks Decline After Beige Book Reading Doesn't Guarantee Rate Cut
NEW YORK (AP) -- Stocks finished sharply lower Wednesday as a jittery Wall Street sold off on a report showing a large drop in pending home sales and read anecdotal data from the Federal Reserve's regional banks as offering little more assurance that an interest rate cut is likely. The Dow Jones industrial average dropped more than 140 points.

Aw, look at all the pooh faces on Wall Street. You'd think free lunch had been canceled. Lunch was never supposed to be free you dumb asses. If I recall my first introduction to the stock market... "To put it simply, stocks go up because their profits are 'expected' to rise, and stocks go down because their profits are 'expected' to fall." The cost of money 'can' effect the cost of doing business, and it 'can' effect a companies profits. But cheap money, or even free money for that matter, can NOT guarantee a companies profitability.

So why do stocks go down on "fears" there won't be a Fed Funds Interest Rate cut, and up on "speculation" that there will be a Fed Funds Interest rate cut? The answer is simple. Investors who shouldn't be buying stocks they can't afford, can not buy them if the money isn't real cheap or free. When the money is cheap or free, these same investors who can't afford to buy stocks buy all they can because "the stock market only goes up" and they have to get a piece of the action.

It isn't any different than the nonsense of the past six years in housing. People who couldn't afford to buy homes did because they were given the money to do so. And everybody knows that home prices ONLY go up. That is until they go down. Just like stocks. When there are no more "legitimate" buyers, home prices fall. And in the stock markets, when there are no more legitimate buyers, stock prices fall. Just like the rising housing market was fueled by easy money the past six years, the rising stock market has been fueled by the same easy money.

Home prices didn't rise the past six years because of any "value" attached to them. And neither have stocks. They both rose ONLY because people had money to buy them. Given a rising, unlimited supply of money, people will spend it and prices for assets will rise. It's called INFLATION. Take away the free lunch, and prices will fall. I know, shocking isn't it?

Oh look! Oil prices have been rising and nobody seems to notice. The chart posted above is a textbook picture of a bull market. The only thing that has stood in Oil's way has been Goldman Sachs rigging of their commodity index. Oil is in a SOLID uptrend. A falling Dollar will only give rising Oil prices more support. This morning Oil has cleared 76 and again set it's sights on 80. Soon we will begin to hear stories of heating oil shortfalls at the refineries and the price of Oil will move even higher.

Oh look! The US Dollar is staring destruction in the face again. The Dollar reminds me of that floater that won't go down the toilet even after the second flush. Time to get that 8050 plunger out of the cabinet for a power flush. That Fed Funds Interest rate cut all the pooh faced Wall Streeters are hoping for will go a long ways to sanitizing the toilet bowl the Dollar currently floats in.

Today most major retailers will post their August sales numbers. If they suck, it does not bode well for the economy going forward. Tomorrow the most revered monthly economic report will be released. The convoluted non-farm payrolls number. And all indications are that this number should suck as well. Another arrow in the heart of the economy. Captain Bernanke has promised "appropriate action" should the economy signal a turn for the worse. He has promised to to stop fighting inflation and create more of it to SAVE THE ECONOMY. Ben, you're awesome!

As Gold attempts the much anticipated breakout at 682, I note the current price of Silver relative to Gold. When Gold was last priced in the 680s, in late July, Silver was trading around 13.25. This morning Gold is 686 and Silver is ONLY at 12.29. I would say that Silver has a lot of catching up to do. It wouldn't surprise me if it did it quickly either. Silver IS the BEST value available today in ANY asset class.

The July high in Gold was 687.75. Gold has it's sights set on that mark this morning. Having broken the May 2006 downtrend line this week at 682, Gold must now clear horizontal resistance at that July high to confirm the downtrend may indeed have been broken. If so, Gold is in for one mammoth leg up in the coming weeks. Silver would do well to quickly regain control of it's 65 week moving average at 12.59. It would appear that the times are indeed a changin.

Monday, September 3, 2007

History As Teacher

Ah, the Big Picture. Not only can it tell us where we've been, it can guide us towards where we may be going. I've lost count of the number of times I have referred back to Silver's major consolidation of it's then 8.50 high and subsequent Fall breakout that led to it's 83% rise to the May 2006 highs over 15. Well, here we are again. And today we may be witnessing history repeating itself.

Silver's 65 week moving average has proven to be rock solid support for Silver prices since the launch of the Silver Bull in late 2001 after several Fed Funds interest rate cuts in the aftermath of 9/11. Rock solid except for two instances: August 2005 and August 2007.

In August 2005 as Silver continued to consolidate its run from $4 to $8.50, it suddenly broke below it's 65 week moving average and tested support at it's 100 week moving average. Jump forward to August 2007. As Silver continued to consolidate it's run from $8.50 to $15, it suddenly breaks below it's 65 week moving average to test support at the 100 week moving average...AGAIN...for only the second time in a Bull Market that is now over 5 1/2 years old.

Recovery from the breakdown in 2005 was swift, and with the breakout in November of the $8.50 consolidation, the breakdown proved to be the ultimate head fake and bear trap. The similarities to August 2005 and August 2007 are apparent here on the chart above. The question remains: Is history repeating itself.

Monetary Parallels between 9/11 and the Subprime Market Fallout
By John Lee

From a monetary stand point, there are striking similarities between the events of 9/11 and the recent subprime market fall out.

Both events caused retreat of investment capital, a sudden flight to safety that caused demand to dry up in the equity and non-treasury bond markets.

Both events required massive injections of liquidity by central banks: Upwards of $100 billion for 9/11, and $500 billion so far in August.

Both events required central banks to aggressively lower interest rates to encourage borrowing and to spur investment demand back into equity and higher-yield, riskier bond markets.

Trying to guess what Silver will do going forward has proven to be plenty futile. We all know what it should have done by now...LOL. Trying to guess here would probably be foolish, but if history is an example, one would have to guess that a move by Silver back above it's 65 week moving average [presently at 12.59] could be the stepping stone to the breakout we have been seeking for months. And though that breakout may still be weeks away, perhaps not until November, it would appear that the opportunity to load up on Silver at fire sale prices may be vanishing quickly. The fire sale ends north of the 65 week moving average...if history is any indicator.

In the near term, Silver needs to establish support here at around 12. Below that we find support at 11.87 / 11.74 / 11.61 . Silver's recent breakout at 12 projects a move to 12.56. That would take us very close to the 65 week moving average. A break there could push to an interim tradeable high near 12.93 followed by a retest of the 65 week moving average before breaching 13.

Spot Gold Prices just closed August '07 up more than 4% from the end of last year to record only the 11th month ever to top $650 per ounce. Six of those months have come in 2007 – and the global bid for gold only looks set to grow stronger as the panic of August slips into September.

Gold must now establish support at 670. Below that support is at 664 and 659. Simply, Gold is waiting for a breakdown in the US Dollar before powering higher. Gold in Euros is sneaking back up on 500. A break above 500 euros could be significant for Gold in all currencies. Keep an eye on this here:

Back to School
James Howard Kunstler

Transfusions of loss-cover-loans from the Federal Reserve have enabled the The Big Fund Boyz to spend a last weekend or two rubbing elbows in the Hamptons with transcendent beings like Diddy and Kelly Ripa. The Boyz gather along the dunes at twilight, bongs in hand, to gaze at Hedge Fund Island, looming off-shore in the gray Atlantic mist, and they notice something alarming: the island, which the BFB's built themselves over the past ten years, seems to be either floating out to sea or perhaps just sinking!

The scores of billions of dollars and euros that central banks have poured into the maw of losses lately will only paper over the essential problem for another few weeks, at most. The damage to global structured finance has been done, and it can be stated rather precisely: a widespread recognition that it's not possible to get something for nothing, after all. And that when you hold a lot of paper that was gotten for nothing, and put it up for sale, nothing will be offered for it. What a surprise.