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.

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