Monday, October 22, 2007

When Opportunity Knocks

Gold and Silver are on sale this morning...while supplies last.

The NIKKEI Index got shin kicked overnight. And though it closed off it's lows, the fallout overseas from the Dow's drubbing Friday is readily apparent. Gold has been sent to the outhouse. The Dollar is up strong despite the G7 paying no "lip service" to it in their statement over the weekend. Oil is off over a dollar on the strength in the Dollar.

This looks like a short squeeze in the sentiment was too bearish:

The U.S. Dollar (USD)

Daragh Maher, senior forex strategist at CalyonMon, Oct 22 2007, 10:57 GMT
Reuters - "In general you'd expect the dollar to be on the back foot on the fact that nothing was said by G7 vis-a-vis dollar weakness. And the biggest beneficiary of that you'd expect to be the euro."

Sue Trinh, currency strategist at RBC Capital MarketsMon, Oct 22 2007, 10:48 GMT
Financial Times - "The (G7) communique did not make any references to the levels of the dollar, euro or yen. This is, in effect, a green light to sell the dollar."

Geoffrey Yu, currency strategist at UBSMon, Oct 22 2007, 10:16 GMT
Thomson Financial News - "The G7 in effect gave a green light to further weakness in the US dollar by not referring to the currency in their communique."

The short squeeze in the Dollar has terminated the short squeeze in Gold. I suspect the pile of COMEX shorts are heaving a huge sigh of relief this morning. Many will be happy to get out even, others will "go for the gold" and try to turn a bad bet into a winner. Today's sale on Gold and Silver will be brief. Take advantage of this opportunity to re-establish positions or add to others.

As I stated Friday, the sweet spot in Gold is 745. This is where I believe the Comex shorts began their effort to cap Gold. To date that effort has been a failure, and they have been forced to add more and more shorts in an effort to stop Gold's rise towards 800. 722 as you can see on the chart above is the last "significant" area of support in Gold. It is also a 38% retracement of last weeks high off the August low. I don't see Gold going much below there...if it even gets there. The hand writing is on the wall, and the shorts in Gold realize that their butts are in a sling. If they want to save 'em, they'll be covering them quickly.

Silver is following Gold down, but not as violently. Silver is still very undervalued in relation to Gold and should benefit from this sale in Gold. Silver support should surface at the 200 day moving average and be firm around 12.90

Again I suggest following both metals down with buy stops to catch the bounce on the way up. Choose your stops wisely. I got stopped in late Friday in Silver, and my buy stop was .26 above the market low of the day when I put it in. Use wide stops if you think there is more downside, and close stops if you think the bottom may be close at hand.

1 comment:

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