Thursday, September 30, 2010

Get Your Guard Up

We have certainly enjoyed this months run up in Precious Metal Prices. A major short squeeze of the CRIMEX Rat Bastids has driven Silver to new 30 year highs this month. The breakout of a full fledged global currency war has driven the price of Gold to new all-time highs. Life for Precious Metals traders and investors is good.

If you are being honest with yourself, you KNOW that no market goes straight up. Gold and Silver are looking a little tired here as the month of September draws to a close. Momentum in these markets has begun to wane, and drift lower as prices have continued higher. The sure signs of an end to a short squeeze. Rest appears to be at hand. Rest is a good thing.

Martin Armstrong has a new essay available online entitled:

Gold an 11 Year High for 2010?

This essay is right on time. I highly recommend reading it in its entirety over the weekend. Just click on the linked essay title. By no means is Martin suggesting that Gold has "peaked" here. In this essay he explains where Gold is going, and the route it is most likely to take getting there. We are far from Gold's "peak" at this level, but we shouldn't be surprised, or alarmed, by any downdrafts that may occur as we mover higher going forwards.

Could the Precious Metals continue higher from here without a rest? Certainly! But too many "technical observations" are beginning to align themselves here, and block a move higher at this time.

Seasonally, Gold and Silver tend to "retrace" gains made in September. 100% in Silver and 50% in Gold. The precious markets are hardly "normal" right now, but seasonals have to be respected.

For the past month the US Dollar has been falling swiftly, and the Chinese Yuan rising, as rhetoric over US Government legislation to "force" China to raise the value of it's currency, or face stiff penalties on their exports to the US. The House passed this legislation late yesterday, and the Chinese Yuan moved significantly lower for the first time in 15 days today. Could the passing of this bill by the house signal a "sell the news" reaction to the news? And conversely a "buy the news" Dollar reaction? If so, this could negatively effect the precious Metals here.

House backs tariffs on China in dispute over currency policy
By Howard Schneider
The House of Representatives voted Wednesday to punish China for policies that unfairly favor its exports at the expense of the United States and other countries, the latest volley in what is developing as a global battle over jobs and commerce.

The vote, ahead of congressional elections in which economic issues will figure prominently, reflects growing international anxiety over China's policies - and particularly the management of its currency. By keeping the value of the renminbi artificially low against the dollar, China makes its goods cheaper on world markets, encouraging consumers to buy and underpricing competitors from other countries.

The Dollar has recently broken down from a "Head & Shoulders" top. Typically these breakdowns are followed by a dead cat bounce that kisses the broken "neckline" in the formation before "falling off the cliff" a second time for good. The neckline is around 80.25 on the US Dollar Index. The Dollar is also at support right here on that index going back to January of this year. A bounce here in the Dollar, dead cat or otherwise, would be negative for the Precious Metals here.
Two weeks ago, Japan intervened in the currency markets in an effort to "bring down the soaring Yen", and prop up the US Dollar. It worked to great effect. However, in the ensuing two weeks, the Yen has risen back to the point at which the Bank Of Japan deemed in necessary to intervene. Will they now intervene again? If so this would be negative for the Precious Metals here.

1300 resistance in Gold, a faltering short squeeze in Silver, waning momentum in all Precious Metals, rumor becoming news, US Dollar technicals, further Japanese currency intervention...and seasonals. The roadblocks to a further rise in price of Gold, and Silver, are popping up in tandem now. A temporary setback appears imminent.

This setback could be an excellent opportunity for Precious Metals traders. Martin Armstrong suggests that a setback here could last 4-5 weeks...the entire month of October. It might also prove very beneficial to investors looking to add to their Precious Metals portfolios at "sale prices". If anything, volatility in the Precious Metals is about to ramp up. And volatility means trading opportunities. The rise in Precious Metals prices in September was VERY orderly. You just hung on and enjoyed the ride. Now, it looks like the ride might get a bit bumpy for a stretch.

Wall Street Wraps Up Best September in 7 Decades- AP

Let's see now, I can't think of a single reason why the markets were "up" in September at all, let alone "the best in seven decades".

Oh wait, yes I's called government intervention. How can investors be fleeing the stock markets, as statistics show, and the markets keep going up. 70% of market volume lately has been the result of "high frequency trading", not investment money. Easy answer, the banks use money from the Fed to buy stocks to make it "look like" everything is rosy. It's part of the Fed's "stealth monetization" program.

It's really that simple.

When Meredith Speaks, You Should Listen[important viewing]
Whitney also predicts 80,000 financial sector layoffs coming for Wall Street. She also predicts puny profits and more real estate trouble coming in fourth quarter for the banks. There was one bright spot in Whitney’s predictions–Bonuses for Wall Street Bankers are going to be “really, really bad at year end.” If you want a road map of what is going to happen between now and the end of the year, you should listen to Meredith. Below is Whitney’s complete CNBC interview

The financial sector makes up over 40% of the S&P 500. There is trouble ahead...

How to Start a Trade War
by Andrew Peaple
When it comes to the debate over China's currency, the voices of moderation are getting edged out.

Now that the House of Representatives has voted, with strong backing, in favor of legislation that would allow the U.S. to levy tariffs on Chinese goods, a trade war is one step closer. Much depends on whether China can stay measured in its response.

Calmer heads in Beijing will see that the House's latest move has much to do with political posturing ahead of U.S. mid-term elections. The bill seems unlikely to make it through the Senate, let alone past President Obama's desk, this year. That it has already been watered down so that the Department of Commerce isn't required to impose tariffs on countries with "unfair" currency practices is another important subtlety.

The best response China can provide now to cool the situation is to accelerate the pace of yuan appreciation against the dollar in the coming months, giving moderates in the U.S. government an argument against further action. China has in recent times responded to external pressure on its currency by allowing the yuan to rise.

Certainly, there are progressives among those making yuan policy. Hu Xiaolian, deputy governor of the People's Bank of China, recently outlined the benefits to China of a more flexible currency regime in a series of essays published on the central bank's website.

But there will be strong voices in Beijing keen not to give the impression it's being pushed around by U.S. politicians. As a recent diplomatic spat with Japan shows, Chinese leaders are in a somewhat forthright mood.

This is not to mention that the collective international pressure on China has weakened substantially in recent weeks. With Asian countries, most notably Japan, also stepping into currency markets, China's policy stance is looking ever less exceptional. Hawks in Beijing will note, too, that recent yuan appreciation has been dismissed in Washington as being just for show.

Damned if it does, damned if it doesn't, Beijing may feel it has nothing to lose in standing up to U.S. pressure. Unfortunately, it is from such attitudes that trade wars are hewn.

China Warns About The Dollar
By Dave Kranzler
When China speaks, the U.S. should listen:

Any appreciation of the dollar is “really temporary” and a devaluation of the currency is inevitable as U.S. debt rises, Yu said in a speech in Singapore today...Such a huge amount of debt is terrible,” Yu said. “The situation will be worsening day by day. I think we are one step nearer to a U.S.-dollar crisis.

Here's the link if you have not seen the article by now: LINK

This guy also goes on to say that "China should reduce its holdings of U.S.-dollar assets to diversify risks of 'sharp depreciation...'” Essentially this is a statement telling the world that continued support of the U.S. dollar by China will be limited at best. Translation: the dollar is going a lot lower.

Make no mistake about it, even though the comment above came from "a former advisor to China's central bank," when the Chinese Government wants to make a policy statement, it's usually done through "representatives" like this.

To be sure, the dollar is technically a bit "oversold" and can bounce at any time. But the weekly chart is not reflecting an oversold condition, which means any corrective "bounce" will be brief. Of course, this also means that gold and silver will going much higher.

I hope to have some month ending charts up over the weekend.

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