Submitted by Gold Stock Prophet Blog

For this past week, the price of gold lost about $32.00 an ounce, and gold stocks, as measured by the XAU lost another 4% for the week. When gold goes through these normal corrections, I usually refer to the monthly charts, so that I do not lose sight of the larger picture. The chart below is monthly chart of the XAU:

The above chart goes back until 1985, and each candle represents one month of price action. The main point of the above chart that I would like to make is that gold stocks are in a massive bull market, and that this correction we are going through has not even made a dent. Secondly, the XAU is close to support at the 160 level, which previously was resistance.

The next chart is a weekly chart of an ETF that follows a basket of large gold stocks. The ticker symbol is GDX:

The main point in the above chart is that GDX is at gap support. This gap support was previously the resistance that contained gold stocks during its prolonged trading range. In fact, the entire year long trading range that gold stocks went through was defined by gaps.

Up next we have a daily chart of GDX:

I showed the above chart in my previous post. In the annotations of that chart, I said that if GDX descended to the green support area and made a hammer, I would cover my hedge. This is what in fact unfolded this week, so, thus, I am no longer hedged.

The evidence is now building for a bullish case for gold, however, it is important to not dive in head first into this market. I will slowly scale back into gold stock depending on how the evidence looks.

One more more piece of evidence in favour of gold stocks is a chart that divides the price of gold by the HUI gold stocks index:

The above chart helps spot when gold stocks are relatively undervalued to the price of gold bullion. I would say that this development is a positive for gold stocks.

The bottom line is that it probably is a poor time to be short gold stocks right now. I am not 100% convinced that the bottom is in, and stand ready with cash to be redeployed to the long side.

Unfortunately, I have decided to take a break from this blog for at least several months. Good luck trading in the meantime.

-Danny

DannyMerkel@hotmail.com

Submitted by Gold Stock Prophet Blog

Gold dropped about $26.00 dollars an ounce this week, and gold stock fared even worse, with the XAU losing 6.6% for the week. In the previous post I wrote on Tuesday, I said that an explosive move was likely due. Hopefully, from what I have been writing recently, you were able deduce which way I thought that move would be.

The following chart is a daily chart of the HUI index. I posted this same chart on April 13th, and I am posting it again since I think that it explains what has happened this week:

The central theme of the above chart is that gold stocks tend to correct in three waves, and this correction was no exception.

One of the reasons that gold stocks performed so poorly this week is because the USD has broken out of a triangle formation, which was building up for the last 3 weeks:

Notice how volatility, as measured by bollinger band width, signaled this breakout. The same indicator that was used in the above chart helped show me that a breakdown was due for gold stocks.

The next chart, which took me about 15 minutes to annotate, shows the Euro on the top panel, and what I call an intermarket MACD on the bottom panel. The last time I showed this type of chart was in this post.

As you can see, there has been a negative crossover on the MACD, which has triggered a Euro sell signal. A declining Euro will likely put pressure on gold prices, and also may drag Crude Oil prices down as well.

On the bright side, gold stocks are starting to near some potential areas of support. The following chart is a daily chart of GDX:

If you are a long term precious metals holder, like myself, then you could probably take some solace in the fact that GDX is nearing an unfilled gap, which may offer support. We’ll have to wait and see what sort of candle emerge at this level.

Furthermore, silver prices are within 10% of a major area of support, which means the amount of pain left for the silver bulls to endure is certainly limited:

So that bottom line is that the US Dollar will likely rally for the next little while, and this means that gold stock correction is not quite over, but there is certainly some light now visible appearing at the end of the tunnel.

I will try to write a mini post on Tuesday again.

Submitted by Gold Stock Prophet Blog

The following chart shows a gold index called the Dow Jones United States Precious Metals index, (DJUSPM). The index has a different gold stocks composition than the HUI or XAU Indices, and, as such, can sometimes give you a different perspective.

The main point in the above chart is that this index continues to trade sideways, within a very narrow band. As this is occurring, the bollinger bands are beginning to tighten, and the width of these bands are shown in the indicator on the bottom panel.

In my opinion, explosive moves, either up or down, are preceded by times of extremely low volatility.

Submitted by Gold Stock Prophet Blog

Gold dropped about $12.00 this week, while gold stocks and silver fared slightly better. In this post, I am going to reexamine the charts that I posted two weeks ago, since I believe that post explains most of what happened this week.

The first chart we have is a daily candle chart of gold:

Last month, when gold reached $1000 an ounce, I began hedging my long term precious metals investment by buying an inverse gold ETF. Shortly afterwards, gold plummeted about $100 in a matter of days. The question since that drop was whether it represented the entirety of the correction, or whether another leg down was to come.

Although I suspected another wave down was due, I also let the above chart help me decide. This is because a chart like the one above will keep you on the right side of the short term trend.

Two weeks ago, I said that one of the reasons gold was so strong was because there was a lot of scared money going into this market, and also going into the Swiss Franc, as these are considered safe haven investments.

I also mentioned that one way to determine the degree of normality in the markets was to observe a chart of the VIX. Here is an update of that chart:

As you can observe, the VIX has broken its support line and its 200 day moving average. This shows that the markets are returning to normal, at least for now, and that has given a boost to stocks, and to financials in particular. As the markets return to normal, safe haven investment become less desirable, and this is seen in an updated Swiss Franc chart:

Notice how the triangle formation has failed, and this failure took place at the very critical 1oo area.

Another dimension to this weeks stocks rally was a falling Japanese Yen. I mentioned two weeks ago that the Yen is currently overbought, near round number resistance, and is looking weak due to the bearish candle put in. Here is an update of that chart:

The Yen’s failure this week certainly contributed to the Dow’s 525 point gain this week. I believe money flowing into equities came out of the gold market, which I believe explains why gold dropped $27.00 yesterday.

Posted by Danny Merkel at 5:40 AM 0 Comments

Submitted by Gold Stock Prophet Blog

Gold and gold stocks were more or less unchanged for this past week. In the last two posts, I said that I was getting mixed messages from the charts I analyze, which seems to make sense now, as the bulls and bears are at about equal force.

I doubt, however, that gold stocks will continue to grind sideways for much longer. Let’s have a look at a daily chart of the HUI:

What I am concerned about is that gold stocks may have another leg down coming. If this were the case, it would make this correction very similar to the last 2 corrections, as the above chart illustrates.

The next chart is a daily chart of GDX, which is basically an ETF that follows the HUI. One characteristic that GDX does a better job at showing though is gaps. The chart below shows that there is an unfilled gap. Most gaps tend to be filled at one time or another:

Furthermore, GDX’s price action has been contained in a trading range outlined by the 2 black lines above. A break across either line will let you know who is in control; the bulls or the bears.

Finally, notice how the Bollinger Bands contracted right before the previous correction. This is because Bollinger Bands help measure volatility, and periods of low volatility tend to precede periods of high volatility.

Finally, whether or not we are due for another wave down will depend on how the US Dollar holds up. Here is a weekly chart showing the USDX:

The fact that the USD has not made a lower low in 5 weeks could be taken as evidence that the currency could be in the process of cratering short term. Nonetheless, the US Dollar is in a killer downtrend, so I would not go long this currency.

I still think that Gold could hit $1,200 an ounce, and Silver $30.00 an ounce before the year is out, and I am still dollar cost averaging into physical silver even now, since, we are, after all, in a long term bull market.

Submitted by Gold Stock Prophet Blog

In this post, I thought I would discuss some neat new investment products that I have recently come across. The first one is a product you may have heard of. It is called the Uranium Participation Corp, and, according to their corporate website, the fund’s objective is to:

invest substantially all of its assets in uranium, either in the form of uranium oxide in concentrates or uranium hexafluoride, with the primary investment objective of achieving appreciation in the value of its uranium holdings. The objective of the Corporation is to provide an investment alternative for investors interested in holding uranium.

Here is a weekly chart of this investment:

What I find interesting about the above chart is that there is a large triangle forming, which certainly has the potential for an upside breakout. So far, however, Uranium is one of the only commodities that has not rallied over the last several months.

I feel that as oil steadily climbs toward $200.00 a barrel, and natural gas supplies eventually exhaust themselves, we will need to look for an alternative besides fossil fuels. I seriously doubt that solar or wind could come online fast enough to replace oil and gas.

For example, half of surface area of California would have to be covered in solar panels just to get the energy we are now currently getting from oil. And we may not even have sufficient resources that are essential for solar panel production, like Indium, to be capable of that task.

Anyway, back to the technicals, here is a daily chart of this fund:

It seems to me that Uranium traders are a technically oriented group. Notice how the price bounces off of the 200dma, like clockwork. I find the potential triple bottom currently forming fascinating.

Another commodity that probably very few people pay attention to is livestock. Livestock and Uranium are literally the only 2 commodities that have not taken off this year. There is an ETF that follows this sector, and the ticker is COW:

I am not going to pretend to be an expert on this subject, but one would think that with the price of grains increasing at such a rapid pace, that eventually that would trickle down and affect livestock prices.

Finally, one commodity that I feel particularly bullish on right now is Copper. If you have a glance at a weekly copper chart, you will see what looks like some fairly serious coiling action:

Copper also seems much less overbought than precious metals, as it has been consolidating, building energy, for almost 2 years now.

The best way to invest in copper is via physical ownership, and I explained how one could go about doing this in this article. If you are serious about playing copper, and you want physically ownership, then you may be interested in this video.

If you prefer to hold your wealth in paper form, there is a new ETF that does track the price of copper:

And remember, this is not a recommendation to buy or sell any security. You are responsible for your investing. Thanks for visiting.

Submitted by Gold Stock Prophet Blog

Gold started the week with very little strength, but firmed up towards the end, closing down only about 2.5% for the week. I mentioned in the last post that I was getting mixed signals, and I was not confident of which direction gold would pursue.

Since it is not always possible to feel confident about the direction of a market, one must develop a method for making money in the market in times of ambivalence. Successful traders can make money without feeling confident about which way the market will move, and they do this by following the trend, and managing risk.

There are several ways of determining trend, but one of the simplest is through the use of moving averages. The following chart attempts to divide gold into up trend and down trend segments using moving averages:

The above chart, just like all the charts I post, shows a 9 day exponential moving average in red and 20 day moving average in blue. The purpose of the lines is to determine the short term trend. Furthermore, the indicator on the bottom panel of the chart is a modified MACD that displays the distance between the two lines.

When the MACD line is above zero, that means that the 9 day EMA is above the 20 day EMA, and this means that the short term trend is up. Currently, however, the opposite is true, and, therefore, the short term trend is down.

If we were purely trend traders, the above chart would probably be all the analysis that we would have to do. However, I let’s explore some intermarket analysis:

The above chart is a daily chart of the Swiss Franc. Gold and the Swiss Franc exhibit a fairly tight correlation, so I usually keep an eye out on this currency. What strikes me about the above chart is that the Swiss Franc may be topping out at the psychologically important 100 area. The 100 area means that it takes 1.00 Francs to buy an American Dollar. Also notice the divergence on the RSI.

I think that one of the reasons the Swiss Franc went parabolic was because this currency, like gold, is considered a safe haven investment. What could hurt the Swiss Franc would be a temporary return to normality in the equity markets.

One way to gauge normality in the markets is to look at the Volatility Index or the VIX. The VIX measures the average implied volatility of the options of the 500 stocks that make up the S&P 500. When things start hitting the fan, the VIX will tend to shoot up, and when things are normal, the VIX will trend downward.

Let’s have a look at the VIX:

In the above chart, the VIX is displayed on the top panel and the SPX is on the bottom panel. What I find interesting is that the VIX is being compressed into a very large triangle formation. Also notice that whenever the VIX has found support, the SPX has fallen precipitously. The resolution of this triangle will certainly have an impact on the need for safe havens such as the Swiss Franc and gold. A break below the support level would be bullish for stocks, and potentially bearish for gold.

Another intermarket relationship that I like to observe, and I know a lot of bloggers and analysts look at this too, is the relationship between the Japanese Yen and stocks:

For reasons explained elsewhere on this site, the Yen and stocks tend to trend in the opposite directions. The main point for the above chart is that the Yen is currently overbought, near round number resistance, and is looking weak due to the bearish candle put in.

Finally, one last chart that caught my eye this week is a chart of Canadian Financials. I’ve never been good at predicting movements in banks, but I can’t help but think that the chart below looks bullish:

Anytime an index or stock gaps above its 50 day moving average, you know the bulls are in control. Also notice how the 50dma was resistance for the entire move down. The candle and volume patterns also look favorable to me. Perhaps the bears will give this sector a break for a couple of weeks. I will release an additional post on Wednesday.

Submitted by Gold Stock Prophet Blog

Gold was able to reverse last week’s downward momentum, and closed up about $16.00 for the week. Silver also retraced some of last week’s severe pull back, gaining more than 6%. So, is the correction over, with new highs on the way, or is this round one of the correction?

Let’s have a look at a weekly silver chart:

In the above chart, I am attempting to contrast the correction of May 2006, to the present. In May 2006, Silver was severely overbought, and we had one week of sharply lower prices. The following week, we had a bit of a recovery. Then, starting in the third week, the bears reemerged, and hit silver hard.

In the present, we had silver overbought, and had one week of sharply lower prices. This past week we saw a bit of a recovery. If this correction unfolds like the May 2006 correction, then we should see the bears reemerge in the coming weeks.

In my experience, gold and silver correct in three waves. One wave down, a counter-trend rally, and once final move down to clear out the weak hands.

Naturally, we’ll have to keep an eye on the US Dollar to see what will be in store for precious metals. In last week’s post, I mentioned that I thought that the US dollar was due for an oversold bounce. This turned out to be incorrect, as the bounce so far has been exceptionally feeble:

Nonetheless, the USD, at this point, has not put in a lower low. If the currency does put in a lower low, then gold and silver may not correct in three waves. My COT and intermarket analysis are giving mixed signals at this point, so I’m not really sure what’s going to happen.

One lesson that I learned this week was that one should always have a glance at a chart of Crude Oil before making a bet on the direction of the Euro or USD. The following chart shows what I mean:

In the above chart, we have a candle chart of Crude Oil, and, on the bottom panel, we have a chart of the Euro. As you can observe, the two charts are highly correlated. What I find interesting is that Crude Oil bounced off support this week. Additionally, the Euro also experienced a bounce, but this bounce was not off any visible support. Interestingly, my view is that the Euro was bouncing off phantom support, which can only be seen by observing oil.

Bottom line is that I am expecting a three wave correction in gold and silver, but again, with the Euro looking strong, it’s difficult to say what will happen. I think that I will remain hedged for this coming week until I feel more confident of a gold and silver bottom.

Submitted by Gold Stock Prophet Blog

For this past week, gold dropped $79.50, and silver lost an astonishing 18.42%. This post will attempt to analyze the extent of the damage, and try to determine what to expect next.

The first chart that I would like to log is a daily chart of GLD:

What you will observe in the above chart is that GLD failed exactly at the psychologically significant $100.00 area. The bears gained control of GLD at this level, and this was evidenced by the gravestone doji that formed on Monday in the the gold futures chart.

Afterwards, there was some very heavy selling that occurred on extremely heavy volume. This level of volume has never been seen before in this ETF.

Finally, on Thursday, GLD gapped below the dashed line, which is the 50 day moving average, and closed on Thursday near the lows of the session. Unfortunately, there is nothing bullish about this series of events.

The next chart is a chart of GLD, but this time we have a weekly perspective.

This week formed a very large red candle with no lower wick. In my view, this means that the bears are in complete control of this market for the time being. Furthermore, I find the magnitude of shares trading hands this week significant.

I mentioned in the last post that I thought a capital preservation mentality was warranted at this time. To me, this means hedging existing long term positions against market volatility. One way that I was able to do this is by purchasing a gold bullion bear ETF. To read more about these ETFs, click here.

Essentially, if gold bullion drops by, say, 5%, then this ETF should rise by approximately 10%. I think these products are a great idea, as they allow investors to speculate on the direction of commodities without getting involved in futures trading, or allow investors to protect themselves in downward markets. (By the way, last week, another ETF was launched that follows grains. The ticker symbols are HAU.to and HAD.to)

The next chart is a weekly chart of SLV.

What I wanted to take note of is that SLV failed at the $200.00 level after being, what I would say, overheated. Again, we have a very bearish weekly candle, but at least we are in the proximity of some potential chart support.

Next I wanted to make note of a daily CandleVolume chart of SLV:

What I like about this this type of charting is the visual representation of volume. Larger candles mean higher volume, and we had some big ugly candles put in this week. I also found it interesting that SLV got blown out of its bollinger band on Friday. Unfortunately, again, I see nothing bullish about the above chart.

In the last post, I said that I had finally thought that the USD was looking oversold. This week, we had a bounce in this currency after putting in a bullish candle.

In addition, my intermarket analysis is indicating that there is more USD strength coming next week. However, I do not expect the USD to surpass the red resistance area pointed out below:

What I have noticed whenever gold has a correction, and there have been a few over the last 5 years, is that ‘analysts’ from Bloomberg or MSNBC come out and declare that the bull market is over, and the previous run up was nothing more than a bubble.

I guess since these guys were cheer leading the Nasdaq bubble, and were completely oblivious to the housing bubble, that we can expect them to be experts in this area.

In my view, gold is nowhere near what I would consider to be a bubble. Only about 1.5% of investment monies worldwide are in invested in gold or gold shares, and probably fewer than 1 tenth of 1 percent of North Americans own precious metals. Furthermore, if one were to take the market capitalization of all the gold stocks in the HUI index, it would still be less than the market capitalization of one company in the DOW Jones, such as Coca Cola.

Also, judging by the fact that nobody ever signs up for the free precious metals investing kit I advertise on my blog, the sentiment is just not lined up for what I would consider a bubble. When your neighbors start talking about the gold they just picked up, or if you hear your friends at work talking about how much money they made in the gold stocks they bought, then you know we are in trouble.

Another way I like to look at sentiment is through analyzing the number of hits popular gold sites, like Kitco, receive. Generally, when gold and silver start rising very quickly, the general public begins to get interested, and may begin to visit sites such as these.

Usually, by the time the public begins to get interested, the move is over, and the professionals start to unload their positions, and gold and silver come crashing down. Here is a chart the exemplifies this:

In the above chart, we have the price of silver, and in the bottom panel, we have the number of hits to Kitco.com. What I find interesting is that during this recent run up, the public never really got excited like they did in previous run ups, which I think further disproves the bubble theory.

Therefore, the bottom line, in my opinion, is that, while gold and silver are showing no signs of a bottom at this time, the long term bull market is still healthy, and I do not see this correction as being any different from the many other corrections that precious metals have faced before.

Submitted by Gold Stock Prophet Blog

For this past week, gold rose by about $25.00 an ounce, closing on Friday at $999.50 after making a brief foray into quadruple digits. Silver, on the hand, failed to reach a new high, but was still up 42 cents for the week.

Let’s get right into the charts by looking at a really long term view of the yellow metal. The following chart is a monthly chart of gold, and goes back to about 1990:

My goal in the above chart is to contrast this recent action against the last time gold went parabolic, which was during the spring of 2006. If you don’t recall, gold went ballistic during February, March and April of 2006, and then came crashing down in May and June. In my opinion, gold appears equally over-extended now relative to then. To view a monthly chart of silver, please refer to the bottom of this article.

Gold is not the only story making the news right now. There are also some exciting developments in the foreign exchange markets. One such development is that 1 US Dollar buys less than 100 Yen presently, and that the Swiss Franc is practically at par with the US Dollar.

The next chart shows that the Swiss Franc and Gold are related. What the weekly chart below does is that it takes the RSI of the Swiss Franc and contrasts it to the price action of gold bullion:

In other words, the above chart is showing that whenever the Swiss Franc is overbought, it represents a dangerous time to hold gold.

And on the topic of currencies, let’s have a look at a weekly chart of the US Dollar. The US Dollar Index, which is an index that measures the US Dollar against a basket of six other major currencies, hit another all time low again this week.

In my opinion, the US Dollar is now, at long last, finally starting to look oversold to me. On a fundamental note, I have a feeling that European Central Banks and the Bank of Japan will not just sit idly and watch their currencies rise week after week. Although a falling currency is bad for an economy, a rapidly rising currency also has economic ramifications, especially to an export oriented economy such as Japan.

Another angle to look at the precious metals market is through the silver gold ratio. Silver and gold are certainly correlated, but they do not always move together on a one to one ratio. By dividing the two metals, one can determine which is outperforming:

In the above weekly chart, we have the RSI of the Gold/Silver ratio, and a chart of the HUI Gold Bugs Index. My rationale behind this chart is that when precious metals start to take off, silver usually begins to outperform gold. Silver is a more speculative market, with large swings, and so when the precious metals market heats up, money piles into silver. This speculative buying into silver eventually climaxes, and then comes crashing down, bringing gold stocks down with it.

Another point I wanted to touch on is the significance of gold being right under $1,000. This could possibly be a formidable resistance area. It took oil 4 attempts to break through the psychologically important $100 area. It took the Dow Jones Industrial Average 20 years to get past the 1,000 area.

Although my analysis shows that gold could be in short term trouble, keep in mind that I do not recommend shorting gold or gold stocks. There are a lot of variables that I do not know the outcome to. For example, will the Fed’s cut next week throw the US Dollar near the point of collapse? What if another major US Bank melts down? These are very uncertain times, and I think a capital preservation mentality is warranted at this time.

The fundamentals for gold, silver, gold stocks, and oil are very strong right now. The best bet is to try to accumulate a long term position in these areas, and dollar cost average when there are dips.

This weekend, I enjoyed the posts from:

HeadLineCharts

Written by Michael Vass

If there was anyone who was not worried about the economy before, there is no way they can be confident now. Bear Stearns was just taken over for an acquisition price of $2 a share by JPMorgan. The trouble this implies is only going to be more extreme.

Obviously the first thought is that this deals with the sub-prime mortgage crisis. And that thought is absolutely correct. As I have previously mentioned, we are not at the end of this crisis, and I expect to hear of continued major losses amid the major financial institutions. Of particular note I expect to see CitiGroup to have a problem.

Now some might say how bad is this. Massively. The Fed guaranteed a 28 day loan on Friday, in the first step to this bail-out. That meant that Bear Sterns was out of cash and could not maintain liquidity. They were bankrupt without using that term.

Of course such an obvious problem could not be fixed with a single loan. And because of the size of Bear Sterns, it could no be allowed to fail. Few companies are in this category, but each of those that are would cause a depression were they allowed to be bankrupt. Thus a deal needed to be made before the U.S. markets opened and a probable rush to cash hit the institution.

The bad loans made were so horrible that the assets of Bear Sterns were set at $2 a share, $55 a share below the close on Friday. The Dow, mutual funds, and investor confidence could never have survived this news. Quite possibly they still won’t.

Already there has been an increase in gold spot prices by $27 from the $1007 price reached during Friday. When you add the fact that the Euro is rising versus the Dollar, and the assured drop in global stock markets, and I expect that the unforeseen events I discussed when setting my 2008 target for gold at $1125 has occurred and surpassed my worst expectation.

I haven’t even mentioned the fact that the Fed, preparing for a massive sell-off, cut rates .25 points as a distraction and band-aid for investors. Not only has Ben Bernanke missed the timing of the problems occurring, he is reacting far too timidly. The fed funds rate now sits at 3.25% with the Fed meeting on Tuesday. There can now be little doubt that another massive cut of .75 basis points to a rate of 2.50% is probable.

Undoubtedly Oil will also rise in the wake of this news as investors and institutions will run from the Dollar and into a more stable security. Like gold, my year ending targets look to be too timid.

After the Fed has announced $400 billion in short-term loans and assurances to financial institutions, the proof that this has been a waste of funds is apparent. Rather than saving the ammunition that will be needed Monday the Fed ahs already shot off most of its firepower. Any moderation of the downturn will be as short-lived as its previous actions have been. If it’s that well received in my opinion.

Already the forward indicators of Monday’s open are being felt. Hong Kong’ Hang Seng index was down 4.4 percent at 21.263.51, the Nikkei 225 stock index plunged 4.2 percent to 11,727, and China, Australia, Indonesia, the Philippines and New Zealand have all been hit as well.

The fact of a recession seems absurd to deny at this time, and the start of a bear market is unstoppable, in my opinion. And a rush to hedge in Gold, Oil, and overseas markets seems apparent. I can only state that I’m happy I’m not still a stockbroker as I feel bad for my associates in the business tomorrow.

An unknown factor is how this may still affect Chinese markets as an example. Already at 8 month lows, the financial sector is getting hard hit. CITIC Securities is one such example. Its earnings were reported up 500%, but a $1 billion deal with Bear Sterns for 6% stake in the company is in limbo. And numerous other lesser deals exposing China and Japan to the sub-prime crisis are yet to be accounted for.

The upcoming 1st quarter results of Merrill, Citigroup, Lehman and several other institutions will detail how bad things actually are. It’s highly likely that at least one more will fall, and I believe that Citi will be the recipient of a helping hand from the Fed.

While I did not expect to hit 11,000 on the head when I first mentioned my expectation of where the market will go in 2008, it may turn out that I was underestimating what could happen. This being an election year, expect another round of stimulus money from the U.S. government, set to improve the political aspirations of the various candidates. Though this may bode worst for the Democratic candidates that just voted to increase tax rates by 3% for those making $31,850 or more last week.

The only thing left now is to see if there will be an emotional fire sale in the markets Monday, and how bad the extent will be once the market breaks the official bear market point of 11,424, a mere 527 point from where the Dow Jones Index closed on Friday.

Submitted by Gold Stock Prophet Blog

More Charts

Last week saw Crude Oil and the Euro hitting new all time highs, and the US Dollar Index hitting a new all time low. At the same time, gold was flat for the week, closing on Friday at the same point it opened at on Monday.

The first chart that I’d like to keep in this blog for my records is a weekly chart of silver. Silver has been white hot for the last few months, and I hope this following chart puts this current move into perspective:

The above chart shows 2 previous occasions where silver went parabolic. These occasions can be put into perspective by analyzing how far the price peeled away from the 50 week moving average. As you can observe, when silver is more than 30% higher than its 50 week moving average, the risks of holding silver are increased.

This indicator by itself is not a sell signal, as silver can still become hotter, which is what happened in May 2006. I do, however, see this as a caution flag. Furthermore, silver put in a bearish candle last week.

Another chart that caught my eye this weekend was a chart outlining Silver’s commitment of trader structure. The last time I showed this chart was in this article. This time, I want to draw attention not to the commercials, but to the level of open interest:

In the chart above, open interest is represented by the line, and not by the bars. I have drawn circles when open interest bottomed, and where it has now peaked. In my interpretation, this is a potentially bearish development.

Bottom line for silver is that the trend is up, so shorting silver would still be unwise. However there were some cautionary flags raised this week in the charts, so one’s focus should now be on capital preservation strategies, such as hedging.

This next chart is a weekly chart of platinum:

Platinum is another commodity that until recently was going parabolic. Last weeks price action may suggest that this party could be over. The bears seem to now be in control, as evidenced by last weeks candle. Furthermore, the RSI and ADX readings were nearly off the charts.

The next chart is a daily chart of the HUI Gold Bugs Index:

In my opinion the HUI is struggling to surpass the 500 area. Last week, the bulls and bears waged a back and forth battle, with the result being a draw at this time. Until a decisive victory is claimed, cash may be the best bet.

Submitted by Gold Stock Prophet Blog

This past week was another satisfying one for commodity bulls and US Dollar bears. Gold rose another $27.00 an ounce to reach yet another all time high, silver experienced a blistering rally this week of 10.42%, and even the price of nickel was up about 14% between the span of 2 days.

At the same time, the US dollar melted down again, breaking through major support into what is now literally uncharted territory. Let’s have a look first at the damage:

I cannot see any reason not to be short US dollars at this time. There is absolutely no support down below, and no telling when the free-fall will hit bottom. Referring to the RSI, which is a much less sensitive 21 day RSI, one can see that the Dollar is not oversold at this time as well.

Watching the US dollar fall apart last week in real time, and knowing that other short sellers like myself were swarming this currency, was very exciting. The amount of money that could be made in this market is amazing.

Anyway, a US Dollar defeat is always a Euro victory as shown in the following chart:

As you can observe from the above point and figure chart of the Euro ETF, FXE, a major quadruple breakout occurred this week. This chart goes back to about September 2007 and has a 3 box reversal.

If you prefer to observe the Euro using a traditional candlestick chart, here is a weekly chart of the Euro index:

The main points are that the trend is up, so there is no sense in fighting that, and that the Euro has decisively cleared major round number resistance.

Another sector that also cleared an important milestone this week was crude oil. Over the past few months, black gold was struggling to break through the psychologically important $100.00 a barrel area. This struggle ended this week, with victory going to the bulls:

Over the past few weeks, I have been reading books, and watching documentaries that outline a bullish case for Crude Oil. Most of these books are on peak oil, and I am fully convinced that this theory is sound. I will not go into any details right now, but suffice it to say that the fundamentals and technicals are both extremely positive right now. Two ways to participate in this bull market are through USO or HOU.to.

Presently, oil looks more bullish to me than gold or silver. If you refer to a weekly chart of gold stocks, you will see that there was no bullish breakout from its trading range at this time. Also, gold will correct one of these days, as it is more overbought than oil. I have no idea when it will correct, and betting against gold would be unwise, but perhaps it will bounce down from $1,000 an ounce resistance.

So, bottom line is Dollar is bearish, Gold and Silver are neutral, and the Euro and Oil are bullish, in my opinion anyway. Thanks for visiting.

Submitted by Gold Stock Prophet Blog

Commodities had another spectacular week, with gold reaching yet another all time nominal high, and silver exploding higher by 6.29% in Canadian dollar terms. Oil was also strong this week, increasing by about 3.5%.

The first chart that caught my eye this week was a weekly chart of the XAU. Prior to this week, the stocks were underperforming bullion, but that may change:

My view is that gold stocks are recharging after the blistering rally that occurred in the fall. This consolidation is taking the form of a triangle, which should break out to the upside. The indicator at the bottom of the chart shows that the XAU is now trading closer to its 50 week moving average, which, in my opinion, shows that some of the overbought condition has been worked off, and gold stocks bulls have reloaded for another assault higher.

Another chart that is similar to the one above is a weekly chart of the Euro:

The main point here is that the Euro, like gold, is in a very strong uptrend. I’ve learned through experience that fighting trends is a losing game, usually even if there are indications of trend reversals. Luckily, in this case, the trend is up, and there are no signs, such as a bearish candle or overbought reading, that trend will reverse.

Trading with the trend is vitally important, but there are other tools one can use to assess the strength of a trend. One tool is using Commitment of Trader data, which I already showed in another post, so I won’t show it again. Another is through intermarket analysis. The chart below uses intermarket analysis, and is a variation of a chart that I have attempted to explain here.

The MACD Histogram that is in black is derived from a ratio, and is independent from the Euro’s price action. The MACD in white is a traditional MACD using data from the Euro’s price action.

What I like about the first MACD is that you are not using price A to forecast movements in price A. For this reason, the first MACD has the potential to be a leading indicator, unlike a traditional MACD, which always will be a lagging indicator.

The leading MACD has just entered the Euro buy zone.

As you could probably guess by the creative title given to this post, I will now begin talking about a new ETF. This relatively new ETF follows the Rogers International Commodity Index, and the ticker symbol is RJA:

I mentioned earlier that trading in the direction of the trend is vitally important, which is why this ETF caught my eye. There are some really ugly black candles here, which are a result of investors placing market orders at or before the opening bell. The bottom half of this post explains why this is a bad idea.

What I really like about the above ETF is that you get a tremendous array of different commodities. Here is pie chart that show where your money would be put to work:

This ETF will give you exposure to areas that ordinary investors would likely otherwise never have access to. I know I am not prepared to invest in Lean Hogs or Lumber any other way. Soft commodities have been the top performing sector for this past year, even outperforming gold and silver, so having some exposure may be prudent.

Written by Michael Vass

Over the past 9 days the potential for a Democratic nominee to be identified in the U.S. Presidential race became clearer, crude oil has topped $100 a barrel, China has begun to recover from winter ice storms and started the Lunar Year of the Rat. Each of these items has helped to place upward pressure on the spot price of the precious yellow metal commodity gold. Thus today we are at a point where record profits are being reported by some gold mining stocks, and gold spot prices have breach historic levels.

And I’m not surprised.

I have mentioned,

“As these facts are absorbed by the markets, increased volatility and further upward pressure on gold should continue. It’s likely that the Philadelphia Gold and Silver Index and Amex Gold Bugs Index will reflect this pressure. Several Canadian gold miners are also likely to have a short-term boost as they will have increased sales due to lack of competition.

Perhaps most important will be the timing of all these events. If they are moderately spread out and occur individually I expect that they will not be able to retard the move in gold. Combined or occurring close together the effect will be magnified.”

When I made this statement gold spot prices were above $920, now on February 21st they have reached $948. That’s roughly a 3% increase in 9 days, and a continuation of the trend established at the beginning of this year. And it’s not limited to just gold commodity prices.

Barrick Gold Corp reported a 28 percent gain in fourth-quarter profit, or 61 cents a share, beating the estimate of 14 analysts. Barrick was able to attain this while production in 2007 fell 6.7 percent to 8.06 million ounces.

Given that fact, what would an investor or analyst think when you consider that supply is in the throes of shrinking due to power outages and other factors in South Africa. One example is DRDGold, which dropped production 13% in the 4th quarter, and yet is up 4.4% today.

But the growth is not limited to just these companies.

The TSX material stocks gold sub-sector is up 1.4 percent. That includes the aforementioned Barrick and Goldcorp. Other companies around the world on the rise include Exxaro, AngloGold Ashanti, and many others.

The facts are that China and India need gold. Even in a global slowdown their demand has increased pressure on supply. Recession and inflation fears and a lagging stock market in the United States have not diminished though they are not leading world headlines this moment. Oil prices are foreseeable going to continue higher and place more pressure on world economies, especially if OPEC cuts production rates as expected. And the prospect of a Democratic President in America is generally seen as a negative for the stock market, further spurring a move to gold to hedge investments. I have said,

“All stock markets, all financial markets, move on emotion first. That’s given. And few things are more emotional that 1.25 basis point moves by the Fed in a week. But fundamental facts of the markets always come to fore and correct the emotion. To me, $1000 gold, and higher gold stocks across the world, is as fundamentally sound today as when I discussed it earlier this month and in December of 2007.”

I’m no analyst, nor am I making an advisement. But I do believe that the factors are in place, and the results are like dominoes falling. Unless investor sentiment changes, which actions by Warren Buffett and the IMF have not been able to counter to date, I see nothing to stop this trend.

Now I will go one step better. If supply remains constrained, as we can see is likely, and the U.S. economy has the mild recession now being stated by the Federal Reserve. If oil production is cut, in combination with the recent U.S. refinery accident that has placed pressure on capacity, and Senator Barack Obama becomes the Democratic nominee for the President of the United States. If all those actions occur, which seem 80% probable to me at this time, then I believe that gold spot prices in excess of $1125 are possible by the end of this year. Commensurate with this move should be gains among the gold mining stocks across the world.

Submitted by Gold Stock Prophet Blog

Last week, precious metals were more or less flat, which is a bit unusual considering how strongly the Euro rallied. In this post, I’ll show some charts that caught my eye this week.

Written by Michael Vass

Gold prices took a bit of a hit with news hitting the markets early on Tuesday’s trading day. Lifting the general markets is the news that Warren Buffett has offered to provide reinsurance coverage for municipal bonds. While this does nothing for non-municipal securities, nor the mortgage backed loans that have caused severe losses across the financial markets, the move by Buffett has added to the confidence levels of investors. Early gains on the Dow Jones Index have hit 224 for the day.

Added to this is news that the International Monetary Fund (IMF) is planning to sell gold into the market. Approved over the weekend, the news was announced Tuesday and has driven down the April gold futures prices slightly. Gold continues to maintain above $920, but the ultimate effect of the sale has yet to really factor into the market.

Considering that South Africa, responsible for the 2nd largest amount of gold in the world, has reduced supply numbers due to power outages in that country the timing of the IMF sale seems to be an attempt to balance demand and keep prices lower.

“However, the fact that dips are still drawing very strong buying interest, and with the rest of the precious complex pushing higher, it seem likely gold will follow,” said James Moore, an analyst at TheBullionDesk.com.

The real thought to keep in mind is that if the offer by Warren Buffett instills enough confidence in the U.S. markets that investors feel a recession will be short-lived, profits in gold will likely be taken and depress the price. The IMF sale will have a real affect on gold spot prices, but will likely only have a short-term effect considering the lack of supply from South African mines.

Another factor that I believe has not hit the market yet are the 1st quarter results of the financials and banks still plagued by sub-prime mortgage loans. While Project Lifeline is being announced at 11:30 and will include home owners that are not in the sub-prime category, it does not affect losses that have already occurred. I continue to expect that all major losses will not be fully accounted for until the end of the 2nd quarter, thus still a pressure on the markets and positive for gold investors and stocks.

As these facts are absorbed by the markets, increased volatility and further upward pressure on gold should continue. It’s likely that the Philadelphia Gold and Silver Index and Amex Gold Bugs Index will reflect this pressure. Several Canadian gold miners are also likely to have a short-term boost as they will have increased sales due to lack of competition.

Perhaps most important will be the timing of all these events. If they are moderately spread out and occur individually I expect that they will not be able to retard the move in gold. Combined or occurring close together the effect will be magnified.

Written by VASS

Mid-day February 11, 2008 gold futures prices have risen to $927. Gold continues to move forward, taking many of the gold stocks along with it. In fact speculation in the most precious yellow metal has grown dramatically on a global level. In China, Beijing Caishikou Department Store sold out of two tones of gold bars in less than 2 hours.

“The real value of gold is not that it provides a quick, speculative fix, but its capacity to provide a sure and steady means of protecting wealth and to enhance risk-adjusted returns,” said Hou Huimin, vice-chairman of China Gold Association.

With a weak dollar, spikes in oil prices - which are consistently above year ago levels, and an outlook of an unknown time period for an American recession gold hedges seem more attractive everywhere. And outside factors continue to add to this upward trend in prices.

Already the effect of Venezuelan President Hugo Chavez threatening to cut America off from that nations oil supply has added to the price of oil, while power shortages in South Africa have forced many mining companies to lower production, boosting in turn platinum and gold futures. This is having a net effect being seen in the Philadelphia Gold and Silver Index rising .73%, along with the CBOE Gold Index up .26% and the Amex Gold Bugs Index up .76%

Will the gold mining stocks of South Africa take a hit? Of course, and many other mining stocks will drop along with them. But that is hardly an indication of a bear market any more than the fact that once those mines are back online gold spot prices will drop. In a few weeks supply and demand factors will shift again with the aforementioned miners increasing supply. But the real factors moving gold in all the various investment markets is not the short-term actions that are the fodder of traders.

Protecting wealth and risk adjusted returns are the main concern right now as global markets look weaker by the day. With global instability and the other factors that are growing with no end in sight, I believe that gold will continue to increase in price. $1000 gold spot prices are not the top in my opinion but a stepping stone to a higher level. Whether shortages due to difficulty in mining or nature, increased demand in emerging markets like India and China, or economic weakness and general bear markets in stock markers globally I do not see a substantial retreat of gold or gold stocks in 2008.

Submitted by Gold Stock Prophet Blog

Last week began with gold getting hit quite hard by the bears, but ended with gold actually up by about 9 dollars. Gold held up surprisingly well considering the Euro basically collapsed at a key level of resistance last week.

Let’s have another look at the Euro Index to see what we can expect to see next. The following image shows a chart of the Euro’s Commitment of Trader structure on the top, and a candlestick chart of the Euro on the bottom:

Presently, the commercials have dramatically reduced their short position. In fact, they are getting close to being net long, which I have never seen happen before. You always want to keep a close eye on the commercials, since they usually represent the smart money. Therefore, this represents a very bullish development for the Euro, in my opinion.

Putting my college education to work, by using MS Paint, I have drawn green circles in the above chart representing previous occasions where the commercials reduced their shorts. As you can see, these were all good entry points.

Bearish signals are generated when the large speculators become excessively long, or if open interest peaks.

If gold can rally when the Euro is falling, I think it means that gold is in strong hands right now. Gold, silver, and gold stocks are all in strong uptrends, and it would be foolish to fight these trends.

The next chart shows the relationship between gold bullion, and gold stocks on the top, and a daily chart of XGD on the bottom:

In the above chart, the top panel vacillates between areas where gold stocks are expensive relative to gold bullion, and areas where gold stocks are cheap relative to gold bullion. Presently, the RSI of the ratio is in oversold territory. As indicated by the yellow zones, these occasions have represented good gold stock buying opportunities.

An alternative strategy involving the above chart would be to go long gold stocks and to go short gold bullion. One could do this by simultaneously buying HGU.to and buying HBD.to. This would represent a low risk, low reward play, in my opinion.

Further Recommended Reading:

1) Canadian Point and Figures
2) Guerrilla Investor