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GOLD
& SILVER VS. THE LAND OF SUBPRIME Gold Gold closed down -2.80 to $747.20. MACD and the histograms are strongly in positive territory but are extended. RSI is bumping up against overbought territory as well. The CCI indicator at the bottom of the chart is showing a high overbought reading. This doesn’t mean that the price cannot go higher, but it is extended. Notice, however, that at the 2006 high, all indicators were flashing much higher readings, except for the CCI index. A correction back to the $690-$700 level would not hurt the long term trend at all; in fact, it would shake out weak hands, building a stronger base for a more sustainable assault higher.
Next is the P&F chart for gold, which shows a bullish price projection of $930.00.
Below is the P&F chart for streetTRACKS Gold Trust. It also is flashing a bullish price objective of 85.
Silver Silver has been much weaker than gold for months now. Its P&F chart is giving a bearish price projection of $8.5. But look at the chart of the Silver Trust that follows it.
The Silver Trust (SLV) chart below is projecting a bullish price objective of 190, which is considerably above the present price. Obviously, either this chart or the above chart of silver is wrong.
Hui Index The Hui closed up 1.02 o 393.99, which is a slight positive divergence from the price of gold that closed down for the week. RSI has flattened out, but has plenty of room to move to the upside if it chooses to. In contrast, the CCI indicator at the bottom of the chart is flashing overbought and STO looks like it is curling over. One or two days of upside action can change the indicators quite quickly, however.
Next up is the P&F chart for the Hui. It has a bullish price objective of 628, which is over 50% above its current price (393.99).
Gold Miners Index The GDX weekly chart is quite similar to the Hui chart. RSI has room to expand to the upside, while the CCI indicator is flashing overbought. Unlike the Hui, the GDX actually trades and its volume is a bit troubling, as it has been declining on the rally higher.
Next is the P&F chart for the GDX. It shows a bullish price projection of 70, which is considerably above its current price (45.59).
Xau Index The P&F chart of the Xau is the most bullish of all the precious metal charts. It has a price projection of 274, which is approximately 60% above its current price (171.27).
Hui/Gold Ratio The ratio appears to have put in a double top that is BELOW the top of 0.59 back in 2006. If the Hui is going to perform as the above P&F charts suggest, this ratio is going to not only have to break above its double top at 0.55, but it will have to bust through the old high at 0.59 from 2006 as well – and stay there. Resistance must become support. The next phase of the gold bull will not be sustainable until this high is taken out.
Gold/Xau Ratio This ratio will have to fall well below 4 for a sustained rally higher in the Xau to occur.
Individual Gold & Silver Stock Charts Next up are several P&F charts of individual gold and silver stocks. All of the charts are very bullish, not only in price projection, but in the double and triple top breakouts, etc. Things are heating up in the pm stocks – of that there is no doubt. But that doesn’t mean they are just going to go straight up – or not. They will do what they choose to do, which might not necessarily be what we want them to do, especially – when and how. Also, some of these stocks have already had pretty good runs. The charts are positive; however, that doesn’t necessarily mean they represent the best values – maybe, maybe not.
Summary As Eddy George, former Governor of the Bank of England once remarked: “We looked into the abyss….” And fortunately there wasn’t a breeze blowing this time, as all the Kings Men might have ended up at the bottom of the chasm. It was a very close call, and neither the play nor the drama is yet over – not by a long shot. If the global financial system makes it out of this one unscathed hell may yet freeze over. It may not happen today or tomorrow – but happen it will. It is not a question of it, but when. The band plays on and the dancers keep dancing – until the music stops. Providing the music is what appears to be an endless source of credit. But appearances can be deceiving – and deadly wrong. The following quote is proof positive that some of the largest and supposedly most sophisticated market players are getting it very wrong: October 5 – Financial Times (Peter Thal Larsen, David Wighton and Ben White): “Bankers are counting the cost of the crisis… The numbers are large: this week alone, Citigroup, Deutsche Bank and UBS have announced asset writedowns of almost $13bn between them for the third quarter of the year. This comes on top of losses already disclosed by Goldman Sachs, Morgan Stanley, Lehman Brothers and Bear Stearns. Merrill Lynch and JP Morgan Chase have yet to outline their own exposures but are also expected to have suffered setbacks. And this splurge of red ink has been surprisingly well received… Analysts at Morgan Stanley describe the blood-letting as ‘cathartic’. Indeed, it even produced some apparently perverse results. ‘It seems the more money you lose, the more your shares go up,’ one investment banking chief observes.” And the most troubling factor amidst all that is going on is that the key players are in a state of denial. Not only will they not fess up – they are actually coming up with newer and “better” gimmicks to try to paper over the mess. The following sounds very much like the proverbial jumping out of the frying pan and into the fire. October 5 – Financial Times (James Mackintosh): “…Banks have upwards of $200bn - some estimates say as much as $400bn - of unsold loans used to back leveraged buy-outs (LBO’s) sitting on their balance sheets, and they are desperate to dump them. But the buyers also have a problem. Private equity and hedge fund groups typically borrow to invest, and the credit squeeze which caused the banks' LBO problems has also made it harder for the funds to secure finance. Now big banks are trying to solve both problems by offering to lend to the funds - as long as they use the money to buy the unwanted LBO loans from the banks. ‘The banks are saying, ‘If you buy my loan above market, we will give you more leverage,’ said one investment banker. ‘They are taking market risk and turning it into counterparty risk.’” The above underlined sentence is what bookies do – it’s called laying off risk, as in laying it off onto others, any other, as long as you lay it off – away from yourself. Many of the markets appear to be overbought: the stock market, commodities, oil, the precious metals, real estate, to name but a few. All brought to you by an endless supply of credit that started long ago under the guidance of Sir Alan and his band of merry men. It appears that some corrections may be forthcoming. As always, I prefer physical gold to any and all assets. The less I have to “pay” for it – the better. Now is a good time to have some spare cash on hand along with some gold and silver – just in case the King’s Men fall into the abyss. Debt should be avoided whenever possible. Safety nets cannot possibly hurt – they’re like insurance, hopefully you never have to use them. I am looking to buy things “on the cheap” that when you drop them on your foot it hurts. For reasons mentioned over and over I am looking for a higher low in natural gas as a buying opportunity for a strong seasonal trade. See the market table indicator for updates (at bottom of bulletin board main page). There were no changes to the gold stock portfolio this week.
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INFORMATION About the author: Douglas V. Gnazzo is CEO of New England Renovation LLC, a historical restoration contractor that specializes in restoring older buildings that are vintage historic landmarks. He writes for numerous websites and his work appears both here and abroad. Just recently he was honored by being chosen as a Foundation Scholar for the Foundation for the Advancement of Monetary Education (FAME). Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America. The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
