Weekly Updates & Forecasts - May 2008

05-26-08 Update:

Gold:

Gold is struggling a bit right above the 50-day moving average and, as pointed out in today's article, is likely to be whacked again as the Dow threatens to plunge back to its year 200 level and below. If this "whack" brings it all the way back down to the $850 level, a major new up-leg will result which could make gold-market history because of its mid-year origin. That has not happened since this bull market began in 2001. If the coming whack does not succeed in pushing gold back to $850, the next up-leg with probably start during its usual September time frame.

Silver:

Silver had a nice breakout from its "bearish" as expected. It will likely take its cues from what happens to gold this week.

Both metals are lodged just below resistance. The fate of the Dow will decide their fate in the short term.

The Dollar:

The buck was trying mightily to pierce its resistance but failed and dropped back below its 50-day MA. Inflation is high in the US, but economic performance is sorely lagging, so Fed rate hikes are likely out of the question, possibly for the entire rest of the year. But that won't deter the longer term rates from climbing, as all have hit their bottoms in mid-March and are back on the rise.

Bonds & Rates:

From the 2-Year T-Note on out, all have hit their multi-decade highs and are embarking on their own secular bear markets.

The 5-Year Note's chart shows the clearest signs that further declines are imminent. It has built out a nice H&S pattern and is currently moving sideways atop its support line from early December 2007. Once that is broken, it will likely reach its June 2007 levels within a few months.

The TNX or 10-year Note yield, meanwhile, is getting squeezed between its resistance from late February and the rising red line of its May uptrend that is right in the middle of its broader (blue) trend since mid-March. Judging from this chart, resistance will probably be broken in the next two weeks.

Under normal circumstances, higher mid to long-term US rates would be supportive of the dollar, but the inflation outlook in the US as well as world wide makes at least foreign purchases of US assets very unlikely until the housing market appears to have hit a bottom, at least. Accordingly, dollar demand will be low. Add to that the Iranian's decision to stop selling oil for dollars altogether, and you can figure yourself where the dollar is going.

Platinum:

One thing we are going to look at more closely in the upcoming Monitor issue is Platinum. This metal has quintupled since it began its bull alongside gold in 2001, and since January of 2007 has doubled in price.

I never thought much of platinum because it is a much more industrial metal, but the recent trend strongly suggests that investors who would otherwise have preferred gold have made a powerful move into platinum despite that fact.

It has formed a powerful double bottom from which it exploded upwards with almost daily "gap-up" performances this past month, and it is both well above its 50-day MA and has pierced resistance at $2,160/oz.

Platinum's performance could well support gold - but it can also go the other way because some tricky "trading vehicles" for taking advantage of its price movements were recently introduced that include vehicles specifically geared to those who want to go "long" platinum as well as those who want to go "short."

In other words, a control mechanism to stem its tremendous rise in the last year and a half has been put into place. This can get very tricky, but more on that in June's Monitor issue.

See you then.

05-18-08 Update:

Gold:

After two weeks of slightly positive sideways meandering, gold broke out of its resistance zone between $850 and $880 on Friday and it seems to be building on its gains despite a brief up-tick in the dollar today.

It is now at a critical level. This weeks movements will determine if the breakout is to be confirmed or if we will see another sideways period. My best guess at this time is that we will soon see $950 again.

The Dollar:

The reason for that is that the dollar just can't seem to be able break out of its persistent "lame-out" pattern that continues to reestablish itself at every successive level to which policymakers are trying to push the dollar. It shows how deep the dollar's underlying malaise is, and how little the successive band aids applied by the powers affect its overall decline pattern.

Especially if you put the dollar's recent upward movements into perspective, it becomes very clear that it is far, far away from any real "recovery" - as far as a drowning body after hitting a ledge on its way to the ocean floor. The following chart shows a perfect example of this:

All of the dollar's recent "peaks" are merely part of the ocean floor topography that has been its environment ever since it broke through the ocean's surface back in September of 2007. According to the chart above, it has fluctuated right around the level of its most recent peak of March 27th until Friday, when it decisively broke below that level.

This "water level" analogy can be taken a few steps further without breaking down. Gold's long-term (non-inflation adjusted) chart shows that it broke through its own water level at $850/oz. and out of its ocean-floor wanderings at just about the same time, give or take a couple of months, as the dollar fell through the "surface" of it's all-time lows.

The big question now becomes whether the dollar can undergo the reverse-evolutionary process of developing "gills" again so it can live under water - or whether it will simply expire there.

This analogy also quite powerfully demonstrates the superior longevity of gold as a currency. Gold has easily survived nearly three decades under water without showing any signs of strain at all.

I guess that, being as ancient a currency as it is, gold never lost its "gills" at all - which throws a very interesting light on the entire foundation of the idea of the survival of the fittest, does it not?

Silver:

Silver has not had quite as big of a day on Friday as gold had. It is now forming what appears to be a "bearish" descending triangle that might lead anyone prone to an over-dependence on charts and tech analysis to conclude that it is in for a breakdown and significant drop.

But with gold having bounced off its long-term floor, having broken its intermediate term resistance, and the dollar continuing to demonstrate its propensity for deep-sea exploration, I do not see much of a chance for a breakdown. In fact, the breakout will very likely be to the upside and may result in a powerful rally instead.

I expect this coming week will tell us which way silver will go.

The Dow:

The Dow seems unable to make it back above its thin, red 200-day moving average line in spite of what many chartists have interpreted as a "powerful" rally, marked by the thick blue short term uptrend line.

This confirms my suspicion that this rally was fueled by nothing other than sheer manipulative muscle in order to calm the teeming masses of worldwide investors which inevitably look to the Dow to make them feel a little better about their poor investment choices.

If the Dow recedes from here, the critical level will be 12800. If i hits that without snapping back above 12900 "toute d'suite", the rally will have broken down, and the entire concocted bullish psychology that has buoyed financial press commentaries about the Dow's recent performance will be out of the window and on its way down to the pavement below.

Oil:

Oil has continued to baffle those who apply normal supply and demand analysis to it for the past year. There is mounting evidence that the current price of oil contains about a 50 percent premium composed of both supply risks and pure speculation .

The risk portion of that comes from the Bush administration's incessant war preparations for its soon-to-be launched attack on Iran. The speculative premium comes from the top-tier investment houses piling on excessive amounts of oil futures options that are betting on a rise all the way to $200 within a year from now.

However that may be, the fact remains that oil prices are at all time highs and climbing, even in inflation-adjusted terms. The powers want high oil prices for several reasons, and one of those is the commercial feasibility of producing fuel from "heavy crude" deposits in Canada and Venezuela.

Aside from that, high prices line the pockets of those corporations that have the most powerful influence on the policies of the Bush administration - so that's what we get.

See you next week.

05-04-08 Update:

The Dollar:

Early indications today are that the dollar is not going to sustain its recent bounce while gold appears to have found its bottom - but that's a very early indication according to Monday's New York Globex trading and the picture in Sydney and Hong Kong.

Let's step back for a moment and look at the dollar's chart going back to 2005.

What we see is a progressively accelerating descent whose third stage or slope has not yet been broken. To do that, the dollar index would have to get back above 74.50. It is now at 73.50.

The press attributes the dollar's recent rise to the market's "perception" that the Fed is done cutting rates, but we have seen in this month's Monitor issue that credit flood gates have in no way been closed or even narrowed. In fact, the credit money spigot is wide open as demonstrated by the progressive ramping up of the Fed's TAF money auctions. Therefore, the entire upswing can be seen as little else than the result of this smoke and mirrors show that is being conducted for the benefit of (or rather to the detriment of) smalltime investors who are being lured back into their cozy and familiar world of paper promises.

In fact, as I write this, the dollar is taking somewhat of a dive in Sydney while gold is bouncing by about $6, then 15 minutes later it's up $7.60.

To make it to the next resistance level, the buck needs to go past its February interim high of 76. It is still a long way from that.

The Dow:

The Dow keeps on climbing along its recent uptrend line, but there is something very suspicious about it all. Most of the other markets like bonds, precious metals, and the dollar had their turning point on March 17, the Monday after the big Bear Stearns fire sale to JPM, but the Dow bottomed and started climbing on March 10. Why is that?

One possible explanation - and the one the powers would prefer you to accept - is that on March 10th, the Dow hit the support line going all the way back to January 2000.

But March 10 had no fundamental news that would trigger such a bounce. The only economic news of note was the Fed's announcement of its new $200 billion "Term Securities Lending Facility" by which it offered to loan pristine US treasuries to banks bogged down by mortgage backed debt securities - and put some lipstick on their balance-sheet porkers.

The other thing is that the Dow's recent rise has been powered by utterly suspicious days of super-rises that follow every more than three-day old attempt of the Dow to sink back into its well-deserved oblivion. That is not normal trading behavior in recessionary times.

Smoke and mirrors - nothing else.

Where the Dow goes from here is critical. If it goes up, it can well recover the 14,000 point unless one of the centipede's other 999 shoes drops before then. If one or more of them drop, that could lead to the tracing out of a slightly lopsided head and shoulders pattern that will presage a huge drop.

Naturally, if it drops, expect gold to get hit again - but that only makes it cheaper for you and me to buy. If I ever get to meet one of the blockheads that actually make these policy decisions, I will profusely thank him for their collective largesse.

Treasuries:

Just like the Dow beginning last year, the 30-year bond is painting a nice picture of an inverted cup for us. That means its price will continue to fall as predicted, driving up long term interest rates.

The short end of the spectrum is falling as well, causing a blow-out in 2-year bill rates that is messing with Bernie's head a bit. He and his central banker frat boys are trying to figure out how to keep the rising London Interbank rate (LIBOR) under wraps. It keeps resisting all efforts to make bank-to bank lending cheaper and to get banks to loan each other money on easier terms.

At the same time, policymakers are scratching their heads about how they can keep lenders from fleeing the student loan sectors, or alternately, how to make sure that student loans will still be available after the lenders have successfully made their exit.

Just in time to coincide with the Fed's announcement that it will accept student-loan backed securities as collateral for certain types of loans (especially in the TAF program discussed in this month's Monitor), Congress has "ordered" the US Education Department to intervene in the student loan market by buying up student loans and otherwise easing loan terms.

More intervention.

What's new?

The free market, or whatever is left of it, will no longer exist if these blockheads continue to get their way - or so they think. They don't realize that they are wrestling with a tiger,and the tiger is very, very hungry.

See you next week.

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