Monitor Updates & Forecasts - April 2008
4-30-08 Mid-Week Gold Alert:
Please be forewarned. A dangerous head and shoulders pattern has developed in gold. I don;t se this as a long-term top, but it means that gold can easily drop as low as $800/oz. in the next few days.
Here is the chart:
The same pattern has emerged in the XAU and especially the HUI:
This is the first time I have seen H&S patterns develop in both the HUI and XAU AND in gold itself, so a warning is due.
As indicated on Sunday's Update, Monday's action set the tone and decided which way gold would "choose" (or be made to choose) at the crossroads we ahve arrived at.
Don't forget, though, that all of this is pure engineering in order to present a technical picture that makes gold look weak. Fundamentally speaking, gold can in no way be called "weak" by and measure. But the "powers" know that most investors subscribe to advisory newsletters that pay too much attention to the charts and the technical pictures they present, and to little on fundamentals.
Nevertheless, the powers are not going to simply let go of gold at this point. They want their results, so gold will go down from here. How far is hard to predict. My guess is $800.
Nevertheless, the same fundamental upward pressure that exists today has existed for the past several months, and it isn't going away. If you are concerned about this and are unwilling to ride out this coming bottom, selling some gold and silver (no more than 1/3) at this time might be advisable. The metals drop really fast and rise much slower, so when the technical uptrend resumes, there will be enough time to buy back in - but be warned. Very often, people hesitate to buy back in until it is almost too late to benefit from having sold in the first place.
I am not going to sell. I will ride this out, but you may be different, and you need to be informed of the patterns that are emerging. If you are gong to sell some of your gold, do it now. Not tomorrow or next week. My personal view is that physical should never be sold unless THE top is appearing - and that has not happened, by any means. Please remember that.
Your May issue of the Monitor will be ready late night on May 2nd.
See you then.
Gold has shown two days of stabilizing last week and then was hit hard on Wednesday and Thursday, only to catch itself again on Friday when it closed "up a few" after a very volatile day.
Where it goes from here next week will probably determine its course for the next few weeks. if it bounces and closes up for the week, the potential double bottom on the chart below will have been confirmed. Otherwise, we will likely see gold finally revisit its support at $850, as I've been expecting for a while now.
The biggest determinant of gold's near term path will probably be the dollar, which has received verbal support from the G7 that was probably followed by some so far undisclosed concerted action. In addition to that, traders have unloaded some of their short positions based on that statement, which allowed the powers to push the metals down more than they could have otherwise.
The dollar bounced and broke out of its slowly ebbing downward funk - right at the point where it happened to form sort of a convoluted triple bottom of what normally would be interpreted as a bearish declining triangle formation.
This was helped by the German IFO index, which showed marked weakness in the business sector, alongside other indicators that the EU zone isn't immune from the US-led global slowdown. Analysts are mistaken, however, if they think that this will cause the ECB to cut its target rate anytime soon as inflation remains very high by European standards. When are they going to learn that the ECB is not just a European version of the US Fed? It's a central bank and it pumps out fiat just like the rest of them, but it's main function is not to gun the EU economy whenever weakness shows up somewhere.
Meanwhile, we are all treated to the press talking point that the dollar will recover further, and has done so, because the Fed is expected to cut one more time this week, down to 2.00 percent for the federal funds rate, and then "pause." It seems more like the real reason for the pause will be that the recent anti-gold and silver actions, together with further press talking points, have helped the Dow to launch a bit of a breakout through its resistance at 12,750.
If the Dow manages to break above 13,100 or so, where it will have crossed the 200 day moving average on the chart below, expect a renewed assault on recovering the 14,000 level. If that happens, it will actually be bullish for gold because then the pressure is off the powers. Gold will always be allowed to rise while the Dow is doing well. It is the gold-up/Dow-down divergence that they cannot tolerate for prolonged periods of time.
A rising Dow also provides quasi-intellectual cover for the fact that Treasury yields are soaring as their prices plummet. Inflationary expectations are the big equalizer in all of this, as well as foreigners' refusal to further weigh down their sovereign wealth funds with US debt.
Bonds and Rates:
The TNX (10-year note yield) has decidedly broken out of its downward channel and is rising rapidly. Once it goes past 4 percent, that rise will likely accelerate.
Of course, this is supposed to happen only when money flows into stocks,because otherwise people might get alarmed by what they already know: that price-inflation is out of freakin' control. So, a nice recovery in stocks can probably be expected - until another Wall Street heavy lifter goes down the drain, like Lehman Brothers, for example.
Rumor has it that saying what you think will happen in the markets (i.e., what the SEC in its Orwellian ways now calls "spreading rumors") can get you slammed by that August body. A poor Schlob by the name of Paul Berliner was the first to go. He actually told a few people on his email list that he thought a planned deal between ADS and Blackstone would go sour. He sold ADS stock short and got slapped with a $130,000 fine which he agreed to pay without admitting or denying that he did anything wrong. So, watch out next time you tell anyone what you think. You may be accused of spreading "vicious rumors" - and God forbid, if you end up being right, you may get slammed by some government agency for being right.
Interesting times ...
The metals shares indexes are showing something of a divergence themselves. While the HUI looks more bearish than ever, now putting in its fourth megaphone pattern, the XAU is trying to put in a near-triple bottom, it seems, and silver is actually putting in a very precise "triple-B".
We'll have to wait for next week to see who wins.
To sum it all up, gold and silver are at a serious crossroads at this point. Both have received a little support on Friday, chart-wise, and are trying to put in bottoms while the XAU has done the same. The HUI, on the other hand, looks devoid of support.
The bouncing dollar together with signs of recover in US stocks, however, make it very possible that pressure will be taken off the metals as the establishment's worst-case scenario appears to have been averted for now.
If my theory holds, we will see gold and silver bouncing alongside the Dow and treasury yields. As for gold stocks, on the other hand, I see a serious turnaround and powerful rally only when the worst case scenario happens and gold and treasury yields rise in tandem while the Dow and other stock indexes go underwater for good.
See you next weekend.
The article from Friday incorrectly stated that the use of the Globex platform for gold trading was a new development. in fact, COMEX has been using Globex since 2006 for trading gold and other precious metals. It was only the first day this was reflected on the Kitco chart. Since I do not trade, don't write about trading execept in general terms, and do not recommend trading to subscribers, I was under-informed on the Globex issue and served up a misleading article. I have requested that the article be pulled and pulled it from the Monitor website as well.
The fact remains that neither the fundamentals nor the technical indicators concur with the tremendous drop in gold that happened on Friday. The only viable (however unpalatable) reason fro dropping gold is that the "powers" are getting deeper and deeper into their own doodoo and are gasping for air through pretty much the last straw that currently supplies them, with air: gold suppression!
They have tried everything else and reserved this action as a last ditch effort. It, too, will fail.
The reason for that was also indicated in the article, namely:
Soaring bond Yields:
Prices of US Treasury 30-year bonds and 10-year notes have dropped at breathtaking speed last week. Currently, as a result of the co-engineered uptick in equities, the excuse is the usually inverse relationship between bond and equity prices. When equities rise, people supposedly sell bonds in order to sink money into equities.
The truth, however, is that the Dow only had two strong up-days during the past week (Wednesday and Friday) while the 10-year Note had nothing but down-days all week and three consecutive deep ones, at that, from Monday thru Wednesday. The same is true for the 30-year bond.
The reason for the treasuries' fall this week is that investors are finally getting wise to the fact that inflation is accelerating, regardless of what carefully massaged official pronouncements claim in order to assuage the public. The press blames it on "investors" betting on a halt to Fed rate cuts, but that is nonsense. Bond investors are not that stupid, actually. Halting the Fed's short-end rate cuts will have zero common sense effect on bond investors and traders.
In fact, it is the anticipated further cutting of rates that drives bond prices down. Lower rates increase expectations of future price inflation which erodes the value of long term fixed-value investments. A halt to the rate cuts would actually have a positive effect on bonds - at least in a sane world where news reporting isn't a mere propaganda tool that is ridiculously out of whack with economic fundamentals and reality.
The HUI keeps giving small advance signals that its drudgery days will be over, soon. Friday was a bad day for the HUi, to be sure, but the index strongly rebounded after the tremendous original drop, closig much closer to the day's high than the low. Also, on Wednesday, the HUI shot up much farther than gold did, and Friday's downside close of the HUI was higher than Wednesday's open, while gold fell and closed far below it's Wendesday open price.
For gold's drop Friday to be even marginally justified, oil would have had to drop as well, but oil actually advanced to an all-time high that day. Even more indication that the precious metals drop was completely fabricated and represents nothing but a desperate show of sheer manipulative muscle.
As today's Euro vs Dollar article noted, the financial press attributed all of Friday's negative gold and positive Dow action to a "bounce" in the dollar. That "bounce" was negligible and did not even get the dollar to peek above its one-month downtrend line that began on March 24th.
I expect gold to resume its rise during this coming week.
Gold & Silver:
The charts for gold look fairly discouraging from a technical standpoint:
But that just goes to show how unreliable charts are when the fundamentals point the other way. Fundamentals always break chart patterns. Chart patterns never break fundamentals. That is one of the most important things to realize in looking at trends. Charts are onyly illustrations. They can help forecast - but never when the fundamental point the other way - and in the case of gold and silver, they do.
Physical gold offtake in dealers' stores is actually enormous. There reportedly are long waiting lists for bullion purchases in both metals. In the case of silver, supplies are even tighter.
China has become the world's No. 1 gold producer this past week - but it's also the number two consumer, meaning any added supplies coming from there aren't going anywhere in the world markets. Even declining demand in India is being largely swallowed up by Chinese demand. Thus the South African gold mining crisis, happening in a time of shrinking world supply and rising physical demand cannot help but produce higher prices, eventually.
This disconnect between the paper and bullion markets in gold was predicted by a famous poster on the USA Gold Forums years ago.So far, however, this has not led to a trading price disconnect as he predicted. The COMEX is a paper-trading market at which actual physical gold deliveries are very rare. Over 90% of trades are settled in cash. So far, COMEX prices are still the ones at which gold and silver bullion are traded over the counter in actual stores, so to speak, but long waiting lists at supposedly weaker prices can't persist for very long.
What this actually presents is a classical case of government price controls. All those ever produce are shortages at the artificially low, government-decreed prices. That is what we are witnessing here, except that the government isn't doing the price-controlling directly. It is permitting it to be done through the so-called private sector, also known as the anti-gold cabal.
Since this happening, any forecasts for the coming week could easily be foiled by the quasi-official price control mechanisms - but the same is true in reverse. The only thing certain is that gold's next up-move will be very, very powerful. I just can't tell whether it will happen next week or later. It is very close, though, as the entire financial system is unraveling.
Point in case: The G7 nations want to bail out the entire international banking system. Just imagine that! We are not talking about the Fed's bailout of LTCM or even Bear Stearns, here. We are talking about the world banking system as a whole. If they even try it, the entire world will e engulfed in hyper-inflation because they can only bail out banks by central banks lending/printing more money.
Amazing, how clueless these highly paid people appear to be.
Looking at the dollar's course makes very clear that there is no real reason for the drop in PM prices.
The dollar can't even manage to get anywhere near its 50-day moving average. Instead, it trails it downward from about twenty yards below. The triangle you see will certainly not break to the upside, and if it does, it will be a false breakout.
The Dow is caught in a serious sideways trading range between its current bottom and former high at 11,750 and the 12,750 level, and on Friday it dropped by over 200 points back down towards the bottom of the range and below its 50-day MA.
The Dow's true weakness is the real reason for gold's apparent weakness. There was a serious Dow-Gold divergence before the March 16th "Black Sunday" Bear Stearns rescue session. That has been alleviated - for now.
Oil has been rising and has stayed above the $100 level far longer than I expected, but it is still moving within the confines of its megaphone pattern.
For as long as the chart doesn't break that upper red line, it is still in line for a serious price drop, and that drop could come soon.
The summer driving season is almost here, so we will see how impervious Americans are to these unprecedented prices. So far, none of them have stopped or cut down on driving or even air travel, but the high fuel prices have wreaked havoc in the trucking and airline industries.
The trucking part is the more worrisome one because that's how you get your breakfast every morning, plus everything else you buy at the store. Truckers are talking about going on a nationwide strike because they can't make money with rates and fuel prices turning their business model upside down.
Either fuel prices give, or trucking rates will have to go way up, and that will cost you even more at the cash register than you are already paying for your groceries.
With these price pressures, gold will not stay down for very long.
See you next week.
Gold has bottomed not quite as close to $850 as I expected and has solidified some gains last week. It seems that the worst of this mega engineering-feat of a sudden decline is over, and it will now soon find its way back up to te $1000 level.
The surprise of this past week were gold stocks, especially the HUI, which has for the first time in a long while dropped less than gold during down days and rose faster than gold during up days - or I should say, "day" - since there was only one day in each case during which this happened, so far. (See chart directly above) If that pattern repeats itself a few more times, this will be a good sign for gold stocks.
The HUI is also trying to establish a very nice broad and relatively steep uptrend channel. That is a very good sign.
The dollar continues on its accelerating downward slide. This is getting more and more serious, from a technical as well as a fundamental perspective.
The bounce it has received on March 17 and thereafter was, as indicated,most likely due to a covert but coordinated international central bank support action.
How little of a difference that has made should be clear from the fact that only a week later, the dollar plumbed the same dismal depths again, as well as from its inability to exceed its subsequent March 24th "high" on the next leg up that terminated April 1st:
Seems I was way off a month ago when I expected oil to drop below the $100 level again after a couple of weeks. The WTIC chart has persistently remained above that level. Although there is a slight chance that an interim double top is forming at this time, it doesn't seem likely to hold.
Long-term US debt paper and yield charts continue their frazzled-looking aimless swings. Bond traders have lost all orientation. Their normal buy and sell signals don't work anymore, but their knee-jerk reactions are still the same. That's why you still see bonds dropping on days the Dow makes a big upswing and vice versa, but it never holds.
Currently, there is no real trend discernible. The only thing certain is that with inflationary expectations pushing ever higher, US treasury bonds have no way to go in the longer term but down, pushing yields up, of course.
Once the dam breaks and yields go rapidly higher, it is unclear at this time whether 1980 will repeat itself. Back then the interest-rate shock threw the US economy into a serious recession and helped the dollar recover, but then there was no euro escape-hatch for the world. Now, the dollar is no longer the only game in town. When rates go higher, they will likely do so world wide, and that means international investors will have plenty of non-dollar options in deciding where to put their money.
Result: The dollar-gold price will not be very much affected by the rate explosion.