06/05/2011 by Philinje.

The jobs numbers came in better than expected, which is contrary to what was expected after the ADP report earlier this week.

This has re-ignited some risk-on trades, like the AUD and to some degree gold and silver. But the Euro has not moved much and the dollar index remains pegged at the 74 high it shot up to yesterday.

It seems there are two prevailing beliefs about what happens next:

1. The dollar weakens again early next week and then moves down through its all-time low of 70.7, causing the precious metals to explode.

2. The Euro bounces but sets a lower high and the dollar reversal takes off, causing a bunch of consolidation and correction over the next couple of months.

To support 1, here is a story pointing out the long-term strength of the Euro:

http://www.dailyfx.com/forex/fundamental/us_dollar_index/daily_dollar/2011/05/06/U.S._Dollar_Index_Halts_Three-Day_Advance_Major_Trends_Remain_In_Tact.html?utm_source=twitterfeed&utm_medium=twitter

To support 2, here is another story from the same site pointing out the change in trend of EURUSD:

http://www.dailyfx.com/technical_analysis/elliott_wave/

If the first scenario unfolds, there will be some signs, but the explosion part could be very fast, kind of like the decline this week.

Either way, there will be a bounce soon. Certainly the positive news in the NFP report has put a base under the risk aversion that swept through everything this week.

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05/05/2011 by Philinje.

Silver does that sometimes. Just when it’s supposed to hit that new target higher, it crashes. This one may not be due to the big boys. Here is a great explanation of what happened this week:

http://moneymorning.com/2011/05/05/the-silver-bull-despite-this-weeks-sell-off-we-see-higher-prices-ahead/

Yes, the relentless rise in margin requirements has had an effect. The selling has continued much longer than would have been the case otherwise. Silver has hit its 50 DMA at roughly$38.

The references at the end are interesting. Here is the Arends story, which includes a very nice chart:

http://hotair.com/greenroom/archives/2011/05/04/is-there-really-a-gold-bubble-maybe-not/

Now to really tie up all these threads, here is our man Toby Connor:

http://goldscents.blogspot.com/2011/05/greatest-profit-potential-of-last.html

Please note he takes a dollar collapse as a virtual certainty, meaning a fall below the current support at the all-time low. And by the look of his charts, he thinks that could start tomorrow with the NFP report.

Commodities are deflating right now, and silver could drop further, but keep in mind that if the dollar really does collapse here, it could be explosive for gold and silver.

On the other hand, we could get a mild pop post NFP, then a dollar reversal,  and then a major correction lasting a couple months. So either a top is confirmed soon, or the bottom is happening now and a big move up follows.  Pretty divergent possibilities, so stay alert.

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04/05/2011 by Philinje.

Silver is swooning badly but at $39.70 is important support. It just tested it.

There are several indications that the top for gold and silver is not yet in. The first is that gold has held up pretty well. Gold is basing around $1530 and a likely timeframe says that the current correction could end today.

The second sign is that the dollar has been bouncing around 73 but it looks like it could drop from here. The Euro just began a push toward 1.50, which should be an important target and resistance area. This would be roughly the 71 area on the Dollar Index, which is near the all-time low in March 08.

In fact, there is a small chance that the Euro will power through 1.50 toward 1.60, which would cause gold and silver to blast off. But that is not so likely. Instead, the dollar will likely bounce from that level and there will be a decent correction in the precious metals.

We just might get a spike in gold to $1600, as early as this Friday or mid next week. Timing cycles point to May 12 as a top. Based on silver’s weakness this week and last, it does seem that the coming top will be significant, and silver could drop pretty far from current levels. But there may be a pretty decent bounce first.

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28/04/2011 by Philinje.

The Fed funds rate and comments yesterday, including Bernanke’s first ever press event, satisfied the market that the Fed is killing the dollar. Naturally, gold took that as an excuse to finally break free after acting so sluggish recently. Silver, on the other hand, was previously going wild with the other rising assets and now is acting more subdued than gold.

Historically, silver has a habit of running up to its high before gold and then gold rallies, even though silver often does its parabolic stunts toward the end of consolidation periods for both metals. In this case, silver is simply catching up to its previous all-time high around $50, and getting the gold:silver ratio more in line with historical averages. So gold has been way ahead in general terms anyway. Now that the death knell of the dollar has been solidly rung, gold can truly fly.

The cycle top in May, around the 12th, is a good target in terms of a top. In terms of price, my guess is $1600 will be hit by then, and maybe higher. The kind of big moves we’ve seen in silver could now show up in gold.

May 12 is Thursday, so Friday the 13th could be the fateful day when this rally comes to an end. We are witnessing history in the making! Hang on, the ride is about to get even wilder.

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25/04/2011 by Philinje.

Exuberance in silver earlier today in Asia was amazing, causing a move to $49.80 roughly. When NY opened, the traders were pretty cranky after a long weekend and have been selling off all markets, but silver got taken down by $2.50! Amazing, but getting to be commonplace. Nevertheless, is this it? Meaning, is a top in?

It seems that a certain target was hit, but it’s hard to say if this is the beginning of a decline. It is still the case that a cycle date is coming up around May 12. We could see a bit of consolidation here and then maybe a double top in mid-May. Or silver could head to the mid-50’s. Gold, on the other hand, could head to $1600. It all depends on the dollar.

Here is an excellent analysis of what could happen, based on the newly started dollar crash last week, which is threatening to reach its all-time low in the next couple of weeks.

http://thetsitrader.blogspot.com/2011/04/gold-c-wave-tops-and-us-dollar-crashes.html

In other news, China did not re-value its currency over the weekend. Instead, it is talking about diversifying $2 trillion of its $3 trillion in foreign currency reserves, meaning it will use a massive amount of dollars to buy lots of other stuff, including gold. Undoubtedly, that had something to do with the spike up this morning. But after the $2.50 drop in silver, does that news go away? I think not. Check out what Zero Hedge has to say:

http://www.zerohedge.com/article/china-proposes-cut-two-thirds-its-3-trillion-usd-holdings

At this moment, it’s noon in NY and both gold and silver are bouncing back nicely, and both are already above their closing highs of last week. We will have some turbulence on Wed potentially because of the Fed meeting, but once again the bear raids are looking pathetic. Isn’t this exciting?

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21/04/2011 by Philinje.

This article is excellent for pointing out what could happen until the May NFP report (which follows shortly after the next Fed meeting):

http://goldscents.blogspot.com/2011/04/dollar-cycle.html

The point is that gold and silver may continue to rally until the May NFP. Especially silver is already in a runaway rally. It might spike explosively if short covering turns into panic. It’s obvious that any attempt at a bear raid is futile.

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09/04/2011 by Philinje.

Thanks to an unsettled Federal government budget, the momentum behind the Euro, fueled by the rate hike this week, kept going, instead of turning around just after the rate hike was announced. The Euro has broken its larger downtrend and could keep heading higher.

However, there is some talk of the Fed ending QE2, and as mentioned here previously, that could be confirmed at end of this month. That might be enough to trigger a dollar rally. Another factor is that the bailout for Portugal could turn ugly, with numerous arguments breaking out in the coming weeks. Here is a detailed look at that situation:

http://www.dailyfx.com/forex/fundamental/forecast/weekly/eur/2011/04/09/Euro_Rally_Looks_to_Portugal_Bailout_Talks_for_Added_Fuel.html

What if the US governement announces a budget agreement early next week? Possibly that could trigger a knee-jerk bounce in the dollar. That could affect currency pairs but it’s not clear how much effect that would have on gold and silver. If equities rally, the effect could be muted. For now, the breakout in gold is strong and gathering momentum. But there could be some sensitivity to the dollar based on assumptions about its long-term trend. Next week could be volatile, and then end of this month could be significant.

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06/12/2010 by Philinje.

Gold and silver snuck even higher at end of trading on Friday. Since when does the price creep higher at the end of Friday, in the vicinity of the highest price ever? You mean, traders are desperate to own more before the weekend? That almost never happens.

This interview is the first place I have seen the term, Qualitative Easing:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/12/3_Ben_Davies_-_Massive_Short_Squeeze_at_Hand_in_Gold_Market.html

Note the main point of Ben Davies, CEO of Hinde Capital, is that a short squeeze in gold and silver is at hand. As we have crossed the $1400 barrier in gold thanks to the pathetic jobs report on Friday, the next stop is $1600 or $1800. Jim Sinclair thinks we will be at $1650 in January, which has been his official position for years, believe it or not. He officially made a million-dollar bet in public that the gold price would beat that level in Jan 2011.

For a more sedate and mainstream view, here is a fairly straightforward projection to $1500 or so:

http://www.investorplace.com/24372/investing-in-gold-gold-bull-run-far-from-over/

The question is, where will silver be? Near-term it has broken through a double top and exceeded its recent all-time high (gold has not quite done that yet), so $30 or $31 seems nearly certain (but remember, there is no such thing in the markets). Longer term, some project $135 or so when gold is $5000 or $6000. If we get a near-term blow-off top, maybe we’ll see an impressive spike high in silver.

In any case, buckle in for the next launch of the shuttle, USD Independence. ETA end of Feb 2011, or so.

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04/11/2010 by Philinje.

Now that the Fed has officially launched QE2, right on the heels of the midterm Republican wins, the market has reacted by selling the dollar and buying stocks, bonds and commodities. The reflation trade is back on.

Considering how widely opinion was converging on a correction in gold and silver, it seemed a near certainty that gold would drop to at least $1300. Right before the Fed announcement, there was a spike down to $1325, but that was as low as it got before recovering quickly and now heading back toward its recent all-time high around $1387 spot.

The dollar Index has broken 76 to the downside and therefore it looks like a double bottom around 76.5 may not occur. That could mean the dollar will quickly fall to 74, its low a year ago, and then if it keeps going, to its all-time low around 70. Probably it will break that level and head to the 50’s, eventually.

But there is reason to be cautious. The dollar is losing versus the Euro and pound but not other currencies and its recent decline already accounted for QE2 to an anticipated level of about $500 billion. The announcement was for $600 billion, so possibly most of the announcement is already baked into the price. The dollar index has moved slightly lower but it’s still in the territory of a long-term rising trend line.

We might see about a week of follow-through from the announcement, especially if there are no surprises in the NFP numbers this Friday. Probably most of the market is waiting for that final indicator to see if it really does make sense to short the dollar at this very oversold level, right on a rising trend line.

Playing the NFP will be especially tricky this time if there is a surprise. A really negative surprise could cause a risk-averse safe haven move into the dollar, even though in theory that would guarantee more low rates and reinforce that QE2 was justified.

But that’s the problem. Most of the announced QE2 is already in the dollar price. And what about a positive surprise? Well, then it could look like the Fed will raise rates sooner than anticipated and maybe even throttle back on QE2. Frankly, I think a positive surprise is more likely. The ADP figures this week were surprisingly positive and corporate earnings have been on the rise. If we get a big positive surprise, that could trigger a dollar rally.

In the meantime, here is a thought-provoking piece that contemplates one way China could defend itself against a falling dollar. Which makes sense. It’s another version of the new gold standard argument.

http://blogs.forbes.com/investor/2010/11/02/opium-wars-revisited-will-china-corner-the-gold-market/

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28/04/2010 by Philinje.

As I’ve been mentioning for a few weeks, there have been signs that gold is re-gaining its safe haven status. The big difference between now and early 2008, when the stock market tanked and gold shot up to $1033, is that the dollar was falling then. Since the crash in Oct 08, the dollar has risen as a safe haven when risk aversion sentiment increases and in anticipation of the Fed raising rates.

Yesterday the S&P downgrade of Greek bonds to junk was a trigger in another bout of risk aversion that took the wind out of equities. But shortly before the announcement and then during it and afterwards, gold moved strongly through resistance at $1160 and even went as high as $1172. Interestingly, silver declined a bit and was generally choppy at its current high level. Lately silver has been less volatile than gold, which is unusual, and on the whole has not been as susceptible to down moves. Conversely, it didn’t move up as much either yesterday.

In short, yesterday was a clear signal that gold is separating from equities AND the dollar and beginning to shine again as a safe haven. This is not the same as saying that gold is the answer if Europe crashes.  Severe issues in Europe mean that the dollar will strengthen off of Euro weakness and that will hurt commodities and hard assets. But there is some glimmer of hope that gold may not suffer as much. And it strengthens the possibility that we might see a spike in gold in the near future.

Even in Oct 08, gold suffered the least of all commodities, and one would think that was due to its nature as a monetary alternative. Interestingy, gold fell about as much as the dollar rose, whereas silver, oil and all other commodities got crushed. Then it recovered quickly and stayed strong as equities continued on to their low in March 09. Since March 09, most asset classes have risen together and gold achieved a new high in December. That gave the impression that re-flation was fueling gold’s rise along with equities, especially as the dollar began to rise in December and gold fell.

Take a look at these charts of yesterday’s action, courtesy of Ino.com. First, the dollar, then gold, then oil.

Again, yesterday was NOT an all-clear signal for gold. The dollar will benefit as a safe haven and as the counter-balance to a falling Euro. But if gold also acts as a safe haven, then it could be reasonable to expect it would maintain some kind of parallel strength with the dollar. This line of thinking could reduce the risk of significant down moves in gold.

Certainly another factor in the mix is the overwhelmingly popular opinion that the dollar is in trouble too. The US debt looks staggering and the Greek crisis has underlined the sovereign risk of nations like the US and UK. While markets love to move in opposition to popular opinion, meaning the dollar could rally significantly, it is possible that gold will see some panic-driven spikes up, especially since US Treasuries have been quite weak (until yesterday of course, but the trend is down). With signs of a strong recovery in consumer spending and corporate earnings, the anticipation of inflation is increasing.

There is also a lot of chatter about China re-valuing the Yuan, which in essence weakens the dollar and gives China even more power to buy commodities. This may or may not happen any time soon, but markets anticipate such things. And let’s not forget the commercial short position in the Comex is at all-time highs, which leaves open the possibility of a short squeeze (yesterday could have been a small example).

All of this adds a nice pillar of support to gold, and somewhat increases the possibility of a spike up, along the lines of a near-term peak at $1350. This does not mean it will happen. But as time goes by the odds are getting better.

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