A World on Fire
The world is on fire, with the financial sector in great turmoil not only in the States but in Europe as well.
This global fire was caused by the greed of the white collars on Wall Street and their mortgage lending to people who really couldn't afford it. The only thing that was important for the investment bankers were their bonuses, which grew bigger by the year. Now their world is crumbling down, and the bill for their escapades has been handed to the American taxpayers.
Surprisingly, the dollar is holding up fairly well, especially when you take into account that the government already saved a few not so small financial institutions with taxpayer money. But now Paulson is asking for another 700 billion to save the economy from another Great Depression. Who's going to come up with the money? Foreign investors, like the Chinese, Japanese, or the Arabs? Doubtful. Even Congress is undecided.
It is very, very surprising that the dollar didn't crash with all these enormous sums of money surfacing. A billion dollar seems to be nothing anymore. More and more zero's are being added to the numbers, and the money needed to bailout Wall Street is getting bigger by the day.
This looks likely to lead to huge inflation in the long run. So what's the true value of a dollar, euro, or any other paper currency if it's not backed up with hard assets? Sooner or later people will see the light (eventually they all do), and after scratching their heads to figure out what to do with their hard earned money, Gold and Silver will have already been bid up into the stratosphere.
It's still not too late to beat the masses to the punch, and you can buy the punch today at prices well below anything seen for years. Sometimes you even get more than you pay for in the case of companies with cash positions in excess of their market capitalization.
All charts are courtesy of Stockcharts.com
Gold is holding up pretty well after an initial thrust higher, and is settling above the $875 level giving it time to build some more strength for another run.
The bullish setup is improving by the day and it seems just a matter of time before the next wave higher starts. As long as the $875 holds, we can expect this new wave higher soon. Should, however, the $875 level be broken to the downside we will have established a lower high and the chances for a new lower low will increase.
The indicators, RSI, DMI (buying power), and MACD are all in favor of the positive outlook.
Silver hasn't reached the same positive setup as Gold and it is still below the important resistance level at $14, stalling between $13 and $14. However, it seems to be just a matter of time before this resistance will be overcome provided that Silver manages to stay above its 14 d. MA.
The signs in the chart are improving, the 14 d. MA is curling up in support of a further rise and the indicators are also moving in positive directions. The RSI has settled above the 50 level and it can use this level as a springboard to reach for higher ground, the buying power is making an effort to take charge, and the MACD is moving higher - although it's still below the 0 line.
Once the MACD gets above the 0 line, we will get our confirmation that the trend has turned positive. And by the looks of things, this could happen very soon.
The outlook for Oil changed dramatically once it dropped below its 14 d. MA. Instead of a further recovery, Oil dropped to lower levels and reached the supports at $100 and then $90 very quickly.
From these levels a new bounce is taking place, but Oil running into the resistance at $110, a level which used to act as support. A break above this level would make the last fall a false move and the chances for a further rise would increase dramatically. However, should this just be a back test of this level, we have to prepare for another fall towards the last low made at $90. The $90 level will then come under tremendous pressure.
As long as Oil can hold above its 14 d. MA, all is well and the expectations for higher prices are still valid. The indicators aren't signalling clearly either way at this time.
The USD is holding up very well. It managed to reach the important 80 level, which was/is the neckline of the huge Head and Shoulders pattern presented in our report some time ago. This move could just be the long awaited back test of this line before the decline continues, but the USD is showing some surprising signs of strength so nothing is certain yet.
For now the USD is holding its own above the magenta line and the 50 d. MA, which keeps the positive outlook alive. But the indicators are sending mixed signals. The RSI dropped below the 50 level into negative trend territory, and selling power as taken over in the DMI. The MACD is heading lower, but remains in positive trend territory as long as it can hold above the 0 line. If this line is taken out, a sell signal will be triggered, and we will most likely see the start of a new wave of selling.
The chart for Copper deteriorated last month when it dropped below its 14 d. MA.
Copper reached the $300 level, and the current bounce isn't all that convincing. Last Friday Copper dropped and closed below the 14 d. MA again, confirming the expectation that lower prices are most likely to occur. The next target will be the $290 level where the low in December of 2007 was set.
The only chance to fight off such a decline is for Copper to move back above both its 14 d. MA and the $320 level very quickly. Unfortunately all of the indicators are negative, which tells us that such a positive expectation is little more than wishful thinking.