Honest Money Gold and Silver Report: Market Wrap
Week Ending 11/20/09
The following excerpt is from our full weekly report available for subscribers only. Please note that the section below on gold is from the May 1, 2009 report that discusses gold's inverse head & shoulders formation that was still forming at the time - waiting for confirmation that recently occurred.
Interest rates are showing their strong influence on the markets. The Fed and other central bankers have been busy plying their trade: intervening in what are supposed to be free markets.
This is why Congressman Ron Paul so rightly calls for not only an audit of the Fed, but the abolishment of the barbaric relic as well. Godspeed to Ron Paul.
Up first is the daily chart of the 10 Year Treasury Yield (interest rate). The chart shows that from 2008 to 2009 yields fell dramatically. This was a boon to bondholders, as bonds move inversely (opposite) to yields.
From early 2009 to June, rates rose quite fast; and have since formed a downward sloping price channel. Whichever way yields break out of this channel, be it up or down, the result will play large all markets. Notice how much action has centered around 34.
The unseen hand can be seen most readily in the steepening of the yield curve. Someone has been quite busy - perhaps Tiny Tim and his band of merry men. Be that as it may, the difference between long term rates and short term rates has been increasing (steepening).
This is illustrated most clearly by the 30 Year Yield (TYX) that has risen from the abyss of late 2008, to 4.295 as of Friday's close; while at the same time 90 day paper (IRX) has dropped off a cliff and hangs just above the bottom of the abyss (zero).
It seems that the U.S. and Japan are in a race to hell - zero bound interest rates. Such malfeasance is beyond rational thought. The unacceptable should not be accepted. The road to hell is paved with lies and broken promises; and the pavers have been busy.
Last up for bonds is a long term chart of 30 Year Yields that goes back to 1982. The 27 year-long downward sloping price channel is a secular trend of huge proportions: long term rates have been declining for decades.
Notice that rates are presently near the upper trend line; and have been bumping up into that trend line for several years now. Also, remember the yield curve is steepening.
If rates were to break and hold above this channel, turning resistance into support, a secular trend change could possibly be in the making. This is mere speculation at this time - not fact.
However, if such were to occur, the mortgage and related markets would not be happy. Another fine "job" orchestrated by the Fed; and some wonder why Ron Paul calls for their abolishment? The faults are many - the reasons legion: like the number of dollar bill credits the Fed has created.
The dollar was up 0.38 for the week, closing at 75.61, for a +0.50% gain. It appears that the dollar is trying to carve out a short term bottom, albeit from lower lows than its Oct. lows. Price is bumping up into horizontal resistance (blue line) and its upper falling diagonal trend line from the Sept. highs.
If the dollar can clear these two resistance levels, then it has a chance of challenging more significant resistance marked by the black horizontal trend line at 76.5.
A positive MACD crossover has occurred and the histograms are entering positive territory as well. RSI is turning up, but has stalled at the 50 level. It is important for RSI to break above 50, for any chance of a rally.
Next is the daily chart of the Power Shares DB Dollar index (which trades), hence volume levels are available. It shows pretty much the same as the $USD chart, with some nuances.
UUP is also trying to carve out a short term bottom from lower lows. Presently, price is bumping up into resistance near 22.50. Notice that the 50 dma is just above, at 22.61, followed by horizontal supply marked at 22.75.
The dollar's first real test will be at horizontal resistance marked by the black trend line at 23 (if it gets there). Just above is an open gap indicated by the blue arrow. Volume has increased on the days the dollar moves up. The dollar appears to be on the verge of either collapsing, or putting in a short term counter trend rally. As of now the trend is still down.
Both stocks and commodities have been rallying side by side since March. Australia and Canada are two of the major commodity exporting nations; hence their currencies have been stronger in relation to currencies from nations less dependent on commodity exports.
The charts that follow show this currency relationship with commodities. Watch the dollar in relation to these currencies, as a move lower in the Canadian and Australian currencies versus the dollar would warn that a fall in commodities is likely.
The euro is basically the inverse picture of the dollar. While the dollar has been falling relentlessly since March, the euro has been steadily rising. Just as the dollar looks like it may be getting ready to rally - the euro appears it may be getting ready to correct.
The daily chart shows a rising wedge pattern, which usually (not always) resolves bearishly. Price is presently testing the lower trend line. Further below is more significant support at 145. Resistance is at 150.
MACD has put in a negative crossover and shows a negative divergence along with ROC. Gold and the euro trend in the same direction, so a falling euro would likely present a headwind to gold's advance.
Gold (from the May 1, 2009 market letter)
Despite short term weakness on the daily chart, the weekly chart still shows a possible inverse head & shoulders formation, with the right shoulder presently under construction. This formation has been noted in the report now for weeks.
Notice that price could still drop further and not violate the present formation. This does not mean the formation is guaranteed, as until a breakout above the neckline occurs on expanding volume, it is all merely potential not actual.
Nevertheless, the potential does remain, now it remains to be seen if it obtains. Possible upside targets are around 130 if a breakout occurs and holds.
The above chart and discussion of gold's inverse head & shoulders formation is from May 1, six months ago. Our upside target of $1300 was discussed months prior to the recent breakout, which is one reason why we were confident in offering a money back guarantee for new subscribers (on a few different occasions) if gold didn't make new all time highs this year. This offer has since expired, as gold has made new highs (a few times).
For those interested in whether our upside target of $1300 still obtains, and for a discussion of whether the gold stocks will follow in the same vein, come visit our website, or request a trial subscription by sending an email to firstname.lastname@example.org.
The full market wrap report covers all the markets: stocks, bonds, currencies, commodities, and the precious metals. A free book on Gold is offered to all new subscribers - one that explains more than just investing in gold; including a detailed examination as to why the cause of the financial crisis is the fact that gold and silver have been unconstitutionally removed as the only form of circulating legal tender, and replaced by bills of credit (Federal Reserve Notes); bills of credit (paper money) that the Constitution expressly forbids.
A new monetary system of gold and silver coin is offered. We are interested in not only making money in gold and silver, but more importantly - in gold and silver coin circulating as money, as ordained by the Constitution. This is the only sustainable cure for today's financial problems - perhaps the most important legacy we can leave our children, and their children to come.
Good Luck. Good Trading. Good Health. And that's a Wrap.