Trading Thoughts

By: Ned W. Schmidt | Sun, Aug 14, 2005
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... from THE VALUE VIEW GOLD REPORT

TRADING THOUGHTS is about what the name in implies. The purpose of this publication is to promote timely and profitable trading of precious metals. We do not believe every turn in the market can be called. Our goal is that our recommendations should be profitable. These goals are not the same. Profits are the goal. Trades are not the goal. DO NOT EXPECT ALL RECOMMENDATIONS TO BE PROFITABLE. No system can achieve that lofty goal. TRADING THOUGHTS is not intended to be a lengthy news letter filled with witty comments. The goal is simply to state whether conditions in the precious metal's market are favorable or not. Traders are advised that unless they have exceptional experience not to trade against the basic trend. Trades against market trend not expected to be as productive as those with trend.

Basic Trend: Gold: Up Investors should focus on Buy signals. Strategy: Positive, per Investment Policy of Oct 2004. Investment Policy: Looking for buy signals, and holding long-term core position.

While out and about this weekend, thank any SUV drivers one meets. Any cars with "save the planet" stickers should be greeted with a wave. Thanks to all of those "energy ostriches," price of oil slowly workings its way toward $70. Delta Airlines will apparently be first casualty. Impact on rosy, phony employment numbers? Who next?

The glorious picture in the first chart to the right is certainly one that should make the heart of any Gold investor flutter. Friday's action pushed the price of Gold up, out of the lateral pattern in which it had been trapped. Yeah! Hurrah! Wow! Go for it!

That movement out of the lateral pattern confirms that trend has returned to the positive mode. While ending the week overbought as the shorts had their "shorts" squeezed, some retracement is likely in the coming week. Let Gold price settle before buying due to over bought condition. A little consolidation is likely, and then on to new highs.

That smell in the background is that of a Gold bull market. While the stock groupies fret over their Dell delusion this weekend, the Gold bugs can relax and reflect on coming profits.

Basic Trend: Silver: Up Investors should focus on Buy signals. Strategy: Positive, Per Investment Policy of October 2004 Investment Policy: Emphasize Buys

Silver is a little behind Gold at this moment. Note same lateral pattern exists in Silver. A short-term buy late this past week suggests that Silver is preparing to also move out of the lateral pattern. Given that Silver is over sold, a move upward is possible to catch up with Gold.

The next rally should take out $7.50, and the top of the lateral pattern. Traders will be drawn to Silver. That will set the stage for taking out last year's high before Labor Day. $9 Silver is still expected before a year end.

Recommendation: Sell Dell stock, and buy Silver this week. Gold buyers should wait for consolidation. Hold Gold and Silver for higher prices, and profits!

SOME OTHER THOUGHTS: Periodically some graphs that we have us ed in either the monthly letter or in a posted article may be of continued interest. We will run them on thi s page. The comments will be brief as the graph is the real message. Will appear when something interesting, and time permits.

This graph is U.S. personal savings as a percentage of disposable income, or what is commonly called the savings rate. The latest plot is essentially zero. U.S. consumers are not saving any of their disposable income, essentially income after the tax collector extracts all that is possible. By definition, savings is income minus consumption. S = Income - Consumption. That means U.S. consumers are spending all they get on housing, gasoline, furniture for their new homes, etc. Across the chart is a line for the average of the time period shown. To get back to the average savings rate, U.S. consumption would have to fall by $250 billion, annualized. Back before the stock market crashed, the gurus said the savings rate did not matter because of stock market profits. What happened? Both the stock market and the economy crashed. Now, the gurus say do not worry because of housing profits. People are now "saving" with their houses. They are doing that cause the last advice was such a disaster. So, what will happen now? A housing price collapse and a Great Recession are just over the horizon. Reversion to the mean is not an idle concept, but tends to be the way the economic world works.

 

Your Eternal Optimist;


 

Author: Ned W. Schmidt

Ned W. Schmidt,CFA,CEBS
The Value View Gold Report

Ned W. Schmidt,CFA,CEBS is publisher of THE VALUE VIEW GOLD REPORT and author of "$1,265 GOLD", published in 2003. A weekly message, TRADING THOUGHTS, is also available to electronic subscribers. You can obtain a copy of the last issue of THE VALUE VIEW GOLD REPORT at The Value View Gold Report. Ned welcomes your comments and questions, and tries to answer most all. His mission in life is to rescue investors from the abyss of financial assets and the coming collapse of the U.S. dollar. He can be contacted at ned@valueviewgoldreport.com

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