Honest Money Gold and Silver Report

By: Douglas V. Gnazzo | Tue, Aug 1, 2006
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Gold and Silver

Report

Introduction

We will begin with the U.S. Dollar, as there is some very serious negative divergence occurring on the charts, which may provide a forewarning of what may be coming.

U.S. Dollar

The U.S. dollar index has been trading in a band between 87 and 84. Whichever way it breaks will give the direction of the next move.

The dollar index closed the week at 85.19 down 0.6%. The dollar registered its largest weekly loss since June against the yen and euro. The supposed reason was data that indicated the economy may be slowing down.

The dollar fell 1.3 percent against the yen (114.65) and 0.5 percent against the euro ($1.2759) It was lower against almost all major world currencies for the week.

The odds on the Fed raising rates in August has now dropped from 44% to 26% according to Federal Fund Futures.

US Dollar Index

Note the extreme negative divergence of the MACD Histograms. They have kept falling lower WHILE the dollar index rallied upwards. The dollar/gold performance is at the very bottom of the chart, showing gold outperforming the dollar. This extreme divergence will be brought into line - one way or the other: as in up or down.

We remain steadfast that the Rand will be on the losing side of the dollar/rand trade, which is beneficial for our South African Gold Stock positions, as it boosts their profit margins. Last week the U.S. dollar lost 0.38% as compared to the SA Rand. This warrants a watchful eye.

Precious Metals

Gold

Gold closed at $634.32 well above its 50 dma (550.17). It added $11.67 (+1.87%) and ended going out on its high for the week. A good performance.

As the chart below shows gold is within a narrowing triangle. It will soon break out of the triangle - be it up or down. Gold is in a bull market until proven otherwise - hence the probability is for a break out to the upside.

Gold Continuous Contract Weekly

The chart below shows the fibonacci retracement levels for gold. The first fib has been breached and we are fast approaching the second at 636.90 with gold closing at 634.32.

After that the next hurdle is 658.97. We suspect more upside action, however, we do not expect a new high during the present move, nor is one needed. All that is needed is a higher low. Higher lows give way to higher highs - when nurtured with patience.

Gold Continuous Contract Weekly

Silver

Silver had a good week as did gold, closing up with a 4.5% gain. It fell short of its weekly high by less than 2 cents.

As the chart below shows, silver closed above it 50 dma, and it broke above its downtrend line. Next on the agenda is a close over the July high of 11.59.

RSI is pointed upwards with plenty of room to rise before overbought territory is reached. Histograms have just gone positive. MACD appears ready to move from flat to up.

Silver Continuous Contract Daily

Precious Metal Stocks

Precious metal stocks ended the week on a good note. During the beginning of the week they rallied, but then on Thursday they took a hit.

Rather than staying down for the count, they rallied back up on Friday, closing at not only a weekly high - but a 2 week high as well. A job well done. The stocks are once again leading the metal: a positive development.

HUI Gold Bugs Index Continuous Daily

The HUI forged ahead 20.51 points for a weekly gain of 6.62%. A falling wedge has formed with a series of converging highs and lows. Such formations are considered to be bullish until proven otherwise. A bull market is until it isn't.

Pressure is building due to the convergence of highs and lows within a smaller and smaller area. The price action will break out of the triangle one way or the other. A bull market is in force, therefore a breakout to the upside is most probable.

HUI Gold Bugs Index Weekly

The weekly chart shows a descending triangle formation as does the daily. Histograms are shrinking back to zero. MACD still pointing down but appears to be flattening.

RSI has turned up. The index has twice now bounced off its up trend line and is above its 50 dma. The index could still break either way. We should know by the end of the week what's up - or down.

HUI Index Weekly

The above chart depicts the fibonacci retracement levels. The first has already been surpassed. Next up is 335.95 a short distance above. 351.46 is the big hurdle to close above.

If the 61.8% level is breached an assault on the recent high is possible. We do not suspect a new high on this present move, nor is one required. All that is needed is a higher low on any retracement or retest. Of course we would gladly take a new high being made.

XAU Gold & Silver Index

XAU shows the same descending triangular pattern. Prices are being compressed like a coiled spring; and they will soon break out one way or the other.

A bull market is in effect therefore a breakout to the upside is favored. Next target is 146.00 and then 150. A gap awaits between 153-158.

Gold & Silver Stock Portfolio

As readers familiar with our work are aware - during bull markets we buy on weakness and sell into strength. Our model portfolio is comprised of actual buy and sell orders that we have executed in our own personal account.

The listed stocks in the portfolio show the dates and prices when purchased, and again when sold. Recently we sold into the highs and then bought back in during the first wave down off the highs.

Since then we booked profits once more, and have now accumulated another position, including Thursday and Friday of last week.

We are not planning on buying any new positions on Monday or early next week, however, we do not make a definitive decision until tomorrow is here showing us what she brings forth and offers. We try to roll with the punches as they say.

Come check out our portfolio to see the actual buy and sell prices and dates. On the first positions sold we booked very nice profits within a few weeks time. We have been fortunate to say that we have done this several times during the gold bull, as the written and published records show.

Our website is primarily for learning about monetary theory and investing, with an emphasis on the hard money system of the Constitution of gold and silver coin. Check it out - you might be presently surprised.

New Positions

A new silver position is under consideration. Natural gas is also on our radar screen, as it has the best risk to reward ratio that we are aware of. Cash paying 5% without risk is not the worst of investments at the present time. It affords one to keep their powder dry while earning a profit.

We are still of the opinion that we will see lower prices on the gold stocks BEFORE an intermediate term move up occurs. That is when we want to back the truck up as they say.

Presently we have accumulated a significant position in the pm stocks. We may end up holding them until the intermediate term rally later this fall to early winter; or we may book profits by the end of next week. Either way, we will let the market decide for us.

Below is a chart of one of our gold stock positions in the portfolio. This week's market wrap includes several more, as well as charts on the overall stock market, bonds, currencies, commodities, energy, and comments on the geo-political world event's possible impact on our investment portfolio.

Northgate Exploration Ltd.

 


 

Douglas V. Gnazzo

Author: Douglas V. Gnazzo

Douglas V. Gnazzo
Honest Money Gold & Silver Report

Douglas V. Gnazzo is the retired CEO of New England Renovation LLC, a historical restoration contractor that specialized in the restoration of older buildings and vintage historic landmarks. Mr. Gnazzo writes for numerous websites, and his work appears both here and abroad. Just recently, he was honored by being chosen as a Foundation Scholar for the Foundation of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly, Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

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