Gold and Silver Report
Gold & Silver
Gold and silver have been one of the strongest and best performing sectors of the market. Recently they experienced a typical counter trend correction. Even the strongest bull markets have corrections all along their rise. Without these corrections the bullish trend would not be sustainable.
It is normal and healthy activity for any bull market to go through such corrections, although admittedly, they bring pressure to bear on all but the most resolute investors - bringing forth doubt and questions as to the validity of the trend, and of their own individual capacity to hang on and ride the bull to the end.
We are of the opinion that the bull market in gold and silver has much further to go then it has so far experienced - and so far it has experienced quite a bit. Currently a short term rally appears to be in the offering as the below analysis implies.
We suspect that both higher prices then presently exist are in the immediate future - as well as lower prices that test the recent lows. Once again, this is normal bull market action.
It is the portrait of the fight between buyers and sellers that takes place in all markets - it is the price action between supply and demand that makes a market to begin with. After the recent lows are tested a new intermediate term move upward is expected to commence.
Silver gained 2.8% for the week, closing at $12.37. Silver has been outperforming gold as the charts below indicate.
Silver/Gold Performance Ratio
Since mid July silver can be seen acting much stronger than gold, however, we view this as bullish for gold as well. The next chart shows silver's overall performance.
Silver Continuous Contract
Silver has been carving out an upward sloping channel since mid-June. It has continued to make a series of higher lows and higher highs. Presently it sits just around the middle of the channel. RSI is headed upwards as well.
Although silver has been outperforming gold, we do not think that this is a long term or even intermediate term trend.
When the next intermediate leg up in gold and silver begin we see gold outperforming silver. As of now, however, there is no doubt as to which metal is acting stronger: clearly silver is the better choice.
Gold closed at $621.05 (continuous contract), sitting just below its 50 dma of 622.21. Gold has been in a symmetrical triangle since June. The price range is getting smaller and smaller. Soon gold will either break down or break out above.
The weight of the evidence has slowly but steadily accruing for the latter. A higher low at 607.40 in August is well above the previous low of 602.61 back in July. As long as higher lows remain intact - the trend remains up until it doesn't.
Gold Continuous Contract
HUI Gold Stock Index
The HUI has been making repeated "assaults" on overhead resistance levels, most specifically the 347.51 level. It has surpassed on an intraday basis, but not on a closing basis.
However, the more assaults on overhead resistance, the weaker the resistance becomes - finally demand overcomes the weakened supply, or the supply proves to be too much. The old supply demand ballgame - the dynamics of the marketplace.
We are of the opinion that the overhead resistance will soon be penetrated and a subsequent short term rally will occur. However, we also believe that the lows from back in the June to July timeframe will be tested before the next intermediate term rally begins.
We could well be wrong, and the gold stocks may just rally up from here, or break down and continue down. However, gold is in a bull market until it isn't. Consequently we are putting our money where our mouth is, which is behind the golden bull.
We have accumulated a significant amount of gold and silver stock as evidenced by our gold stock portfolio below.
The next chart is of the HUI Index.
HUI Gold Bug Index
As the chart illustrates, the HUI has been outperforming gold since mid-July. This is a very positive development, as the stocks should lead the metal higher. For a time they were under performing - now they are over performing: a positive factor.
Presently the ratio is at 0.55. Its 50 dma is at 0.53, so it remains above its 50 dma. On the chart you can see the horizontal blue line that shows the significant levels of 0.563 and 0.569. When the latter gets taken out - the HUI will be breaking out to the upside. This may happen as soon as this coming week.
As evidenced by our gold and silver stock portfolio below, we have been accumulating substantial positions in several stocks, including both GFI and HMY, which are South African gold mines.
One of the reasons why we have taken such a position in SA is because we see the trend of the SA Currency (Rand) no longer outperforming the US Dollar. The Dollar has now been outperforming the Rand.
We believe this will continue for the short to intermediate term - long enough to have a substantial positive affect on the bottom profit line of the SA mining stocks.
SA gold is priced in dollars, yet the cost of production is priced in Rand. When the dollar was under performing compared to the Rand, it had a very negative affect on the SA mining companies profit margin. Now that the ratio has changed, the profit margin of the SA stocks should rise significantly.
The above is the precious metals section of our weekly market wrap. Come visit our new website and see the full market wrap that covers all of the markets.
There are articles on gold and silver and an open letter to Congress to return to the hard money system of gold and silver coin mandated by the Constitution - Honest Money.
A live bulletin board and many other sources of information are available, including our own personal gold and silver stock portfolio with all dates and prices when all investments are purchased and sold.
COMING SOON: A REQUEST FOR AN AUDIT OF US GOLD RESERVES