Gold and Silver Report
Gold & Silver
Gold closed at $631.00 down $19.60 or -3.01% for the week. As we mentioned in the report last week as well as on the bulletin board on the website we suspected that some more downside action would occur - and it did.
This is normal market action with gold testing its recent break out. A bit more may still be in the offering this coming week - or not.
The chart below shows gold above its breakout point. RSI, MACD & Histograms are all indicating a short term move down has/is occurring.
Gold's 50 dma is getting very close to a positive cross over of its 200 dma. This would be another important piece of the puzzle falling into place.
Next up is the silver/gold ratio. Higher numbers indicate silver is out performing gold.
As you can see, silver has been very strong and has handily outperformed gold. Some take this as a negative for gold - we do not. This is a positive indicator for the precious metals group as a whole.
Silver closed the week out at $13.61 down 0.29 cents or -2.08% for the week. As noted above - gold was down just over 3% for the week, so once again silver is out performing.
The XAU gold & silver index lost 4.08 points to close the week out at 143.08 for a loss of -2.76%. This is not unusual price action - as a breakout has recently occurred and this is a test of that break.
The index is still above the breakout point with MACD just recently putting in a positive cross over. RSI has curled over and the histograms are in positive territory.
Often times after a breakout has occurred there is a test of the break - if it holds it is more positive data that the bull is alive and well. Occasionally the price action can even go a bit below the trend line or break out point.
The first chart below is the XAU daily, the second chart is the HUI/GLD Ratio.
The next chart shows the precious metal stocks as represented by the HUI Index to be presently in the short term headed higher compared to GLD, however, from a longer term perspective they are under performing physical gold.
A higher high needs to eventually be made if the gold bull is going to have long term sustainability. First the downward sloping upper trend line needs to be broken through, and eventually a higher high then the 6.37 registered back in 2004.
GDX (Market Vectors Gold Miners)
Next is the GDX Index of precious metal stocks. It remains above its breakout point. This is a good way to get exposure to the pm group without having to buy individual stocks. It can be used as a core position or as a trading position.
As the chart shows, a test of the break out is in progress. The various indicators are all turning down because of the recent short term weakness, which is to be expected, and is normal price action after a break out.
Below is a chart of Goldcorp, which is one of the major gold mining companies. We have owned the stock a few different times during the gold bull market. It has always been good to us.
However, one should never become attached to a particular stock if the technical indicators are negative. We don't marry a stock - we purchase it for profit.
Presently Goldcorp is showing some negative divergence as illustrated on the chart below. This does NOT mean that Goldcorp MUST go down in price, however, it is saying heads up as it may very well go down as part of the process of resolving this negative divergence.
Next up is Harmony Gold, which has just broken below its middle Bollinger band. All indicators have turned down, and MACD has made a negative cross over.
We took an initial position on Friday and are looking to purchase more as the stock approaches its lower Bollinger band.
It would be wise and prudent to wait for the indicators to turn back up before taking any action or new positions.
However, for our own accounts we like to front run a bit. Early in. Early out. One can just buy and hold, or play the break outs with confirmations - or buy into weakness and oversold conditions IN A BULL MARKET.
The latter way, for our personal accounts, is our way - you must determine your way on your own. Everyone has a different trading style that suits them the best - just as some like chocolate and some like vanilla - and some don't like either. Different strokes for different folks. It is what makes the world go round - and what makes markets as well - differences of opinion.
IAG has also broken below its middle Bollinger band. We are looking to buy into weakness this coming week - even if it is only intra-day weakness. Patience would be prudent here as with Harmony.
Here, for our own accounts, we will most likely front run, as well. We accumulate positions incrementally which lends itself to buying into weakness and oversold conditions. As long as the bull market stays in place it works fine.
Metallica Resources has been in a steady correction. It has broken below its middle Bollinger Band and is close to its bottom Bollinger Band.
Since we like to buy into weakness we will most likely be taking an initial position this week - depending upon the set up offered.
Vista Gold is another stock that has already had a pretty good correction, although more looks like its coming.
We have been in and out of this stock several times, and have been most fortunate with it (see gold portfolio buy & sell transactions).
VGZ has broken below its middle Bollinger Band and appears headed down to its lower band which is a ways down - over another $1.00 We are looking to buy VGZ on further weakness but will wait until it gets closer to its bottom BB, and then reassess the situation.
Next is Seabridge Gold which is being shown as an example of negative divergence which we would NOT buy until such is resolved.
The chart below is self-explanatory.
Miramar Mining is presently in our gold stock portfolio. We have been in and out of it a few different times and it has been good to us. Our newest position was accumulated a bit below the present price.
MNG has broken below its middle Bollinger Band and may be headed for its bottom band. As the chart below illustrates - IF (??) MNG holds above its middle Bollinger Band it may be forming a cup with a handle formation, which can be quite positive.
We are watching intently to see what next week brings.
The various economic indicators send a mixed signal, not that we trust their validity or accuracy. However, they are what they are - and many do watch and move accordingly - so we watch for signs of what the herd may be thinking.
We do know that housing has been weakening, and last week saw a weakening in manufacturing as well. Yet wages are rising and may be rising further.
Interest rates cannot continue to fall with both bonds and the dollar moving the opposite direction (up). Either bonds have got it wrong or the dollar has it wrong - or they both have it wrong.
It is possible (and we expect this eventually) for interest rates to go up causing bonds to go down AND the dollar to go down as well - as the addict is too weak - another shot merely hastens his demise. The point of no return has occurred - dead man's curve cannot be negotiated. They don't come back from dead man's curve.
Commodities and energy look as if they may have halted their fall, which means there could be two new sources of pressure on rising prices.
This may or may not be the case, however, if it does materialize further there are only two choices: the additional costs are passed on to the consumer or the producer accepts lower profits. Wage inflation can be a killer as it usually signals the end of a business (boom) cycle.
Oil may be nearing a bottom and we are watching Suncor with piqued interest. It may very well lead the price of oil. We care not as to why it goes up in price - as long as it goes up. They don't pay you any extra for knowing why.
We had originally thought that natural gas would be a better play, but we are starting to favor Suncor. If natural gas presents the right set up and opportunity then Chesapeake Bay would be a stock we would consider.
The precious metals have had the much anticipated break out. Now they are having a test of the break out, which is what we thought would most likely occur, so no surprises there.
As long as the trend lines hold (or are broken by a minimal amount and then goes back above) the next leg up in the gold bull is beginning. We are not "all in" as we don't see that warranted as of yet. We are slowly nibbling and sliding into initial positions as we await the outcome.
We are bullish on the pm sector but do not believe as other pundits do that now is the time to be "all in". There will be a time for that - but now is not the hour.
For most a position in physical gold and silver, which can be easily had by the ETF Funds of GLD and SLV are good for core positions. For our own account we prefer the real thing - gold and silver coins in hand.
Either way gold and silver should be held as insurance against the US Dollar's fall from grace, and as a core position in the precious metal sector.
Physical gold and silver is much safer then precious metal mining stocks. However, the stocks provide much more leverage and hence the potential for larger profits (about 3 to 1).
The new GDX Fund/Index is a simple way to hold some gold stocks - be they part of a core position and or a trading position. Rydex Precious Metals Fund is also a viable choice.
For our own account we prefer the individual pm stocks, but each to their own. Only you can know what is best for your unique individual position.
Needed changes have been taking place in our hallowed halls of justice. More needs to occur. I remember my Dad telling me that it takes a bigger man to walk away from a fight then it does to stand there and fight.
There are several proposals by our government that need to be monitored closely: the North American Union proposal; the Amero Currency proposal; the handing over of the Mint to the Federal Reserve; the Military Commission Act of 2006 (passed); the proposal for stringent ID & interstate passports; and the over zealous clauses in the Patriot Act (passed).
We are not enamored with the new Secretary of the Treasury and will leave it at that. The ranting and raving about the Chinese Yuan is a crock. It's the US Dollar as the reserve currency of the world that has been dumped upon the entire world that is more of a problem - as it continues to debase and lose purchasing power.
Our rising account deficits reflect the mechanism the money changers use to export inflation as the biggest US export. It is time to put our house in order before we no longer have a house. Remember and vote accordingly.
Become more proactive - write or email your representatives and let them know what YOU want. It's OUR government - they work for us. Until Honest Money exists no physical policy can have a chance of working. If the foundation is rotten - the structure will suffer accordingly.
Lastly we have an excerpt from a report by People's Bank of China that says:
"If US current account deficit continues to grow faster than its GDP growth, the investment value of US assets may be questioned and challenged and investors' willingness to hold US financial assets will drop… There is the possibility of a sharp US dollar depreciation if foreign funds stop flowing into the US" (MarketNewsInternational).
Which, we would hasten to add - would cause a rise in interest rates, a fall in bonds, a further fall in real estate, and a fall in all secondary business income derived from the housing market (income from businesses that produce the stuff houses are built with and those that provide the stuff that goes into them, as in furniture, appliances, etc.).
Stop by our website and check out the complete market wrap, which covers most major markets. There is also a lot of information on gold and silver, not only from an investment point of view, but from its position as being the mandated monetary system of our Constitution - Silver and Gold Coins as in Honest Weights and Measures.
There is also a live bulletin board where you can discuss the markets from people around the world and many other resources too numerous to list. Drop by and check it out.