Honest Money Gold and Silver Report: Market Wrap
Week Ending 5/11/07
The U.S. Bureau of Economic Analysis announced today (5/11/07) that the monthly goods and services deficit increased from $57.9 billion in February to $63.9 billion in March 2007.
The U.S. Department of Labor reported that the U.S. Import Price Index rose 1.3 percent in April, following on the heels of a 1.5 percent gain in March.
The Bureau of Labor Statistics said that the Producer Price Index for Finished Goods increased 0.7 percent in April. Excluding foods and energy the index price remained unchanged for the second consecutive month.
The Commerce Department reported that retail sales dropped 0.2 percent in April after a revised 1 percent gain the prior month.
The decline in retail sales included a drop in auto sales, building supply and clothing stores. Sales at department stores dropped 2.1 percent, the most since November 2002.
The UBS-International Council of Shopping Centers figures for same-store sales for more than fifty retailers fell by 2.3% in April, which was the weakest report going back over 30 years.
- Wal-Mart reported a 3.5% drop in sales
- Target sales were down 6.1%
- Federated sales fell 2.2%
- Kohl's lost 10.5%
- The Gap down 16%
- Abercrombie & Fitch dropped 15%
Sales of building materials were down 2.3 percent as well. Weakness in consumer buying is starting to rear its ugly head. If buying weakness persists there will be trouble in paper fiat land.
The Federal Reserve held its main interest rate at 5.25 percent. The FOMC said that "the committee's predominant policy concern remains the risk that inflation will fail to moderate as expected".
The Bank of England stated that risks to price stability are "tilted to the upside." They then proceeded to raise rates a quarter percent to 5.50%.
Mr. Trichet and the European Central Bank held rates steady at 3.75%, as expected.
Canadian Central Bank Governor David Dodge is retiring, wisely following in the footsteps of Sir Alan who knew well enough to leave Dodge (no pun intended) before the shooting starts.
Read an excellent article to see how twisted this tragedy really is, and how it's going to get worse before it gets better. From Bloomberg News by Sharon L. Crenson: New Orleans, Devastated by Katrina, Hit Again by Subprime Mortgage Crisis.
Tighter credit in response to the increasing subprime fallout is starting to take hold in the wealthy suburbs. Connecticut and New York's Westchester County are being hit with declines in home prices.
Read an another excellent article by Bob Ivry at Bloomberg News titled Home Prices Decline in Wealthy New York City Suburbs Once Immune to Slump.
Gold & Silver
Gold was down -17.40 to $672.30 (-2.52%). Its intraday low for the week was $655.90, and its intraday high was $693.30. The intraday low of 655.90 tested support at 655, which so far has held.
I have received a number of emails asking me why gold and the gold stocks haven't taken off making new highs. I have no definitive answer - no one can. There is a confluence of contributing factors that always go into the price of any asset.
One thing that is known, however, is that since the middle of March, the central banks have sold approximately 100 tonnes of gold. This was done when the gold price was trying to break through $690, which sales can thus be said to have been in "defense" of the 690 - $700 level.
Last week the central bank of Spain sold 2.6 million ounces of gold into the market. So the CB's have been busy little beavers, and the market has absorbed all the selling quite well.
This leaves one wondering what will happen when the "dumping" stops - as it will. They only have so much to start with, and they have agreed to sell per the Washing Agreement, which limits their selling.
The weekly chart below shows that the first support line has so far held. The next line of defense is indicated as well.
Notice the 20 wk ema has not been violated, and the 65 wk has yet to be breached by any significant amount or time since the bull market began. It presently resides at $618.02.
Silver was down -0.22 cents to $13.31 (-1.66%). Silver's lowest daily close for the week was $13.14 on Thursday. Its intraday low was $13.02 and its intraday high was $13.69. It closed above last week's low of $13.13.
The pos just barely broke below its 20 wk ema at 13.38. Its 65 wk ema is at $12.14. RSI has held above 50 and MACD appears to be ready to make a positive cross over - all of which needs to be confirmed by positive price action.
The first chart below is the euro with the price of gold overlaid. As the chart shows, the two track each other fairly close. The euro may warrant watching for a hint of the direction of gold. The second chart is oil compared to the Hui, which also tracks closely.
Johannesburg South Africa
The Hui closed down -8.07 to 337.84 (-2.33%) for the week. Its intraday low for the week was 331.12 and its intraday high was 350.89.
The daily closing low for the week was 332.04, so the index closed off the low by 5.80 points.
Last week's intraday low of $333.37 was tested on Thursday (331.12 intraday - 332.04 closing basis) and the index closed below; only to rally and close back above (337.84) on Friday - the weekly close, which is the most important closing price of the week.
RSI has not gone below 50 which is constructive. Histograms are shrinking, however, and MACD appears ready to make a negative cross over. Plenty of mixed signals.
The stochastic indicator is headed down from above the 80 overbought area and is approaching 50. Notice the last two declines only went just below the 50 level.
This warrants watching closely. A higher low would be most constructive, and could occur soon or may have already occurred.
The daily chart below shows some interesting positive divergences. Depending how they work themselves out, things could get interesting.
Next we bring your attention to some point & figure charts of the Hui, the Xau, and the GDX Index.
Both the Hui and the Xau show bearish downside price projections. In our opinion both the Hui and the Xau are outdated indexes that need to be changed to better reflect today's precious metals stock sector. We are presently working on a proprietary index.
This does not mean that the pm complex may not be headed for a further correction, as it may - the signals are mixed, but the weight of the evidence still favors a positive resolution.
The GDX Index is a better indicator of today's overall gold & silver mining stock sector. However, what matters most is how the stock(s) you own are doing.
Last we have the weekly chart of the Xau Index. It closed down -2.09 to end the week at 139.76 (-2.09%). The index tested and bounced off its 65 wk ema and closed above it by approximately 5 points (almost 4%).
The index has been trading in a range from 150 - 130, and sits at 139.76, which is right in the very middle of the trading range. It is important for 130 support to hold, and resistance at 150 needs to be broken and sustained.
We are looking for this to occur, followed by a test of the April highs, which may or may not be bettered, however, either way the next major phase up of the gold bull market is not directly ahead - at least that is how we see it right now. Things could change.
The most probable scenario is for the highs to be tested followed by a pullback that consolidates and builds a stronger base nearer to $700 for gold; 400 for the Hui; and 170 for the Xau, to launch the next major phase up from.
Obviously there are many other scenarios - this appears most probable. The market could just continue ahead or it could correct down further from here.
The gold stock we are featuring this week is Hecla Mining (HL). We've owned it before and we are holding a fair amount now. We added to our position last week during the bloodletting.
Hecla just had a strong run a few weeks ago, which we sold into. We are now accumulating a new position as it has corrected down enough for us - but that's just us.
As a well known financier recently said - everything is in a bubble, and so it is - everything almost is. Most asset classes have been inflated by the bubble of all bubbles: the U.S. Dollar and the plethora of other paper fiat world currencies.
Global stock markets (except for the middle-east oil nations, which we find most fascinating) are rising towards the Sun like Icarus. Will it end - yes, when - when it does.
The world's bond markets provided a bonanza for the last several years, only recently have rates begun to rise. Real estate can't get much hotter - giving new meaning to "too hot to handle". Why handle it when you can flip it?
Forex markets are doing just fine thank you. This is the playground where the rogue elephants hang around to play. It's best to just stay out of their way, as they tend to stampede easily, running over anything in their way.
We don't like most of what we see because most of it is not real - it is all a chimera of speculation fueled by excess credit, and when the music dies, so too will the party. Bye, bye to the American pie of never-ending consumption. Hello to savings - the only question is: save what? Hint: it's shiny and yellow. It hasn't lost purchasing power in thousands of years, quite remarkable when you think about it.
This is one of the reasons why we stress Honest Money of Gold & Silver Coin - real money that is no one's debt obligation. When the inevitable melt down of the paper fiat global monetary system occurs is when gold will shine its brightest, as it has for thousands of years.
As a consequence of the above, gold is one asset class that is not in a bubble - it is actually extremely undervalued even though we don't agree with pricing or valuing it in U.S. Federal Reserve Notes that are merely paper fiat debt-money or dollar BILLS.
Remember - a dollar bill and a dollar are two different things. A dollar bill is a fiat piece of paper: an i.o.u. or debt obligation. A dollar of the Constitution is a one ounce silver coin: real money.
Silver is the definition of a U.S. Dollar; and silver sets the standard that is the U.S. Dollar - the one ounce Silver Dollar. All else except gold is counterfeit - hollow empty lies and promises that cannot be fulfilled.
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 also 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 with people from around the world and many other resources too numerous to list.
Our gold stock portfolio with all buy and sell orders is posted in the public domain for viewing. See which stocks we own, have sold, and bought most recently and last week.
Drop by and check it out. Good luck. Good trading. Good health. And that's a wrap.
Happy Mothers Day