Trading Thoughts

By: Ned W. Schmidt | Sun, Aug 26, 2007
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TRADING THOUGHTS is about 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. Profits are the goals. Trades are not the goals. Do not expect all recommendations to be profitable. No system can achieve that lofty goal. TRADING THOUGHTS is not a lengthy news letter filled with witty comments. Goal is simply to state whether conditions in the precious metal's market are favorable or not. Current investment strategy is bullish for Gold. Buy signals are issued when appropriate. These signals are generally speaking for day they are issued. If price remains below signal price, buying can be done. Do Not Buy signals are given when market is over bought, and buying is unwise. We are not issuing any sell signals in a bull market.

We are moving to a new format this week. Was just time to do something different, and wanted to add some items. Any comments on it would be welcome.

The financial world did not come to an end, though the U.S. mortgage market has ceased to function. Serious problems with U.S. mortgages in Europe, Canada, China, and just about any other country where gullible buyers were found. If Greenspan was still in charge, someone would have sent a moving van to his home long ago.

Collapse of value for U.S. mortgage backed securities has crushed confidence in U.S. paper. Can anyone imagine an investment officer at any central bank recommending the purchase of U.S. mortgage paper, or from any other issuer?

Basic Trend $Gold Up.
Conditions were shaping up for Friday perhaps being an important short-term bottom, and that was the case. The intermediate indicator was approaching a buy signal and the short-term measure had already turned up from over sold. Selling pressure from hedge funds seemed to have abated somewhat. More important than anything was that Gold really was having trouble going down. Gold has, quite simply, failed to breakdown.

Attention will now turn to $690. No fund wants to be short Gold when it moves through that level. They will want to be long. We may see some panic buying in the weeks ahead. Hold on to that Gold.

A giant liquidity hole opened up when the mortgage backed paper market crashed. In Europe alone, more that $50 billion was moved out of funds and banks. That money ran to the U.S. government bond market as it is the only large liquid pile of debt. That buying pushed up the value of the dollar. Dollar reached an over bought condition. It now seems to be rolling over from an over bought level, and is likely to move to a new low. That would create a bullish background for Gold. In last three weeks, central banks were net sellers of more than $24 billion of U.S. debt. Start of a trend?

CN$ GOLD: CN$702
CN$Gold has clearly bottomed. Since financial world did not come to an end some market players are attempting to return to what worked before the mortgage crash. Such moves are always foolish. CN$ benefitted from that last week, and that more problems did not occur in Canadian funds. CN$Gold is over sold. Move above $720 is likely, and that will bring in buyers.

EU€Gold: €488
Europeans learned again how fragile financial markets can become, and how rapidly that fragility can develop. A massive liquidity hole opened up. The German banking system will never again be the same. That such events can happen so quickly is the reason investors should diversify into Gold. €Gold has developed a lateral pattern now several months old. With over sold condition and fundamentals favoring Gold, a move up and out of that pattern is increasingly likely.

GBP £GOLD: £333
GB£Gold focus is on that £336 level. With a clear short-term uptrend in place, a move above that level is possible. That action would attract further buying. Money in London not likely to prefer paper assets over Gold. The over bought condition that is developing may retard extent of any advance. Global conditions favor Gold, and London-based investors are more focused on those.

Have started coverage of China¥ Gold with this issue. Chinese investors in the markets for Gold and Gold stocks are going to be important in the years ahead. Individual investors have been long-term holders of Gold, and those holdings will only increase as the nation's wealth grows. We hope to serve those investors in the future. Additionally, investors in other nations need to know what the picture looks like for the largest pool of potential Gold buyers. Inflation in China is a serious problem, and individual Chinese investors need to increase their holdings of Gold when over sold conditions develop. By the way, Chinese government may be more honest about inflation than U.S. government. It recognizes that people eat food and consume energy.

GDM: 1012, +42, + 4%
The Gold stocks did not like what the hedge fund computers did to them in the past few weeks. We need to remember that many hedge fund portfolios are run by computers. These funds claim their systems are "state of the art". Well, a wooden club was once "state of the art". Computer programs fail to include the market price impact of their selling. Computers dumped stocks. Stocks fell. As we can see the stocks became deeply over sold, and are coming back. Stocks are still over sold, and are returning to a more appropriate higher valuation. Buy your favorite. Do not act like a Street manger and wait for higher prices to buy.

Have spent more time thinking about Silver than any other segment of the markets. We know that Silver is a saver's market rather than a trading market for most Silver investors. That means that the demand side of market does not immediately respond to prices. When funds began their mechanical, mindless selling at $13, price could do no other than it did. Silver investors should be taking advantage of these deeply oversold prices.

Group think on the Street is that mortgage market collapse was a twoweek event. All will return to as it was before. Financial world is never the same after such a massive collapse of value. Hundreds of billions of dollars have been lost by investors. What happened to the mortgage market will happen to many funds and investors. Using borrowed money to invest in dubious values is always a road to ruin.

The economic ascendency of China, India, Russia, Brazil is having a major impact on all commodity prices. Wheat is trading at a record high on both high demand and supply problems. The chart to the right is of our Base Food Price Index versus the S&P 500. This boom in food commodities is likely to last 10-15 years, or more. The inflationary impact of rising food prices will benefit investors in Gold and those other investments associated with food. Write for more information.

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

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