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August 19, 2006

Oil, Gold and Interest Rates
by Greg Silberman

Will he, or won't he?
Will Fed head Ben Bernanke raise Fed Funds another ¼ point or will he stand pat?
Maybe he'll stand aside.
Maybe he'll change his wording to, "...expect future increases".
Maybe not,
Maybe, maybe...

Then again, does it all really matter?

LATE BREAKING NEWS:

NEW YORK (MarketWatch) -- Crude ended just shy of its record high Monday after industry giant BP PLC threw the market into a spin by shutting down 8% of the country's oil output to fix a leaky pipeline. [BP is shutting down its Prudhoe Bay oil field in Alaska]
http://www.marketwatch.com/News/

Or, how about this one?

A senior Israeli officer told DEBKAfile: We can go on bombing Lebanon for many weeks, but that will not stop the rockets.
http://www.debka.com/

Lots and lots of stimulus for the markets to deal with.

I've been talking a lot about the Middle East and by extension Oil, so let's take a look and see whether Crude is confirming the 'Bullish' news (or if the bullish news is warranted by the charts)?

Chart 1 - Crude Oil very Bullish

The chart of Crude Oil has been showing text book action.
A breakout from a triangle formation (green lines) in late June and subsequent re-test in late July. The re-test looks successful and the MACD and RSI have turned upwards.
The next level of resistance comes in at the July high of $79.86 (blue line).
A break above that high brings $90 Oil squarely in focus!
Will it happen?
The market is certainly acting as if it will.
But why speculate, we'll find out soon enough!

One thing's for sure, the public is conscious and well aware of the effects of Higher Oil- Less money to Spend!

Here's another significant development to watch:

Chart 2 - 30-Year Bonds (top) Dow Jones Industrial (bottom)

The 30-year Bond recently broke above resistance at 108.5 (interest rates moved lower). The Bonds are undoubtedly saying that a combination of weaker than expected Job numbers, housing, retail and now, higher Oil prices are all Signalling an economic Slowdown.

Interestingly enough each low in Bonds preceded the corresponding low in the Dow by roughly 1 month (blue lines). If this correlation continues it will signal that the Dow will break above resistance at 11200 - 11300 by early September. [If this happens the HUI will almost surely rise above it's July highs].

So get this, a rising Oil price combined with an already soft economy causing the Stock Market to RISE!
What gives?

The markets are celebrating, "No More Rate Rises Thank You Mr. Bernanke!"

More commentary and stock picks follow for subscribers...

Greg Silberman CA(SA), CFA
www.goldandoilstocks.com

Profession: Research Analyst and Newsletter Editor
Company: Ritterband Investment Management LLC

Career Brief: Greg qualified as the youngest Chartered Accountant and Chartered Financial Analyst (CFA) in South Africa in 1998 at 25 years old. After completing his traineeship with Grant Thornton he moved to London where he worked for JP Morgan Chase in their Fixed Income Swaps Division. Sick of the grey skies and cold weather Greg relocated to Atlanta, Georgia where he spent the next 4 years freelancing as a management consultant. His targeted clients were fast growing mid size US based companies and he worked across many industries including credit cards, health insurance and energy trading. Greg has recently returned from Sydney Australia where he spent the last 2½ years working in Equity Derivative Structuring for Perpetual investments a major Australian Asset Management Company.

Greg has a passion for the markets and has been writing Greg's market newsletter for 2-years. A newsletter focused on metal and energy stocks and recently non-resource small caps listed in the US and Internationally.

This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.