They say a picture is worth a thousand words and in this case it rings true. Gold is solidly in a bull market and while volatile, you can take a look at the platinum chart below, and while it ranged within a $300 range or so while trading above $1,000, it looked volatile and there were times when it seemed it was heading down. Well, it sure didn’t head down but nearly doubled in a matter of months. Expect this from gold in the future…just be patient.

$850 has held very well and, as far as I can see, will never be seen again although a test of it would be nothing but healthy. Both downtrends from the peak have been broken solidly.

All moving averages are heading steadily higher and are far from any bearish sign such as a bearish crossover. The 50-day MA is passing $850 making that level all but history. This is one healthy market on a longer-term weekly chart.

RSI remains above 50 signifying a strong bull market. MACD is making a bullish crossover from a nice level. Slow STO is crossing 80 and is signalling an up-trending gold market:

Silver is taking off and breaking above resistance just below $19 as indicated on the six-month chart in the newsletter. A solid uptrend is holding nicely and $16.50 is very strong support and has held on the many recent tests.

The 50-day MA is soon to cross the support region at $16.50 making it less likely to ever be seen again. MACD is making a bullish crossover from its long downtrend. MACD does not make many crossovers in silver and when it does it usually signifies a strong up move or a correction, followed by consolidation so look for the up move to take its turn here and now. Slow STO turned up right at the bottom and has been an excellent timing signal on this chart recently. Last time slow STO began an uptrend from recent levels the price of silver ran up nearly $10:

Platinum remains within its bullish triangle formation and should continue to tighten its trading range until the triangle is broken to the upside by early fall at the latest. Strong support lies way down just below $1,400 and will likely not be tested ever or for many years. Fundamentally, platinum is very strongly supported at these levels at least until the Eskom power situation much talked about here is resolved. But it still comes down to supply and demand and while other metals are being experimented with in the catalytic converter arena none have yet proven as effective on gasoline engines which are by far the most widely used worldwide and will remains so for many years to come.

The moving averages are still pointing north and solidly so. They have a long way to catch up after the explosion in price but are steadily making progress. RSI remains bullish above 50. MACD is heading lower and as with silver is just signalling a consolidation move, which happens to be with a very bullish formation, the triangle. Slow STO is undecided but slightly bearish and not really giving us much to work with, but with all the other indicators, price and moving averages performing as they are, things are positive:

Palladium is making higher highs and higher lows as it consolidates and postures to break through the downtrend at $450. This pattern will resolve itself one way or another within the next two weeks tops and will give us a better indication of the future.

The three moving averages are heading up and the 50-day MA is not lagging far behind the price and should be supportive. RSI is bullish remaining above 50. MACD is slightly bearish but that just signals consolidation during bull markets. Slow STO is bullish but flattening out as the price runs into the downtrend line.

It was a very constructive week for the precious metals and, by the looks of things, we have more positive things to look forward to in the near future.

You can follow my technical analysis and the complete precious metals industry breakdown at my website: http://www.preciousmetalstockreview.com/.

Best regards,

Warren Bevan
July 15, 2008

Charting New Highs for Precious Metals was originally featured in the Penny Sleuth.

Personally, I exited the last of my precious metals equity positions at $975 per ounce and have been on the sidelines ever since (I do still own physical metals). But I believe that we are currently encroaching a good entry point in the precious metals. I’m normally not a big chart guy, but I would like to throw some charts at you and explain why I will be doing some discount shopping for my favorite mining stocks in the not too distant future.

The first chart I would like to discuss is the three-year daily chart:

Please take note of the similar chart patterns in the circled areas. After spectacular rallies, both the May ‘06 rally and the rally at the beginning of this year, gold entered a consolidation period that took the form of a descending triangle. Gold proceeded to break out at $625 per ounce and rallied to a 60 percent-plus gain. The other point about this chart that I would like to point out is the extremely strong underlying support that the 200-day moving average has acted as. In rare instances, such as following the ‘06 peak, gold briefly broke below its 200-day moving average, but it didn’t stay there for long.

The next chart I’m going to look at is the three-year weekly chart:

I like weekly and monthly charts simply because they drown out some of the intraday noise that might show up on a daily chart. You will notice that this chart has some strong similarities to the daily chart. It has the same descending triangle formations following intermediate peaks. Even more so than the 200-day moving average in the daily chart, the 50-week moving average has been pretty much unbreakable during this bull rally.

So where does that put us? Although I think we are getting close to an entry point in this market, I don’t think we are quite there yet. In the daily chart, I would like to see, and fully expect, the 50-day moving average, the 200-day moving average and the spot price to really consolidate tightly. We have entered a trading period where the spot price is trading between the 50- and 200-day moving averages. They will continue to squeeze together until something breaks. This is a signal that a strong move is near.

In the weekly chart, I would like to see the 50-week moving average fully catch up to the spot price. Again, the 50-week moving average has acted as unbreakable support, and I would like to get my money in at or near those levels.

I’ve made my argument for the possible beginning of a new bullish phase in precious metals, so the next question to pose is how high will the next rally take us? This is a difficult question, especially with the ever-changing atmosphere in financial markets. Given that, I believe I can make an educated guess as to how high the next rally will take us. I am going to borrow a chart from my co-author John Polomny, as well as use the charts above, to come up with some specific numbers:

There is a strong correlation between the price of oil and the price of gold. John mentioned that the last time the gold/West Texas Intermediate crude ration dropped to current levels, it rallied sharply to 12. Let’s go ahead and assume we move back to 12, and let’s also use current oil prices of $135 per barrel. That gives us a price for gold around $1,620 per ounce. Let’s say gold rallies amid an oil rally to $150 per barrel. With the gold/WTIC ratio of 12 and $150 oil, we get an approximate price of $1,800 per ounce.

Keeping that in mind, I am going to refer back to the daily chart. The percent rise in the price of gold between the ‘06 breakout of $625 and the peak of $1,025 per ounce was approximately 60 percent. If the next rally moved another 60 percent, we would be looking at gold around $1,600. This is consistent with the figures I derived using the gold/WTIC ratio.

Using all of the above data, I believe that the next interim high will be in the neighborhood of $1,700-1900 per ounce.

There are a couple of things to keep in mind going forward. In a bull market, like the one we’ve had in gold since 2000, each consecutive bullish phase tends to move by a higher percent than the prior one. For example, although the rally to $1,000 gold was approximately a 60 percent rally from the last intermediate high, the next rally could result in a 70 percent move. This is a result of the Johnny-come-latelys entering the market. Each rally simply has more investors than the prior one.

There’s another item worth noting. Although the 2007/2008 gold rally was spectacular, it didn’t sprint out of the gates. You can see that at the end of ‘06 and in the first half of ‘07, gold just didn’t move much. After a brief rally, it kind of puttered around. But looking more closely, you can see that the chart was actually making higher highs and higher lows, building a solid base. We may have a period like that in the following months.

All in all, I think we are close to a really great entry point in precious metals. I would recommend following a couple of your favorite mining stocks and getting comfortable with their price action in order to determine a proper entry level. There’s no reason to hurry, so take your time and make your moves when you’re ready.

Regards,

Nick Jones
July 2, 2008
The Real Deal

Precious Metals Gearing Up was originally featured in the Penny Sleuth.

With everything in the world of finance, people get scared. Last month, gold broke the $1,000 threshold and silver broke the $20 one. So of course, weak investors got anxious. They pulled back and sold off some of those gains.

As I write, it would cost you $880 for an ounce of the yellow stuff, while silver is going for $16.90 per ounce. That’s 20% cheaper than it was a few weeks ago. Great. But, why should you care?

Money…and lots of it…

First, let’s take a look at the last gold rally, back in the late 1970s.

As you can see in the chart below, gold underwent an eerily similar correction at the end of 1978. It lasted exactly one month before it righted itself again.

Does This Correction Look Familiar?

On October 30, 1979, the spot price for gold was $242.75. Exactly 31 days later, it had shed $50. That’s a hair over 20% off its high.

See the similarities?

So, the next question you may be asking is: “What happened after the last time this happened?” Oh, just the largest bull market we’ve ever seen in the precious metals world.

In 1979, and then again in the first month of 1980, gold went from this puny little sub-$200 metal to an $850 investment. It ended up being a 340% jump from the bottom of the correction to the top in January 1980. That’s nearly four and a half times your money in 14 months!

Now, I’m not saying we are bound to repeat that this time around. But, others are:

“Market ructions, the sub-prime conflagration and a collapse of the dollar could send gold prices to more than $3,400 an ounce within the next three years.”

— Dr. Clive Roffey
Publisher, Gold Action

“If 1979 to 1980 is anything to go by, [gold] could exceed several thousand dollars per ounce.”

— Bloomberg

…And my favorite:

“Gold and silver are now early in a historic bull market that will dwarf the 500-1700% profits we made in the ‘70s. Gold will hit at least $2,172 and $100 silver is inevitable.”

— Marketwatch

Honestly, it doesn’t make a bit of a difference if you believe any of them. At current levels there are already some huge profits to be made.

We’ve written to you about the potential juniors have right now. I’m not going to bore you with any more. If you want to, you can check it out right here.

As for what you should do now…the precious metals world is on a silver platter. (No pun intended.) Take what you like.

We will continue to let you know when the best ones come along. This is something worth following for quite some time.

Sincerely,

Jim Nelson
April 2, 2008

An Eerily Similar Correction Could Lead to Huge Gains was originally featured in the Penny Sleuth.

Now remember another one: “Don’t fight the Fed.”

Well, what happens when the Fed fights the trend, as it has been recently?

Which axiom to believe?

Historically, the Fed loses that fight until the trend is ready to turn back around. Admittedly, the central bank’s inflationary policies will likely help this occur at a higher nominal dollar value than otherwise.

Nevertheless, the historical odds favor the trend over the Fed when these two maxims collide.

But putting aside my autistic wisdom for a moment, let’s consider what the Federal Reserve is doing for the trend in gold prices — a trend, I am loathe to inform you, which it is not fighting.

Let me sum it up by reminding you that the trajectory of this bull trend shifted north when Bernanke took the helm of the Federal Reserve System, and that the policies pursued by the Bernanke Fed have confirmed the investment thesis driving the bull market in gold. As one pundit recently noted during a Bloomberg interview, “You gotta go with the inflation theme…it’s the only thing still working.”

After upping the size of its new Term Auction Facility from $60 to $100 billion last weekend, the Fed revealed another innovative tool that might help it manage liquidity in the banking system.

The new facility, the Term Securities Lending Facility (TSLF), will offer up to $200 billion in Treasury securities to primary dealers in exchange for a wide variety of collateral the Fed has never before accepted, including private-label mortgage securities. It also eased swaps with other central banks.

The controversy is that although the Fed has been allowed to accept mortgage-backed securities as collateral since 1980, it has never outright bought them, and only recently enacted legislation that allows it to actually monetize them — which means buying them without having to sell other assets.

Gold bugs have followed the Fed’s legislative changes with interest. This move should not surprise any of them, but it does hold a special significance in its long-term implications, and for gold prices.

And even though the Fed hasn’t expanded bank reserves or the monetary base much since August, it is helping the banking system postpone an increase in reserve demands triggered by criteria built into the Basel II framework, a generally accepted model for capital adequacy standards. By boosting the quality of bank reserves, even if temporarily, the Fed hopefully won’t need to increase the quantity of bank reserves, which have been sufficient to fuel an $800 billion expansion in the broad U.S. credit aggregate, MZM, since August. That is 11%, or 15% year over year. The highest rate since 2002.

That is a bullish recipe for the precious metals. There is nothing more bullish for gold than a situation in which the central bank refuses to acknowledge that it is pouring gasoline on a raging fire.

Forget the dollar and oil. Those were just interim preoccupations.

The real bull market is about to stand up.

If gold prices are going to continue to drive through $1,000, they are going to do it because the central banks are all inflating madly at the worst time. This means that a good old-fashioned bear market on Wall Street is sufficient to keep central bankers’ collective pedal to the metal and sustain the gold bull.

So far, the precious metals stocks have bucked the general stock market trend since August.

This is as it should be, and it is impressive because, by most counts, gold stocks are quite expensive relative to today’s gold price. But investors are complaining about the underperformance of those stocks relative to gold, and also about the lackluster performance of their junior mining assets, which haven’t participated in the precious sector rally at all since August — when the current leg started.

There are a few explanations for this.

Perhaps John Embry said it best at a gold conference in Vancouver, British Columbia, recently, when he remarked that gold shares sometimes act like a bet on gold, but sometimes they just act like plain old shares.

We should leave it at that.

However, that is not like me.

Historically, I have found that gold shares are susceptible to market declines, except occasionally during a major bull market advance in gold, when they tend toward counter-cyclicality — the more so as the bull market progresses. They will still fall during stock market panics, as all shares do, but they are likely to come back harder and hold their trends better. Still, since 2004, I’ve held the position that, as an asset class, gold shares would not outperform gold prices for the remainder of the primary leg.

I continue to think that, with the qualification that we are talking about the average gold stock.

Junior markets are wired differently. They do not correlate that well with the underlying commodity trend in the first place. In my experience, they correlate better with market attitudes toward risk.

Junior and small-cap markets have never fared well in a general market meltdown, because they are typically risky assets, and in a selling panic, the crowd is averting risk.

The larger-capitalization precious metal producers are different. The reasons for this are sound. But as a rule, speculative assets do well when the gambling environment is friendly.

However, within the small-cap resource sector, there will invariably be exceptions. Many of them are cheap now, and the supply fundamentals for gold are tightening.

Production from many gold-producing regions of the world is currently constrained by power shortages, and rapidly inflating development costs are causing the postponement of several otherwise promising development projects around the world.

Meanwhile, gold producers need reserves!

The large-cap producers are on the hunt for sound mining assets.

And they aren’t going to be discouraged by a 20-30% drop in gold or stock prices.

I’m lining up several potential takeover targets for my new report right now. These include small-cap gold miners that have either just finished developing a new mine or soon will be, or whose assets are otherwise overlooked. And we’ll be publishing option strategies to profit from swings in the large-cap miners, too. Regardless of which way the markets go, I’ll show you how to profit from trend changes…

Regards,

Ed Bugos
March 19, 2008

Hidden Gold Shares Will Play Well in Down Markets was originally featured in the Penny Sleuth.

In December, the gold price raced off to record highs for the first time in almost three decades. Now it looks to be closing in on 1,000 U.S. bucks. That is, four digits. It will also be four times the 1999 low.

The market has added dollars to the gold price for seven consecutive years now, making it the longest-lasting such stretch in history without more than a 25% correction. Even in terms of magnitude, it is the best move since 1979-80. This suggests two things right off the bat. First, it is a bull market; second, the market needs to blow off more upside if it is to give the bears anything more than 25%.

(Although, this latter idea does rest on a few other premises.)

John Kaiser of the Kaiser Bottom-Fishing Report believes the market is nearing a flashpoint where the skeptical public finally turns into believers and comes rushing in. It’s pure mathematics from his point of view. He reasons forecasts for gold $2,000 are more plausible now that it is but “a mere double”!

It may be a little early to say that gold bugs have been proven right.

Undoubtedly, it is getting tougher for the bears to argue that they have been wrong.

But what exactly might they be right about?

Gold Is Sounder Money!

The market has once again started looking at gold as money, rather than as a mere commodity. The following excerpt from the Jan. 8 Financial Times article, “Gold Is the New Global Currency,” highlights this increasingly frequent theme in the leading financial papers:

Gold’s rise shows investors are nervous. That is an important message for central banks contemplating interest rate cuts. The Fed must show it is not prepared to allow inflation to take off. Keynes called gold a barbarous relic. It has life left in it. But it is in the interests of business and consumers that its most bullish fans are proved wrong.

I like this quote because it highlights two important and typical contrasting insights.

The first underlined sentence reveals the most important rule that the Fed and its peer central bankers are breaking, which is one of the main factors driving gold prices higher today. The second underlined sentence reminds gold bugs that their clairvoyance is unwelcome and unhelpful, just in case they feel any vindication in others’ misery. This will continue. As legendary broadcaster Ed Murrow once said, “Most truths are so naked that people feel sorry for them and cover them up.” This is one of those.

But that won’t make it go away.

The fact that getting rid of a dishonest monetary regime might cause depression is a bad reason to stick with a system that promotes that injustice in the long term. But if central bankers want to preserve such a system, above all, they must avoid prompting too many headlines like these:

• “The Helicopters Start to Drop Money” — Financial Times, Dec. 12, 2007
• “Cheap Money Is ECB’s Answer” — Wall Street Journal, Dec. 12, 2007
• “World Bankers Resort to Firebreak” — Telegraph, Dec. 15, 2007
• “Flight to Gold as Investors Lose Faith in Money” — Telegraph, Jan. 6, 2008
• “Bernanke Opens Door to ‘Substantive’ Rate Cuts” — Wall Street Journal, Jan. 11, 2008

One of the mainstream criticisms of the Bernanke Fed is that it should have lowered interest rates sooner and more aggressively. One reason it didn’t was because Bernanke had tried to fight the spreading of the idea that the Fed was going to continue inflating. But that resolve is now buckling under peer pressure. We are probably not yet at the inflection point where the public has become convinced the Fed will inflate endlessly, but recent actions are not helping to discourage this expectation.

So prices will continue to rise, eventually resulting in unemployment and some sort of depression.

The pundits will call it stagflation.

If the Federal Reserve fails to heed the aforementioned rule by then, it’ll lead to hyperinflation, or worse. So far, there is no reason to believe that it plans to abandon the inflationary policy.

What with squadrons of central bank choppers swarming like locusts over the major cities on both sides of the Atlantic, hurling bank notes into the thinning air as gold, oil and wheat prices charge to record highs, it would seem rather that central bankers believe money should be able to grow on trees.

Central bankers continue refusing to accept the idea that the cause of these crises is their very own inflation. In a recent interview I read, an old partner of Milton Friedman’s, Anna Schwartz, was the first of her kind to point out that Greenspan was responsible for the current crisis by keeping rates down too long. But she said that mistake is behind us now and the current Fed should step up to the plate and inflate like mad in order to prevent making the mistakes of the 1930s Fed.

What were those mistakes?

Apparently, Washington and the moral ethics of Fed officials prevented the Fed from inflating after the 1929 stock market crash. This thinking is a prerequisite for central bankers. They ignore the fact that the ultimate cause of these crises is the intervention required to manipulate interest rates.

That is, inflation.

Until they change their thinking (they probably won’t), and while the pool of skeptics about this evil remains large, gold has nowhere to go but up. We will continue to have booms and busts and crises, and price and interest rate spikes, and wars, and so on as long as paper money backed by nothing remains the motive power of the world economy. Thus is the general message of gold bugs.

Don’t shoot the messenger…

Regards,

Ed Bugos
February 4, 2008

P.S.: When gold is on the rise, it is usually accompanied by its little sister, silver. This bull market is no different. Silver is hitting new highs along side gold. In spirit of this silver surge, your editors Greg Guenthner and Jim Nelson have recently recommended one tiny junior silver miner, that will be taking over as the industry leader in a few short months. Now is the time to get in on this penny stock.

Lowered Interest Rates Bring Higher Gold was originally featured in the Penny Sleuth.