-- Posted Wednesday, 19 April 2006 | Digg This Article
With the ratcheting-up of the COMEX silver margin again today to $3,750 it's pretty certain that in this election year, and hoping to give some reprieve on raising the Fed Funds rate - the margin is a tool to cripple "speculation" while insulating the general economy and stocks market the rigueurs of pain from rising interest rates. At the same time they'll appear to be "fighting inflation".
We are having a wonderful run in the precious metals not experienced since the 70s and 80s. While we often refer to their ascent as a skyrocket, we inaccurately refer to their descents of correction as something more like a "waterfall" when their pullbacks are actually more like a crash. Even when going up their charts are more like an up staircase than a missile. Missile behavior is the culmination, not the process of a gradual ascent.
Whatever we choose to call these ups and downs, we want it both ways. They're emotional highs you most likely will never experience again in your investing life. Fear and Greed will possess us like never before.
Those of you who have been on my list for some many years now, know that I use a real simple technical analysis for guidance. It's purpose is to keep me objective, and remove the fear/greed emotion component from my decisions as much as possible. If you already have something that works for you, stick with it.
What we have here is the Gold/Silver Ratio indicating the number of silver ounces it takes at any given time to buy an ounce of gold. As of today it took 44.16 ozs of silver to get an ounce of gold, which in US dollars closed at $620.60. When the precious metals run, silver leads, i.e., it goes up faster than gold. When they correct, silver goes down quicker, i.e., the Ratio in the chart reverses and begins an upward move.
G & S resumed their climb in almost mid-January. At that point the G/S Ratio was at 64. We're at the point whereby you can now get 30% more gold in exchange for silver than you could have in January. In silver terms, gold's a lot cheaper. Gold hasn't been this "cheap" in more than eight years.
The Slow Stochastics trending lines which are composed within the price chart throw off a great clue as to when gold will get more "expensive" in silver ounces. When the black line crosses over the slower red line you'll want an incidental indicator to confirm and that's the MACD. The MACD indicator appears just above the price portion of the chart. Watch for a change in direction of the blue bars - NOT for the black line to cross over the red. That can occur quite late and deprive you of many ounces of lost spending power. As these metals correct more rapidly on the way down, best to be a wee bit early than late. Be sure and use a weekend chart which has the full Monday-Friday data in it. Not like mine to the right which is only Monday & Tuesday.
Where this Ratio will bottom no one knows for sure, but
James Turk is one of the best sources for analyzing these pivots. Even if you just get his free commentary newsletter that's fine. His subscriber report is even better.
Yes, gold and silver will both correct ("waterfall") in dollar terms, but in this scary environment you don't want to leave the sanctuary of precious metals even if it is "just" gold! It's not safe to stick your head outside yet to see if the storm is over. It isn't.
Say you'd bought your silver when the Ratio was 64 in January; now at 44, not only can you get 30% more gold, but after the Ratio reverses maybe at 40 and may only go back to 60 - who knows - you'll be able to re-acquire 50% more silver ounces!
Then we ride the rocket with the waterfall all over again. The greater the volatility the more ounces we get along our journey.
Look for the symmetry in the chart as your signpost if you don't have one.
- - CV
-- Posted Wednesday, 19 April 2006 | Digg This Article
