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-- Posted Monday, 19 March 2007 | Digg This Article
Honest Money Gold & Silver Report |
Economy The Labor Department reported a 0.4% increase in the consumer price index, which followed on the heels of a 0.2% increase in January. Core prices, excluding food and energy, were up 0.2%, and 2.7% from one year ago. Overall prices are up 2.4% from last year. Food prices comprise about 20% of the CPI. They increased 0.8%, the most since April 2005, after a 0.7% rise in January. Energy prices were up 0.9% in February, after losing 1.5% in January. Temperatures were much colder in February than in January, causing more demand for heating oil. Natural gas prices rose 5%. Gasoline prices gained 0.3%. Housing costs account for one-third of the total consumer price index. Prices rose 0.4% in February after increasing 0.2% in January. The National Federation of Independent Business reported that 13% more small-business owners reported higher selling prices last month. Capacity utilization, a measure of the proportion of manufacturing plants in use, rose to a five-month high of 82% from 81.4%. The Reuters/University of Michigan's preliminary index of sentiment declined to 88.8 in March, down from 91.3 in February. Wages The increase in food prices may be starting to affect worker’s take-home pay. Hourly earnings adjusted for inflation fell 0.3%, the second such monthly decline. Real hourly wages are up 1.8% since February 2006. Wages are up 2.2% for the last year ending Jan. 2007. Inflation is stubbornly holding above the Fed's comfort level, while growth in the economy, especially considering the down turn in housing, and the weak manufacturing sector, is suggesting that stagflation may be developing. Not what the Fed wants. Inventories/Sales The U.S. Census Bureau reported that the combined value of distributive trade sales and manufacturer’s shipments for January, adjusted for seasonal and trading-day differences, but not for price changes, was estimated at $1,057.8 billion, down 0.7% from December 2006. Manufacturers’s and trade inventories, adjusted for seasonal variations, but not for price changes, were estimated at an end-of-month level of $1,370.2 billion, up 0.2% from December 2006. The total business inventories/sales ratio based on seasonally adjusted data at the end of January was 1.30. The January 2006 ratio was 1.25.
Subprime Loans More than 30 subprime lenders have gone bankrupt in the U.S. since late 2006. Delinquent payments on loans of all types rose to 4.95% from 4.67% during the third quarter of 2006. Delinquencies will have a slowing effect on the economy, as its repercussions slowly filter through the system. The numbers are considerably worse for subprime borrowers, with 13.33% presently behind on payments. Defaults could spread to borrowers with Alt-A or jumbo mortgages, a class of mortgages that represents $1.14 trillion in loans, or 12% of the entire mortgage market – according to Bear Stearns. Subprime loans comprise 15.2%, or $1.45 trillion of total mortgages, and jumbo mortgages are $1.41 trillion, or 14.8%. The National Association of Realtors reported that the median home price for existing homes was down 8.5% in January, from a peak of $230,000 in July. The current downturn in home building could lead to a significant decline in employment, as approximately 40% of all jobs created between 2000 and 2005 were tied to the housing market, and housing and related industries account for about 23% of the U.S. economy. Gold For the week gold gained $1.90, closing at $653.90 (+ 0.29%). It closed at the highest daily close of the week, and the highest weekly close in the last 3 weeks. Intra-week it hit a high of $656.50 on Friday. As the chart below shows, gold had a good break out back in late Jan. to Feb. It rallied to a high of $692.50 towards the end of Feb. Since then it has fallen to a low of $634.50, and presently sits at $653.90. The horizontal resistance turned support, now turned back again into resistance, at $655-656 – is the line drawn in the sand that gold needs to break above, and stay above; if any sustainable rally is going to occur. It has its work cut out for it – but gold has lasted through wars, famines, pestilence, and the ages of time – it remains immutable, the ultimate store of wealth. When gold speaks – all tongues remain silent.
Next we have chart of streetTracks gold ETF.
The chart reveals GLD testing its lower trend line going back to Oct.of 2006. So far – so good. If a higher low is kept in place, then a sustainable rally should follow. Stochastic indicator is turning up from oversold territory with a bullish cross over occurring. The POG is above its 50 ma. We wait with interest to see what the new week brings. Below is the point and figure chart for gold, based on percentage, not the standard p&f chart. The chart shows a very bullish price projection. The standard point & figure chart shows a bearish price projection of $585.00.
Silver Silver closed the week out at $13.22 up 0.24 or +1.89%. It was silver’s daily high for the week, and the highest weekly close in 3 weeks. Intra-week silver had an inter-daily high of $13.27. Silver has still been performing better than gold. The chart below shows silver bumping up against significant overhead resistance. It’s time to either break on through to the other side – or retest its lower trend line. We’ll go with Morrison.
Next is the central fund of Canada. RSI is turning up, and it looks like a positive MACD crossover is about to occur. Histograms are shrinking back towards zero. Higher lows have been kept in place; however, as the highlighted area indicates – there is significant overhead resistance or supply, which needs to be worked off before a sustainable rally can occur.
XAU Index The XAU Index gained 1.27 points to close the week at 133.31 (+0.96%). It was not the week’s daily high, which was made on Monday at 133.77. It was, however, the highest weekly close in 3 weeks, although there were several higher intra-weekly highs that were made during that same time period. The chart below shows the stochastic indicator headed up from oversold levels with a positive crossover. Recently, the gold/xau ratio hit an extremely oversold reading of 5.00, and has since backed off to 4.91. These are very oversold levels, which generally coincide with the beginning stages of rallies. One thing we do not like on the chart is that the Bollinger Bands are getting wider apart. Presently, the XAU is headed for the middle of the BB at 136.55. There is a good deal of overhead resistance to overcome, and the index has its work cut out for it.
HUI Index The HUI Index was down -1.33 for the week, closing at 327.01 (-0.37%). It did not close on its high for the week – that was made on Monday at 331.62. The daily chart shows the Hui has a good deal of overhead resistance to work through. Just by the looks of it – it appears that it will take a few more weeks to get through, however, the gold & silver stocks are thinly traded stocks, and can move quite quickly and strongly on short notice. It doesn’t take huge sums to move the gold stocks significantly.
The weekly chart illustrates that the HUI has been in a trading range since March of 2006 – over a year now. On the top of the range sits 401.69 and at the bottom sits 270.00. The middle of the range is about 285.00. Presently the index is at 327, well above its 65 week ema.
Up next is the monthly chart of the Hui Index. It shows the index just approaching its bottom trend line. A series of higher lows have been kept intact thus far. However, MACD has recently made a negative downside cross over, and the histograms are accelerating to the downside.
Summary Stock markets around the world have sold off from recent highs, due to worries over the subprime mortgage debacle, the Yen Carry Trade, and the subsequent selling of just about anything in order to meet margin calls. Liquidity, liquidity, and more liquidity is the name of the game. The unwinding of yen carry trades has caused the yen to rally, and most other assets to be weak. The dollar is once again headed down, while the euro has turned up. U.S. Treasuries have been a “safe haven” from the turmoil of the stock market. A short term rally may be in order; however, more downside action appears likely. We believe that a return to the bear market is in the cards to be dealt later this year. The sub-prime loan problems, the unwinding of the carry trades, as well as the search for liquidity – are all gold positive. The only remedy the Fed has for anything is to create more money and credit. Many have pointed to the fact that because gold hasn’t gone up during such turmoil that it is a sign of weakness. Obviously it’s a sign of weakness, as it hasn’t gone up. However, that does not preclude it from going up – nor does it provide any indication how high it will go up, or the timing of such a move up. It’s a bull market until it isn’t. As the problems in the monetary, financial, and debt markets unfold, gold will be seen as the only asset that is no one’s liability, and it will then shine brightest of all. We plan on adding to positions when the 65 week ma is near, and we will also be adding to positions in the gold stocks when a higher low is kept intact. A few words on China are in order. Recently they announced that they would be diversifying out of some of their $1.07 trillion dollars of currency reserves, the largest cache in the world. With the announcement of a fund being planned to oversee the investment of a good chunk of their reserves, many around the world became concerned that China’s purchases of U.S. Treasury Bonds might take a dive. Prime Minister Wen Jiabao replied by saying, “our purchases of U.S. dollar assets are mutually beneficial, and we won’t affect the value of U.S. dollar assets.” China is the second largest overseas holder of Treasuries after Japan. The Prime Minister also said that China's economic expansion, “is unstable and environmentally unsustainable. China's investment growth is too high, lending growth too fast, liquidity excessive and trade and international payments very imbalanced.'' China’s money supply grew 17.8% in February. They have the highest rate of non-performing loans in the world. Many are worried that China is going to take over the world. This is all very similar to the talk of Japan taking over the world back in the 80’s and 90’s. Maybe – maybe not. I’d be more concerned with the elite international banking dynasties rising to power via their New World Order plans and taking over the world – not China. Lastly, remember the term CDO’s – collateral debt obligations. Several years ago I wrote that derivatives and the carry trade would become household words before all was said and done. You can now add CDO’s to that list as well - the worst of the worst. We ain’t seen nothing yet. If ever there was ever a time for Honest Money – now is that time. Invitation 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 and other topics with people from around the world, as well as many other resources too numerous to list. Drop by and check it out. Good luck. Good trading. Good health. And that's a wrap. 
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Douglas V. Gnazzo
Honest Money Gold & Silver Report Douglas V. Gnazzo is the retired CEO of New England Renovation LLC, a historical restoration contractor that specialized in the restoration of older buildings and vintage historic landmarks. Mr. Gnazzo writes for numerous websites, and his work appears both here and abroad. Just recently, he was honored by being chosen as a Foundation Scholar for the Foundation of Monetary Education (FAME). Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained, certified, and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly, Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can become yet greater. This article is written to help facilitate that greater becoming. God Bless America.
-- Posted Monday, 19 March 2007 | Digg This Article
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