Economy

Those familiar with this report know that I have ranted and raved about derivatives for years now, saying that unfortunately one day they would become a household word, as they spread their destruction across the land. That time appears to be coming closer and closer at hand.

Paper fiat land is a breeding ground for credit and debt instruments and derivatives derived there from. 

Both the US dollar and the Japanese Yen are part of this incestuous game of fatal attraction, proffered as enticements by their handlers to lure others thereby. Come on, step right up, try your luck, everybody wins a prize.

The hapless victims are they who accept the unacceptable, the tainted, colored counterfeit means of payment, which in truth are not payment but discharge; as opposed to the untainted and uncolored purity of true payment by that of real substance: Honest Money of Gold & Silver coin. 

Warning signs are beginning to pop up daily, a few of this past week are listed below. Heed the warnings, they are not made in jest – they are the proverbial writing on the wall that was on the wall before it was put up.

July 18 – Gretchen Morgenson (New York Times): 

“Bear Stearns told clients in its two battered hedge funds that their investments, worth an estimated $1.5 billion at the end of 2006, are almost entirely gone.

In phone calls to anxious investors, Bear Stearns brokers reported yesterday that May and June had been devastating months for the portfolios.

The more conservative fund, the High-Grade Structured Credit Strategies Fund, was down 91% by the end of June, investors were told. The High-Grade Structured Credit Strategies Enhanced Leverage Fund, which used extensive borrowings and assumed more risk, has no investor capital left, the firm said. ‘In light of these returns, we will seek an orderly wind-down of the funds over time,’ a letter to Bear Stearns clients said.”

July 17 – Bloomberg (Hamish Risk):

“Hedge funds are borrowing too much to finance investments in credit derivatives, contracts based on debt, which may magnify volatility in a market downturn, according to a Fitch Ratings survey of 65 banks, insurers and money managers.  Hedge funds’ influence on credit derivatives and debt markets has continued to grow at a ‘dramatic pace,’ Fitch said… The funds are responsible for 60% of all trading in credit-default swaps and about 33% of collateralized debt obligations…” 

Gold

Gold gained $17.40 for the week to close at $684.70 (+2.61%). It was the highest weekly close in 10 weeks.

The next target is $692.50, and once that is taken out then the old high of $730.40 is in play.

Note that a MACD Crossover appears to be looming.

Histograms have receded to zero and seem ready to cross over into positive territory.

A MACD Crossover this coming week would be a major move and very constructive price action on the chart.

The chart below shows gold priced in Euros. Notice the upper falling trend line has been breached.

Gold is advancing not just in dollars but in other major world currencies as well.

Silver

Silver had a good week as well, closing up 0.29 cents to $13.40 (+2.23%). It was the highest weekly close in 6 weeks.

As the daily chart below shows, the metal has closed back above its trend line. Other than STO approaching overbought – a good looking chart. MACD and histograms positive and RSI headed up.

HUI Index

The Hui closed up 13.41 points to 370.23 for a gain of 3.76%.  It was the highest weekly close since May 5, 2006. The week’s price action was most impressive, and suggests there is more to come.

Last week the last ingredient needed was a break above the trend line, which we got this week. All indicators are now in positive territory.

The weekly Hui/Gold chart above shows a break above its upper trend line, which is positive price action.

The daily chart below, which goes back to the start of the bull market, shows more work needs to be done.

XAU Index

The Xau closed up 7.31 points to close at 158.39 or +4.84% - a strong performance after last week’s stellar performance.

It was the highest weekly close since May 12, 2006 – once again well over a year ago.

Breaking 150 for the Xau was a big accomplishment, as it has provided stiff overhead resistance for over a year’s time. The break above 155 is even more impressive, as that broke a trend line going back to 1996 or 11 years ago. Very nice performance to say the least.

After the last two back to back weekly performances the Xau and Hui have put on, a respite would seem in order, although momentum is momentum and they may just keep moving higher before taking a pause to consolidate and refresh.

The dollar and the stock market may provide the impetus for movement in either direction.

The chart above compares the Xau to the S&P 500. As the chart shows, as good as the S&P has been performing, the Xau wins hands down. This is positive confirmation that the move has substance.

The monthly chart of the Xau/Gold ratio shows the trend line almost being broken above, which will be another large part in the puzzle. MACD looks like its getting ready for a positive crossover.

Individual Stocks

First let’s take a look at the Natural Gas chart. It appears that a bottom has been put in; however, it has not recently been tested. Such a test may or may not occur before the next major move up.

A positive MACD Cross has occurred and histograms have turned positive. RSI turned up from the oversold 30 level and is headed for the 50 mark.

Price is sitting just below the 20 ema. All in all a chart that shows several positive constructs beginning to take form.

The big question is whether there will be another large move down before NG makes a low and starts upon its seasonal rally.

Summary

The predominant feature of the global financial system is the excessive creation of credit that is giving birth to asset bubbles as never before seen.

The masters of the temple have truly outdone themselves in what may prove to be their final act upon the stage. They may perhaps have one curtain call left, but the reckoning is fast approaching.

Markets are beginning to sense the approach, although they prefer to ignore the warnings, hoping that they can prevail for one more roll of the dice. Chinese cookie jars come to mind.

Watch the yen as much rests upon its back. When the cost (interest rate) of the cheapest form of credit to ever visit the earth begins to rise in a sustained manner – the horsemen will be close behind.

It would be wise to get your house in order ahead of such events. They say gold withstands the decay wrought by the elements and the ravages of time.

The dollar hangs precariously above the abyss. It is doomed, but now may not be its time. Perhaps some thoughts are in order as to why, if the handlers of the currency are as smart as they so appear to be, would they allow the currency to get into the position it is in?

Cui Bono if the dollar were to collapse? Do things of such import happen by chance? Is there any possible scenario that would occasion anyone to profit by the demise of the dollar?

Gold and the gold stocks have picked up the scent, the sentinel has sounded, the warning has commenced. Both the metals and the stocks are short term extended, but that doesn’t mean they can’t become even yet more extended. Neither does it mean they can’t correct.

I’ll be watching the yen the closest of all, the dollar and interest rates will be next in order.

Below are two beautiful pictures of extremely rare parrot flowers that my good friend Elva was kind enough to send me. Do take a look – they are very extra-ordinary. Thanks also go out to Laura for the book she sent me.

Check out the market indicator table below and the stock portfolio for updates. Also, note that the master gold stock list has been updated. Good trading, good luck, good health, and that’s a wrap.

A Riddle

Riddle me this – riddle me that,

what does a deck of playing cards hide out of sight?

The commoners are assembled in rows 1 through 10,

in march the prince, the king and his queen.

But who is the ace that wields such a deadly mace,

the strength of his convictions written across his fair face.

Yet if the jokster chooses to laugh in his face,

even he yields his magnificent space.

A strange game in-deed, perhaps we should heed,

whatever the message carried in its seed.

Invitation

Stop by our website and check out the complete market wrap of almost 40 pages of information & charts that covers most of the major markets.

Live market quotes and charts are offered on several different markets, currencies, and commodities. Links to international central banking, the World Bank, BIS, and IMF, and many other sites are available.

A master gold & silver chart list of the better grade miners is offered for your perusal, and our own personal gold portfolio is on public display with all buys, sales, and dates transacted on public record.

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.

Lastly there is also a live bulletin board where you can discuss the markets with people from around the world and many other resources too numerous to list. Drop by and check it out. Good luck. Good trading. Good health. And that's a wrap.

Come visit our new website: Honest Money Gold & Silver Report
And read the Open Letter to Congress

Douglas V. Gnazzo © 2007
Honest Money Gold & Silver Report

All Rights Reserved Without Prejudice

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 and 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 yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

Copyright © 2005-2007 Douglas V. Gnazzo - All Rights Reserved.

-- Posted Sunday, 22 July 2007 | Digg This Article