Gold

As everyone knows, the Fed lowered interest rates by ½ % last week, which is not an insignificant amount. By doing this the Fed basically threw the towel in the ring saying it was giving up the fight against inflation, and was more concerned with saving the economy from the fallout of the subprime mortgage debacle; both problems it created.  

In actuality, all this did was to throw more fuel on the fire, and gold responded accordingly, hitting a 27 year high.

On Friday it gave back a small portion of those gains on profit taking, still rising 2.9% for the week. For the year gold is up 16%.  Last year it gained 23%.

For the week gold was up $21.10 to close at $747.10 – a 27 year high. Its relative strength index (RSI) is approaching overbought levels, but still has room to climb if it so desires. The daily chart is a bit more overbought as you will see below, following the weekly chart that comes first.

On the weekly chart MACD put in a positive cross and histograms are positive and expanding.

STO is in the overbought zone so caution is warranted. Markets can stay overbought for as long as they so choose and continue to become even more overbought – or not. Caveat Emptor.

Next is the daily chart of streetTRACKS Gold Trust Shares (GLD), which is the gold exchange traded fund (ETF). Notice the RSI is in the 80 zone, which is overbought, however, to blue arrow on the left shows higher levels have been recorded during the highs of last year.

The accumulation/distribution index at the bottom of the chart is very strong, and the CCI Index shows overbought levels that have lessened – so there still is room for further gains – or not. Price is extended – of that there is no doubt.

On the monthly chart gold has finally broken above its upper trend line. RSI is in the overbought 70 zone as well, which doesn’t mean that it can’t rise further, but risk is increasing – not decreasing.

The MACD indicator is quite interesting: it put in a negative cross over not long ago, and now it appears to be a day away from putting in a positive cross over (if price rises).

STO has already put in the positive cross over and is moving into overbought territory. Looking back at the STO indicator you can see where it has been higher than it presently is.

Silver

Silver had an even stronger week than gold – rising 0.91 cents to close at $13.62 for a gain of (+7.20%). That’s one heck of a weekly gain.

RSI isn’t even at 60 (56.34) so silver has plenty of room to run if it has a mind to. Silver has broken above its upper trend line but it still has a ways to go to make a new high – so in that regard gold has out performed.

MACD has NOT made a positive cross over, but looks like it’s a day or so away from doing so if price continues to rise. This would also indicate it has room to run higher if it wants to. CCI Index is getting close to overbought.

The daily chart of silver shows that the 61.8% fib level has been broken above. There is still is long way, however, to reach the old high ($14.89). But silver can may moves like that in the matter of 2-3 days.

RSI is approaching the 70 over bought level but has been higher twice in the past year. MACD is headed into over bought territory as well.

The SLV monthly chart is holding above its 20 ema. RSI is just below the 69 level so there is pretty of room to move higher. The dominate chart patterns remain the negative MACD cross over and the histograms.

Gold/Silver Ratio

Silver out performed gold from July of 2003 until 2007, since then gold has out performed silver. Last year (2006) silver gained 46%, while gold gained 23%.

At the very far right of the chart notice the area highlighted in yellow – it shows that silver has out performed gold for the last couple of weeks.

Could it be the start of a new trend or just corrective action? It is too early to tell. If silver does start to out perform gold on a sustained basis it will hint that the economy is stronger than many say.

As of now I believe it is a short term affair that will give way to the longer term trend. Why do I say this – note that the ratio has also broken above its upper trend line going back to 2003.

Gold & Silver Indices

Hui Index

Up first is the weekly chart of the Hui Index. The gold and silver stocks had a very big week – up 34.20 points to close at 399.23 for a +9.36% gain.  Intraday they bettered their 2006 high but gave some back on the close.

Last week we said that the Hui had performed admirably, closing back within its ascending triangle and actually bumping up against its upper trend line.

Well this week it busted through the upper trend line like a hot knife through butter. Now it is bumping up against last year’s bull market high.

RSI is at 64.29 so it has plenty of room to move higher it if so chooses to. Notice that back at the highs in 2006 and before them that RSI hit the 80 level twice before correcting. There are no guarantees of a repeat performance, simply pointing out what has come before.

MACD has a positive cross over established, histograms are positive and expanding. At the bottom of the chart you can see the Hui far out performing the S&P.

Note the CCI indicator at the very bottom of the chart, as it is signaling an overbought condition. Caveat Emptor.

Market Vectors (GDX)

Next up is the daily chart of the Market Vectors Gold Miners Index (GDX). RSI is at 74.60, which is in overbought territory. The index blew through its upper resistance line that is now resistance turned support.

Note the volume at the bottom of the main chart – volume increased on the break out.  MACD is extended and the histograms are starting to slowly recede. Caveat Emptor.

Xau Index

The Xau Index weekly chart is up next. It had a strong showing for the week, gaining 13.55 points to close at 171.55 for a gain of +8.58%. The close is within spitting distance from recording a new bull market high – one day’s action will suffice.

RSI is at 66.20 so it has room to move higher if it wants to. I have drawn a blue horizontal line across the RSI area to show the much higher RSI reading recorded back in 2006 just prior to and during the bull market high at the time.

MACD has made a positive cross over and the histograms are expanding. The Xau/Gold ratio at the bottom of the chart has finally broken above its upper trend line.

Next up is the Xau monthly chart that I can’t help repeatedly posting because it is my favorite chart, as it shows the big picture – gold and silver and precious metal stocks are in long term bull markets.

The chart is a cup and handle formation with the handle on the far right side of the chart. Price has broken above the red horizontal resistance line that connects the top of the left and right rims of the cup – a cup formation that goes back to 1996 – a period of 21 years – it doesn’t get any better than that. The break out is presently minimal in both points and time, so further confirmation is needed.

That resistance line at 155.61 has now become support. When it is severely tested during a correction and holds as support – the next phase of the gold bull market will be starting.

Hui/Gold Ratio

Below is the monthly chart of the Hui/Gold Ratio. It has recently broken above the upper fork of the Andrew’s Pitchfork.

This is good positive action; however, it needs to break above the upper blue horizontal overhead resistance line to usher in the next phase of the gold bull market.

Xau/Gold Ratio

Next is the monthly chart of the Xau/Gold Ratio. It has finally broken above its upper overhead resistance trend line (caption should have read has broken above rather than needs to break above – sorry for the mistake).

MACD has not yet made a positive cross over, which could come in a couple days of positive price action. Histograms have just turned positive and above the zero line. So there is plenty of room to move if it wants to.

STO has put in a positive upward cross over and is headed upwards, presently at the 50 level, which leaves it a long way from the 70 overbought area if it has a mind to run up further.

Summary

The precious metals complex had an awesome week. Much of this can be attributed to the Fed’s lowering of interest rates and their throwing in the towel regarding fighting inflation, which regardless of what anyone says – exists in both monetary, price, and asset inflation.

The charts all look strong and positive – the only caveat being perhaps too strong too quickly, meaning that a correction may be needed to work off the froth. Then the question arises: will it be a short term correction or an intermediate term correction. I wish I could give the answer with confidence, but I can’t.

Although many of the charts show overbought readings, many also show what may be very interesting formations developing – as in cup and handle formations and consolidations just below 52 week and or all time new highs.

One thing is certain – with every passing day of gain, risk increases for a correction of some duration – whether it is short or intermediate. As always it remains a question of timing and from what level to what level over what time frame.

As of now the Fed has sealed the dollar’s fate, which is down and dirty, although a counter trend rally is very likely, which would put a head wind to further short term gains in the precious metals complex.

As such they have sealed inflation’s fate as well, which is up and away. In so doing they have written gold’s destiny, which is long term higher.

Although profits are nice in the gold stocks if handled properly, which IMO means to buy physical with the profits on pull backs, I would give it all up in a heartbeat for a return to Honest Money of gold and silver coin as mandated by the Constitution.

This is what is needed for the long term health of our country and the world we leave behind to our children and their children – the future of mankind.  

A vote for Ron Paul for President will go a long ways toward a return to Honest Money and the ideals of freedom and liberty expressed in the Constitution of the United States of America – the Supreme Law of the Land.

Invitation

Stop by our website and check out the complete market wrap, which covers most major markets, including stocks, bonds, currencies, commodities, and energy, with the emphasis on the precious metal markets, both physical and stocks.

There is 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.

On the main homepage are papers and articles by some of the best out there to be had. There are audio and videos on banking, the Constitution, and cutting edge news of serious interest. Many articles are archived, while others are linked.

Live time quotes on gold and silver and precious metal stocks are available, including charts for most world currencies and futures. Links to the World Bank, central banks, international monetary fund, the United Nations, and much more are offered.

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.

Our gold stock portfolio with all buy and sell orders is posted in the public domain for viewing. See which stocks we own, have sold, and bought most recently.

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

About the author: Douglas V. 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 for the Advancement 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.

Douglas V. Gnazzo © 2005 – 2007 All Rights Reserved Without Prejudice

The Dragon Slayer Walks The Earth Again

-- Posted Monday, 24 September 2007 | Digg This Article