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Market Wrap Week Ending 2/15/08



-- Posted Monday, 18 February 2008 | Digg This ArticleDigg It! | Source: GoldSeek.com

 

Honest Money Gold & Silver Report

 

 

    

 

Stocks

 

Everyone knows that gold has been going up strongly and that stocks have been going down. Let’s take a look at a comparison of the performance of gold to the Dow.

 

 

As is evident, gold has far out performed the Dow since 2001. The lower the number the stronger gold is versus the Dow Industrials. So far is has been no contest.

 

Next up is a chart of the Dow with the volume appended beneath it. It does not paint a pretty picture.

 

A comparison between price action and volume shows that as the Dow fell – volume increased. As the Dow rallied to lower highs – volume decreased.

 

Price generally follows volume, which does not allude to good things. It strongly suggests this is simply a bear market counter trend rally.

 

 

 

The above charts hint there is more downside action coming. Rallies are to be sold and corrections should not be bought, except by well seasoned traders for short term plays.

 

Most should lighten up and step aside. Let the rogue elephants run around until they run themselves out.

 

There are other markets that provide a better risk to reward ratio, and there are always special situations or stocks that buck the overall trend. Now is not the time for the “herd” mentality.

 

Borrowings

 

Next are a couple of charts compliments of the St. Louis Federal Reserve Bank’s website. Alone they do not paint a pretty picture, together they almost rival the brothers Grimm.

 

The lower this number goes, it means depository institutions are borrowing funds either in the Fed Funds market and/or through the Fed discount window in order to meet their reserve requirements.

 

 

Based on the above chart one would expect a large increase in total borrowings, but look at the increase – it’s off the chart. Money is tight.

 

 

Bonds

 

The chart below shows that since mid-Dec. bonds have been the recipient of hot money moving out of stocks.

 

A higher number means bonds are out performing stocks. A lower number means stocks are stronger than bonds.

 

 

The yield curve is steepening, which means the distance between short term rates and long term rates is increasing. Short term rates have been coming down faster than long term rates.

 

 

Currencies

 

The euro/dollar cross appears to be constructing a triple top from which it has declined. It touched its bottom support line and has rallied up to about the mid-point.

 

The bottom trend line needs to hold as support and the euro could take a pretty good hit, while the dollar rallies. It still could, however, go either way.

 

With the European Central Bank talking about lowering interest rates, and so many short the dollar – it would not be a surprise to see the dollar rally. Caveat Emptor.

 

 

 

Next up is a daily chart of the U.S. dollar. Signals are mixed. RSI has been declining, but will it decline further or turn up?

 

MACD has been falling from positive territory back towards zero. MACD presently has a positive cross over, but it looks like it’s starting to roll over.

 

It is possible for a rally up into the 78-79 area if one starts and gains momentum. There are many shorts that would be forced to cover their positions – driving prices higher. It would still be a counter trend rally in an on-going bear market.

 

 

  

The weekly chart of the U.S. dollar below clearly shows the long term downtrend the dollar has been in since 2002. The chart keeps descending relentlessly, as if it’s the stairway to hell.

 

Notice, however, there is room for the dollar to rally back up to its falling trend line, which would take it to near the 80 level, still leaving it well within the confines of its long term downtrend.

 

RSI is turning upwards. MACD has put in a positive cross over and the histograms have turned positive as well.

 

The more it can rise, the more momentum will build as shorts are forced to cover their positions. Stranger things have happened, and stranger things will happen.

 

 

 

Gold

 

Gold was down $16.20 for the week, closing at $906.10 for a loss of 1.76%.  I get asked the question a lot: how low could gold fall?

 

I wish I knew. No one knows for sure. There are only probabilities, no guarantees.

 

Below are some probabilities, none of which preclude that gold is necessarily going immediately. When and if it does, it will be a buying opportunity.

 

The dominant chart feature on the daily is the negative MACD cross over. Until that is resolved to the upside – the upside is limited.

 

Notice the 50 RSI level has held in the past as support. It’s coming up soon. The bottom Bollinger Band should also provide support ($880)

 

 

 

The weekly chart shows RSI in overbought territory, as well as MACD, and at the bottom of the chart is the commodity channel index, which is extended, but below its prior peak.

 

The middle Bollinger Band offers the first support level at $832, and the lower support level is formidable support at $722-$720.

 

Keep a close eye on the dollar. If it begins to rally – gold will be facing a stiff headwind.

 

 

 

Silver

 

Silver was up 0.01 cent for the week, closing at $17.12. Silver out performed gold again this week.

 

Below the Silver Trust weekly chart shows RSI bumping into overhead territory.

 

All of the indicators on the chart are well into positive territory, suggesting that price is a bit extended. However, in strong bull markets price can remain extended – as the Platinum chart clearly shows.

 

 

P&F Charts

 

 

Platinum

 

Platinum has been on a tear as of late, making new highs on a daily basis for days on end.

 

The reason is that demand is overwhelming supply due to the shut down of South Africa’s platinum mining, which in turn is due to a lack of electric power available from Eskom – the major power supplier.

 

The chart is a perfect example of how in a bull market prices can remain extended for long periods of time – at unimaginable levels.

 

 

 

Hui Index

 

The Hui Index gained 0.79 to close the week out at 435.06. This week the pm stocks out performed physical gold, but it wasn’t a week to write home about.  

 

The daily chart has RSI flat at 47.51, showing an earlier positive divergence where it made a lower low and price did not.

 

The blue vertical lines indicate where RSI broke below 50 previously and by tracing them down the chart the ensuing price action is seen.

 

Price is testing its 50 day moving average and its bottom trend line. It is important for the support level to hold.

 

MACD is still under a negative cross over, but may be flattening out. It needs to turn up and make a positive cross. Histograms are receding back towards zero, and an earlier positive divergence remains.

 

 

GDX

 

GDX shows essentially the same as the Hui, however, GDX actually trades and volume has declined on the correction. That is positive.

 

Aside from RSI, most indicators are oversold, with two positive divergences present.

 

 

Gld/Hui Ratio

 

Below are the daily and weekly charts of the pm stocks vs. physical gold. A bottom appears to be forming and a rallying may be coming.

 

 

  

 

 

That’s about it for this week. Next week we will look at some possible new plays – all of which are in the commodity markets in one form or another.

 

Do yourself and your kids and their kids a favor – vote for Congressman Ron Paul for President.

 

He is the only honest man running for office, who knows what he is talking about, and who has a clear vision of what would be the best course for our country to take.

 

You might ask: what is his platform? Take the US Constitution  out and read it (click open the underline link in blue). That’s his platform.  

 

Read in article 1, which spells out in concise terms what our money is supposed to be: gold & silver coin AND no bills of credit (paper money). Ron Paul espouses the same.

 

We are so far off course, especially in following our own Constitution that we are essentially lost and in unchartered waters. We need to return to the path that leads to the proper way.

 

Good luck. Good trading. Good health, and that’s a wrap.

 

Come visit our new website: Honest Money Gold & Silver Report

New Book Coming in 2008 - Honest Money

 

Douglas V. Gnazzo
Honest Money Gold & Silver Report

 

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). He also has his own website: Honest Money Gold & Silver Report.

 

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 – 2008 All Rights Reserved Without Prejudice


-- Posted Monday, 18 February 2008 | Digg This Article | Source: GoldSeek.com




 



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