Gold looks to have put in the bottom but $750 has to be put behind us before that can be said with certainty.  Some dehedging was accomplished recently which says tomes about the bullish posture companies are looking to achieve. 

          RSI made a quick shot above its recent peak which is constructive.  Higher highs and higher lows are what I am looking for here along with a couple closes above $750 before we can look for an upward trend to be in place.  Moving averages are still pointing south but the 25 day is quickly approaching the $775, $750 level which will be a paramount test of gold’s strength in the paper futures market.

          MACD has been a good predictor of movement in the past and if the bullish crossover is confirmed there is the potential for a quick $100 up day again.  The Slow STO is also showing us a strong move up is imminent in the near future. 

          Silver moved up nicely above $10 this week and just held that level on Friday.  $10.40 is proving tough resistance but when that is passed $11 will quickly follow.  Supply continues to be cut and the effect will become more evident over the next quarter.  Nothing happens overnight in the supply arena and it will take time before it can be ramped up again.  That is extremely bullish for silver.

RSI looks great and is approaching the 50 mark which when bested will provide a buy signal to many investors.  The downtrend is still in place but is at make or break time as it converges with the newly formed uptrend.  The moving averages are heading lower but the 25 day is at a tipping point and could very well turn back up next week as the convergence of trends merge. 

MACD is showing us a bullish move will continue.  Slow STO is at very strong levels for such a small move up so far.  This shows very healthy strength. 

          Platinum is forming an uptrend and broke the long strong downtrend.  Supply will be lost due to this price smashing but will not be apparent until next quarter.  I think it’s getting close to a good time to look at getting back into this market.

RSI bounced off resistance that has shown weakness for so long now.  That line has to be taken out before anyone can seriously begin to move into this market and expect a trending move to begin.  The moving averages are still lower but the price is butting against the 25 day and if taken out will be a very bullish sign.

MACD is telling me we have a bottom and the downtrend is over but that could change and cannot be relied upon solely.  Slow STO is showing me we are heading north in price action soon and along with the MACD signal is a preliminary buy signal to perhaps begin accumulating a position again but only dipping toes at this point.

          Palladium is leading platinum in the move up and since the two metals are so correlated that is a sign that platinum is ready to move back up a bit.  The strong up move and weekly close just above $220 resistance is extremely constructive.  I am confident calling a bottom now.

          The RSI busted through 50 like a hot knife through butter.  The 25 day moving average just hooked up Friday and is now support.  The 50 day moving average was tested and barely held the price back.  The strong move up is very powerful and should move above that moving average with ease this week.  I think $260 is in play this week.

          MACD is very healthy and shows more strength coming.  Slow STO shot up like a rocket into oversold territory and is now looking to blow off some steam.   

          The HUI gold miners index is trading above support around 200 and any way you look at it is extremely undervalued and a great investment for the medium and long term.  If you were lucky enough to buy this index at 150 you are very happy by now.  My thinking leads me to believe that we may see a test of the lows at 150 during December’s tax loss selling.

          The XAU index continued higher from sickly levels.  I am thinking here as well we may see another test of the lows before we begin to move up in earnest for the long term.  Double bottoms are very strong signals and I would love to see one formed here.

          The GDX index comprised of mid cap to smaller companies moved up nicely but the volume was not that strong and as with the HUI and XAU I think we will see another test of the lows here and that will be the end of the sickly declines.

          The weak volume is telling me we are nearly sold out.  It’s hard to believe the gains over seven years were wiped out over the last few months.  The range we are seeing now is very strong and long support which must hold or we could see all time lows in this index.  This chart is a testament to the pain the junior and exploration companies have been feeling.  The Christmas gifts of severely undervalued companies will be the best gift ever if the right companies are bought. 

FundaMetals Review

            It was a stunning week with the Bank of England cutting interest rate by 1.5% to 3%.  A huge shock designed to stem the continuing global crisis that has not had the desired effects yet.  Joining in on the fun was the European Central Bank which oversees the Euro.  They cut rates by 0.5% to 3.25%.

          Today (Saturday) talk of more rate cuts is coming out the G20 meeting taking place in Sao Paulo this weekend.  The US has little room to move rates lower so other countries with higher rates are trying to pick up the slack on the weakening global economy.  Having recently purchased a house and going with a floating mortgage is turning out to be much better than even I imagined.  There will be a time to lock in rates but they may be 50% lower by that time from the already low levels.  It feels like we entered into a subprime mortgage and are paying the first year or two of teaser rates!

          Next in line for a government bailout are the car companies who may not last until Christmas.  When will it end?  Paper money is becoming more worthless every week at an incredible and growing rate.

          Some confusion came to light this week regarding the large Las Cristinas project in Venezuela.  First Venezuela issued a statement saying they are reclaiming the project and hope to begin production next year.  Then a release saying Venezuela was offering the project to their kissing cousins over in Russia.  Then the development company issued a release saying they are still waiting for the permits and have not been notified of any change yet to date.  Another case of wham bam, thank you mam.  After the deposit was outlined and detailed plans drawn up it looks as if Venezuela is going to benefit once again with little recourse. 

When companies and investors will wise up to this epidemic is beyond me.  I don’t know why anyone would trust a government with such a horrible history of nationalization.  How does the old saying go?  Nice try Mr. Bush but it’s; fool me once, shame on you, fool me twice, shame on me.

Some more dehedging took place over the past quarter to the tune of 2.3 million ounces.  This reduces the global hedge book to 16.5 million ounces.  This total is down from 29.1 million ounces last year and 41.5 million ounces the year before.  This perhaps helped the gold price from falling as much as many other commodities.  Hedging is the practice of forward sales.  Basically, locking in future sales of gold at a price, say $400 for future production.  This worked well with a falling or flat price of gold but since the price has moved up so much many miners have lost billions of dollars as result.  Investing in non hedged gold companies is essential to realizing maximum gains if you are bullish on the gold price.

          This article reinforces the view that gold miners are still profitable at these lower prices.  Gold has not fallen as much as base metals which are seeing producers shut down or slow development.  Cost of materials and infrastructure has come down as a result and will lower cash costs of production.  Unfortunately many companies have hedged fuel and are paying higher prices which are locked in, than they could buy it on the open market for.  Overall though, costs are beginning to come down.  Unfortunately silver is a major by-product of base metal production and will see a lower total supply this year and possibly for several years to come.  Here are some more signs of a coming supply shortage.

          In a survey from the above article, size mattered.  The 17 producers with the lowest costs produced over 420,000 ounces in the second quarter while the 17 highest cost producers averaged just over 125,000 ounces during the same time frame.

          This brings me to my next point and long held belief that silver will outperform gold.  The supply is shrinking much more in silver than in gold.  Billionaire and a favourite of mine Jim Rogers agrees.  I’ve said it many times before and will many times in the future.  The billionaires of the world are that for a reason and to follow their advice is a great idea.  Certain ones are lighthouses in the fog and I trust their words implicitly, certainly much more than the utterances of many governments.  Mr. Rogers points to the fact that the IMF and many governments have gold and could sell it into the market while there are no stockpiles of silver.  Simple and true, it makes sense, but gold will still reach great heights.

          Mr. Rogers talks about the IMF having over 3,000 tonnes of gold valued today at a mere $90 billion.  That number use to be huge but is a drop in the bucket when viewed against any figures we see pumped out daily to help the economy one way or another.  The IMF could sell all their gold and it would not make a difference in the longer term with so many dollars floating around today.  Also if the IMF was allowed to sell their gold it would not see the market but would be scooped up by a central bank looking for more security than the vast paper dollars they hold today.

          Humour me for a minute and remember the recent insurance bailout which is well over $100 billion thus far with much more to go.  Now imagine if the original $87 billion “gift” was the IMF total hoard of gold.  Do you think the government would be so keen to give such a quantity of gold?  They had no problems dishing out much more than that in paper currencies.  If currency was backed by anything there would be a much greater reluctance to issue it to every Tom, Dick and Harry who comes knocking.

          Anyhow, platinum group metals will see supply declines in the near future due to the drop in prices and the global crisis.  There is nowhere to go but up over time for platinum group metals.  There are many corroborating stories increasing in frequency as we continue into the depths of the ramifications from rampant greed by wall streeters.

          Here the physical bullion shortage is confirmed in a short video report.  Its real folks, have you got some?  This article also outlines the rampant shortages. 

          This is a must read from the great investment mind of Eric Sprott.

          Here is a tome which is sounding more familiar every week and will be heard many times again.  It’s a great read and soon you can expect the government to form some kind of bailout for these types of investors and funds which so many rely upon solely for their upcoming retirement.  If you think a lot of money has been thrown into the financial system to date, I have only one thing to say; you ain’t seen nothin’ yet!

          Well this was one of those days where every half hour of work I pounded out I would be pulled away for something that “couldn’t wait” and took an hour.  Unfortunately they all know where my hiding spot is and it is highly immobile.  Anyhow, during my relentless search for financial truth and information I stumbled across the solution to all the problems in the world today.  It’s really simple and just might work.  I hope you enjoy the solution as much as I did, it is found here http://video.google.ca/videosearch?q=snl+fix+it&hl=en&emb=0&aq=f# and the solution begins around the two minute mark although it’s all pretty good but unrelated to the financial crisis.  Oscar comes up with another great solution around the five minute mark here http://video.google.ca/videosearch?q=snl+fix+it&hl=en&emb=0&aq=f#.

As always I wish you a happy and great week.

Sincerely,

Warren Bevan

www.preciousmetalstockreview.com

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-- Posted Sunday, 9 November 2008 | Digg This Article