Bullion Bouillabaisse
Joe Nicholson (oroborean)
November 22, 2007
"A move to as low as $750 would still be a very healthy pullback in an otherwise rip-roaring bull market. We should … watch to see if the 5-week sma acts as resistance. Silver… is looking to set up a great entry point with support at the 50-day moving average at about $14. Failing this, there's strong support in the $13.50-$14 range. The Fed has shown no signs of contracting the monetary base. What better way to get more bang out your rate cutting buck than to stymie expectations with hawkish rhetoric and a new headline inflation targeting policy?"
~ Precious Points: Is the Fed All Talk? November 17, 2007
The Fed kept sloshing repo funds at elevated levels this week and, with economic and earnings data continuing to drain the stock markets and lower Treasury yields, expectations for a rate cut in December persist. With each passing week, the pressure on the Fed threatens to bubble over, and it's becoming more and more likely the FOMC will again find itself in a position where it's obliged to cut rates or risk a huge selloff in equities markets. And of course, this is a situation that so far has not let precious metals sink too low, despite predictions for the worst.
As the chart below shows, gold did find resistance at the 5-week sma, which makes it just a little uncomfortable to assume it's completed a three wave correction from the recent highs. Having penetrated the $750-775 support area mentioned in the TTC forums, its possible the near term bottom is in here, but with stocks teetering on the abyss, making that bet is not a high risk/reward proposition. Instead, buying the breakout above the 5-week sma with a stop, or buying support lower, makes much more sense.
After making a convincing move early in the week back toward $15, silver sold off sharply on Wednesday to close on the 5-day moving average, below $14.50. Being directly on a key level, silver may be the first tell for the direction of the next move. $13.50 continues to look like solid support, if we get there, and with what looks like a five-wave move down off the recent highs, silver will some work to do to avoid slipping lower before attempting new highs.
Of course many readers may not be particularly concerned with short term moves in the metals, probably because they're holding physical gold and silver. Yes, the futures and ETFs provide a convenient way to diversify a paper portfolio or to play the intraday moves. Unlike the day to day volatility, the long term prospects for precious metals are a steady upward rise. Owning physical metal gives you additional insurance against banking catastrophes or other eschatological scenarios, but best of all, it gives you something gorgeous to marvel at while you watch its value rise year after year after year.
Happy Thanksgiving!
oroborean
www.tradingthecharts.com
This update is provided as general information and is not an investment recommendation. TTC accepts no liability whatsoever for any losses resulting from action taken based on the contents of its charts,, commentaries, or price data. Securities and commodities markets involve inherent risk and not all positions are suitable for each individual. Check with your licensed financial advisor or broker prior to taking any action.
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