GOLD AND SILVER REVIEW
Friday, March 17th, 2006
162nd Edition
Chris G. Waltzek
MARKET SUMMARY
* Gold & Silver Strength *
Gold and silver recovered some ground this week due in part to dollar weakness. Traders largely credited the strength in precious metals with the dollar sell-off. The dollar was hammered this week as the U.S. Treasury Department indicated net capital inflows into the United States in January were unable to offset the record trade deficit. On Thursday the dollar reached a multi-month new low, closing near 89. This was viewed as positive for gold. Gold climbed by $12 to close near $554 while silver gained about $0.40 to close near $10.33. The XAU Gold stocks index picked up 5 points following last weeks deluge to close at 131.74. Rumor on the street continues to buzz around the proposed silver ETF. Sellers are unlikely to pull the trigger until a final announcement is made concerning the new silver trading vehicle. Silver closed at a record high as seen in the chart below:
U.S. stocks moved higher on Friday on the heels of the Federal Reserve Industrial Production Report which indicated an increase in manufacturing of 0.7 percent in February following a 0.3 percent decline in January. Also, weaker oil prices encouraged traders. Friday trading was volatile due to quadruple witching, where futures and options expire.
The Dow Jones industrial average rocketed higher to close by almost 200 points and the S&P by approx. 25 points this week closing near their highest points since May of 2001. Traders sited steady economic growth and corporate earnings as the primary drivers of the spike higher but noted that high oil prices and climbing interest rates will remain threats to the 4th straight year of gains. Steady growth is viewed as favorable to a rapidly expanding economy as the Fed will be less likely to raise rates. In the Dow and S&P charts below, the S&P finally confirmed the Dow's move higher as it broke-out of its previous consolidation this week:
The Nasdaq improved this week but was unable to break-out to new record highs. The minor sell off in tech stocks held the index back, Chris Johnson, market strategist at Schaeffer's Investment Research" noted that "The blue chips have a nice little advance going, but the semiconductors are really dragging things down." In the chart below, the Nasdaq is clearly bumping up against resistance, we'll see if it can break-out this week:
Guru Predictions
*The Golden Guru Award*
Kenneth J. Gerbino offered his thoughts on gold:
"I would be cautious here and be patient as well. $600 gold may look good but will it last. A move to $600 sounds great but are you prepared for a normal correction back to $500 from there? I would suggest having a core portfolio that you hang on to as your insurance portfolio (this should not include any exploration stocks since they have zero gold) and another where you intelligently make good investments in quality, properly valued companies but don't take losses if the trades go against you and only buy on dips."
Todd Stein & Steven McIntyre, offer a best case scenario for gold & silver:
"Nixon eventually closed the gold window and the rest is history. In 1970, the average price of gold was $36/oz. About a decade later, gold would break past the $800/oz level. So some might say that since gold recently bottomed in the $270-360 range, and equal percentage increase would cause the price to rise to at least $8,000/oz. This would mean a ten-fold increase from its all-time high. Using the same ten-fold increase for silver, you come up with $500/oz. Frankly, we think this ultra-bullish "equal percentage increase" method is silly and should be ignored. $800/oz and $50/oz prices for gold and silver occurred at the very top of a mania, just like when the NASDAQ hit 5000 six years ago."
Peter Grandich jotted down a tongue in check prediction:
"Remember, you're going to need to sell your $1,000 gold to someone. Who better to give it to? LOL!!! "
Lastly, my humble prediction: "Meanwhile, gold continued to consolidate this week. The market has been constrained within a narrow trading range for the past few months, despite higher silver prices. Clearly the market is winding up like a coiled spring for the next move. If silver continues to ramp up, expect gold to break-out and run to the $620-$650 level. Conversely, a break-down from the trading range seen in the chart below will lead to a re-test of the $500 level."
Bottom Line
The Golden Guru Award of The Week Award, goes to Todd Stein & Steven McIntyre for their bold $8,000 gold and $500 silver price projections. When we take the average of our intermediate-term pundit estimates for gold we find a single price target of, $740 an increase of $1 from last weeks consensus of $739.
($600 + $620 + $1000 ) / 3 = $740
Chris Waltzek
cwaltzek@comcast.net
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