THE PRECIOUS METALS
"YOU AIN'T SEEN NOTHING, YET"
It’s that time of year, and change is in the air. The grass turns green and the trees start to bud. Sometimes, Spring seems to suddenly “spring on you” after a nasty end to winter, and sometimes the markets act the same way. In those times the change can be all the sweeter.
We have reviewed several charts over the last couple of weeks with an eye toward the PM sector finding a bottom in this time period before heading to new highs. It is simply too early to know if yesterday’s short-term bottom is the real thing, but I am seeing the kinds of things in the charts that I would expect to see if an important bottom is forming.
“Will The Real “Real Money”, Please Stand Up”
Speaking of “change”, isn’t everything we have talked about in our editorials all about change- the change of the money guard. We have the bankers printing so much paper money that they are flooding the world with paper Dollars- paper promises that need to be paid back. As the supply of something increases, its value drops, in fact, so many Dollars are being printed that the Dollar is just becoming a commodity of sorts- kind of like a trading coupon at a store. And in the face of all of these printed promises, Gold and Silver are standing tall as they resume the roll of Real Money. Gold and Silver are fairly fixed in terms of supply and have been trusted as the world’s real reserve currency for thousands of years. People are slowly starting to realize that there are promises everywhere you see the Fed, but those promises seem meaningless. Those promises deal with a “strong Dollar”, low inflation, decent economic strength, a low unemployment rate, a bottom in housing, and manageable debt levels. Many read those things and simply shake their heads. The truth is that the Fed and the banks only have two things to peddle- paper Dollar promises and verbal promises. They are pumping out those promises so fast that the Dollar fall is the work of their own hands. And as I said last night- “Don’t fight the Fed.” They are printing the Dollar value away so investors have no choice but to turn to Real Money Gold and Silver.
In the following chart we can clearly see the changing of the money guard as the Dollar falls down the commodity ladder while Gold is rising to Real Money status. “X” marks the spot. Many are calling for the Dollar to rally at this time, but I think it will have a hard time even fighting above 75 on the chart. The trend for the Dollar is clearly down as the supply of Dollars continues to grow.
“Head And Shoulders”
There has been a lot said about the “potential head and shoulders formation” in the chart of Gold at this time. The truth is that most potential head and shoulders formations in a Bull Market fail. We can see the close similarities between the potential head and shoulders formation that failed back in late 2005 circled on the left of the chart, to the recent formation. In both cases the price of Gold retested the angled “old high resistance” then fell back to support. In both cases the price of Gold had run higher while the PM stocks as represented by the HUI index waited. In both cases the PM stock investors became pretty frustrated, wondering if Gold was going to fall much further taking the PM stocks with it. In late 2005 Gold fell to support, then bottomed, and rallied aggressively higher. Today, the price of gold hit similar support to that of late 2005, and I expect the same result. Like in all Bull Markets investors are worried that there will be a big fall. Investors are worried about deflation, and worried about the Fed controlling Gold, and worried about the PM stocks not rising as Gold goes up, and worried about the Dollar rallying, and worried about interest rates not being cut, and worried about…… This is nonsense. The Fed is printing Dollars like crazy, creating Dollar inflation that leads to price inflation that destroys the savings of man- unless your savings are protected in terms of Real Money. At this time, Gold ran up, and then fell back to support. The price rise in Gold was not factored into the share prices of most of the Precious Metals Mining Stocks, but guess what happens if Gold and Silver moves back up to new highs? And that is exactly what I expect to see. There are fib clusters around $1,130 and $1,250 on the Gold chart. After that there is nothing but air up to around 1437, then around 1650. If we see the Gold chart resolve like it did in late 2005, then we would expect to see Gold run back up to the 1130 target sometime in June. If the heads and shoulders continues to play out then all bets are off, but there is actually an even more bullish possibility that can be gleamed from the chart. We’ll just have to stick to the grindstone and see how it all plays out.
Will they, or won’t they? That is the question everybody is getting a bit tired of asking about the fate of the Precious Metals Stocks. Well, it looks like it is “show time.” I have picked two charts to show at this critical juncture for Gold and the PM stocks. The first chart is Goldcorp. GG has great chart symmetry and regular “footprints” where the stock tends to correct with shallow retracements during momentum runs. In the chart, below, we can see similar chart structures in the chart of GG in the similar time-frames we have discussed in the Gold market. If the price action of GG resolves the same as it did in late 2005, it will make GG investors very happy. GG is a good stock to use as a surrogate for the investment climate of the large cap Golds. In the smaller circle on the chart we can see the potential similarity of a bottom to the 2005 bottom. If the price has bottomed, then we would expect GG to run to around $60 before potentially moving higher into the $80 area. Looks good so far, but we need to see this bottom hold this week.
The second PM stock chart is AEM. AEM has been a leader of the PM stocks since the first half of 2005 where it has run from about $10 to as high as $85. After annotating the chart, I must admit that the chart is quite interesting at this time, and I expect AEM to continue to lead on the upside. In the chart we can see a steeply angled “cup and handle” formation where the handle formed in 2006 between $40 and $45. In late 2007/ early 2008, the price broke out of the cup formation and ran to about $85. Then price corrected to hit support at the angled top of the cup formation, today. If this re-test is successful, then it is time to load up the truck. A run higher could be helped by a thinly traded area on the chart up to about $130.
If the bottoms in Gold, Silver, and the HUI from today hold for the rest of the week, it might get interesting to say the least. There is the possibility that we do not have a complete 5th wave in for the Gold chart, yet, but if not I’d expect to see it come in over the next couple of days. The fundamentals certainly support the PM sector moving higher so a change in investor psychology could be quite explosive. Nothing is guaranteed by any means, but the potential for this being a very important bottom is certainly present. I do like to see so many similar conditions on the charts to past successful bottoms at these key points. “Trading places” might soon mean that a lot of PM stock shorts are about to be forced to scramble to cover their positions. Such a short squeeze could ignite a rocket under the PM sector at this time.
As we have noted we will be moving our work to a subscription site, though there has been a delay with the site, itself. I apologize for the delay, but do not have control over creating the site. I would again like to thank readers for the many kind comments that I have received. We are compiling an e-mail list to contact those who wish to be notified when our new site is up. Goldrunner44@aol.com
For the moment…………..Goldrunner.
Below, is a link to the Goldrunner Index which includes links to the recent series of editorials we have posted.
Again, I’d like to thank all of the posters at the Gold-Eagle Forum for their daily input. This thank you is especially extended to TQ and to Grininbarrett who have positively affected my growth over the years, along with posters Pittrader, Trader_Vic, and Mr. Aholbroke. Special thanks go to Dr. Vronsky and Westerman for creating the Gold-Eagle site and for editing my work. A very special “Congratulations” go out to Dr. Vronsky and Westerman after Gold-Eagle saw its hit counter ring up to 286 million this last week.
Here is the link to a site I use to research the warrants of Precious Metals stocks. I will be discussing some aspects of the leveraged use of warrants later in this editorial series.
Another very good site that is dedicated to investments in Silver belongs to David Morgan, and his site can be found here……………. http://www.silver-investor.com/
May 01, 2008
Please understand that the above is just the opinion of a small fish in a large sea. None of the above is intended as investment advice, but merely an opinion of the potential of what might be. Simply put:
The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. 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.
Email this Article to a Friend