first majestic silver

I Hear That Train A'Coming!

April 2, 2006

I believe it was Johnny Cash who made those words famous- "I hear that train a'coming. It's coming round the bend." Today, I believe the fundamentals for the Precious Metals reflect something analogous to a train that is coming, alright. In fact, is seems to me that the façade of everything being okay and under control in the economy is cracking as I write. There can be further discussion as to whether inflation should correctly be described as an increase in money supply, or whether it is more correctly described by an increase in the prices of goods and services- but at this time the consumer sees the increases in both as being much like a rocket zooming off of the charts. And the consumer is certainly feeling the pain. Suddenly, the Fed no longer sees a reason to publish the zooming chart of M3. I think the Fed has heard the whistle of the train and felt the rumbling on the tracks. Of course, this is the same Fed that has used tools such as hedonics in an attempt to muffle the screams of that coming train, at least as far as the whistled shriek of price acceleration is concerned. Could it be that the same Fed is now trying to muffle the vibration on the tracks caused by a zooming chart of M3 as liquidity comes in to support the markets out of "seemingly thin air?" Oh yeah, I seem to have forgotten that it is the Caribbean Banks who are buying our burgeoning debt these days. Yeah, right! I hear that train a'coming!

Along with what seems to suggest panic printing by the Fed and attempts to stifle the screams of price rises, it seems apparent that the liquidity being injected into the markets is continuing to increasingly make its way over to the Precious Metals sector and into "all things, real." We are seeing that movement in the prices of Gold and Silver, along with all of the commodities in general. Though it is true that Gold and Silver as Real Money might over a period of time remain a source of stability to life as suggested in the words that "through history, an ounce of Gold has always equal to the price of a good suit", it is also true that for shorter periods of time there can be very large discrepancies in those relative prices. This can be of enormous importance to an individual during times when price rises and interest rate rises might threaten one's ability to stay solvent. It is during times acute economic stress when surges of these stressors that can only be negated by ownership of the Precious Metals, IMO. I suspect that we are on the brink of such a time. Though the masses don't seem to "get it", debt is truly becoming a four letter word. Got Gold? Got Silver? For the immediate future I think we'd better follow the words of Sister SLD- "Gold and Silver- A way of life!

"$GOLD"

Today, Mr. James Turk presented an article on Gold showing that Gold is breaking out of a long-term price range that might have very important ramifications. I thought that we might review a technical relationship in Gold's chart that I have commented on in the past.

In our past editorials we have described how Gold busted through a long-term resistance line which we referred to as "Falcor's line in the sand." Now, Gold might be preparing to bust through "Mr. Turk's line in the sand, a move that could easily give us a Gold price of over $1,000. The amazing thing is that I don't think that the Precious Metals stocks have even yet been revaluated to reflect the breaking of the first line. What does that mean? Well, I suspect it means that 2006 and 2007 will be years of gross increases in the Precious Metals stocks across the board as the shares are revaluated much higher in price. This coming period will be the "sweet spot" of PM investing- wave 3 of Wave III in Elliot Wave terms. If I am right, the HUI might soar to unspeakable levels through the end of 2006 and well into late 2007. How much higher might the HUI rise? Well, I would suggest that an HUI level of over 700 will be likely in the first half of 2007, and an HUI price level of around 1250 might be possible by the end of 2008. When I look over large numbers of long-term charts in the Precious Metals sector all I see are cups and handles that have broken out, are breaking out, or are moving toward a break-out. This coming period for the HUI and most all Precious Metals stocks should be explosive. In my opinion, an explosion is coming!

In the above chart mimics the chart in Mr. Turk's article, but does not show the break of the "range." We can see a 3 Fan-line formation in $Gold as represented by the 3 blue lines. The 3 Fan-line-formation was first brought to my attention by Mr. Clive Maund a few years, ago. When such a formation breaks above the third blue fan-line, an explosive move to the upside usually occurs which runs up a fairly tight channel. We saw such a move in the chart of BGO when it had a big move into late 2003. In fact, in the case of BGO, price moved to over 4 times the price of the previous low. If $Gold were to compete a similar move to BGO, in the coming period, it would suggest a price objective of over $1,000. That would not be the full extent of Gold's future rise, just a price objective along the way before any correction might challenge the integrity of the channel. Will the same occur with $Gold, now? I don't know, but I am illustrating the possibility. Please understand that I still expect $Gold to have occasional sharp corrections inside the tight up-channel it has been trading in. I suspect that the next resistance area is around $630 to $650. We could then see a sharp but fleeting retrace, lower.

This chart of BGO illustrates the tight channel that price move up after the break-out of a 3 fan-line formation. Will $Gold continue up its channel?

"$SILVER"

This week $Silver reached our $11.87 price objective that we set back in August. Does that mean that we must see a dramatic price decline in $Silver at this time? My answer is "hardly." When we set our $11.87 target for Silver, it was trading at $6.68. At that time we did the best we could to present a creditable future price target to give us an objective in price and time. Our time factor to hit our target was "by May to June of 06." Now that we have attained that price objective, it is time to go back to the drawing board.

I have only had time to take a cursory look at the charts of $Silver, but the most likely path in my opinion is for $Silver to spend a bit of time consolidating, then to continue its upward path to the top of the channel in our "original chart" to about $13. After that move has completed, we might see a bit of a more severe correction down to test support in the $10.80 area or a bit higher. After that, I'd expect further strength as Silver runs up to around $15 in 2007, but would leave open the possibility of Silver spiking to as high as $17 to $20 in late 2007. Below, is our "Original Silver chart"…..followed by a simpler $Silver chart.

"SILVER STOCKS- CDE"

I want to touch on the Silver stocks at this time since some are calling for $Silver to correct sharply from the $11.90 "top". IMO the whole Silver stock universe, and the PM stock universe as a whole, remain grossly undervalued at this time. I do not see anything in the charts of most Silver Charts that suggests any major correction is due, at this time. In fact, I expect CDE to trade up to around $12 over the next couple of months. Is it possible that $Silver corrects sharply at some near-term point while the Silver stocks exhibit strength by staying relatively stable? Sure, but I think that time will come once CDE has traded up to about $12. In the near future I expect many smaller Silver stocks to grossly outperform- to literally explode upwards as their reserves are revalued to higher levels. All it would take is for Silver to merely consolidate at these higher levels, or to move higher, in my opinion.

If you would like to read a more lengthy review on my expectations for CDE, you will need to visit the Gold-Eagle Forum and look for my post of "April 02- 07:18." You can find the link to the Gold-Eagle Forum, below.

"THE HUI"

In our maiden editorial we discussed the HUI in some length. At this time the HUI will likely do one of three things. It will either form a "B" top, then trade one more time down to around the 270 level as a final corrective move before the rest of Wave III lift-off; it will run up to the 393 to 405 area in a 5th wave rocket shot of wave 1 of Wave III before retracing to around 307 then lift-off; or it will simply blast-off to the next level at around 468 as the HUI continues up in Wave III. With all of the work in recovering from the fire we had in my dental office, I have been too short of time to do a complete review, yet I am leaning heavily toward scenario 2 or 3. I do not believe that the PM stocks have been properly revalued to any real degree at this time considering the higher price levels that Gold and Silver will continue to achieve. In fact, I expect the HUI to blast-off to over 700 in 2007, and that 2006 and early 2007 will be seen in retrospect as an upward revaluation phase for the Precious Metals stocks. After that? Well, I see Wave III in the HUI Index trading to around 1265 at the Wave III top sometime in 2008. Those might seem to be rather lofty expectations, but Wave I of the HUI appreciated by over 700%- you do the math. I will try to return in the near future to present some charts of the HUI and some charts of individual PM stocks. After scanning over a hundred PM stocks this weekend in a short period of time, most of the PM stock complex looks like it is ready to bust out of "cup and handle formations" toward much higher price objectives. In fact, many PM stocks have already broken out.

If you would like to see examples of some "Moly" stocks that exhibit beautiful "cup and handle formations" that have already broken-out, look at Bigcharts versions using the weekly "log" selection along with "all data" for AUA.V, MOR.V, and GOR.V. Another nice example can be seen in the chart of AMEP, a small explorer of natural gas. It would behoove one to learn to identify many of these chart formations to help one select investment vehicles, IMO. These formations can be seen in the very long-term charts as well as the hourly ones. The chart of AUA.V- Adanac Moly is posted below, a chart that IMO has a potential intermediate target of CA $10 to $12. This vertical break-out is what I see for many PM stocks in our immediate future. If you put the symbol for CWPC into Bigcharts, you might get an idea of where AUA and the PM stocks might be heading in the coming giant Wave III.

The link to the Gold-Eagle Forum is………….

www.gold-eagle.com/cgi-bin/gn/get/forum.html

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. 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 219 million this last week.

Thanks also go out to CaptainHook and David Petch of TreasureChests, since I have learned so much from them. They can be found at www.treasurechests.info/index.php

There are many great editorials that can be found on the Gold-Eagle site at the following link. www.gold-eagle.com/research/petchndx.html

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The California Gold Rush began on January 24, 1848 when gold was found by James W. Marshall at Sutter's Mill in Coloma.
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