Question of the Week
There is no question of the week this week, however I am going to be speaking in Vancouver on June 6, and 7th.
World Resource Investment Conference – June 6-7, 2010
Anyone attending that receives this email or if you are a member of our paid services please drop by and say Hello.
Further, we are making an offer to attendees to the conference, so be sure to look in your conference bag for details…
Until next week,
Get real, buy real, be real
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Audio of the Week
The Korelin Economics Report
Al and David Morgan discuss safe investing.
The Opportunity Show
Ellis Martin of The Opportunity Show interviews metals, mining and money analyst David Morgan of www.silver-investor.com. Mr. Morgan discusses the coupling and/or decoupling of gold, gold stocks and currencies to each other in a turbulent economic time period, such as the one that we are currently in.
It’s been an exciting week for traders as volatility levels are through the roof and the broad market is moving up and down like a yoyo. You cannot take your eyes off the screen if you have a large amount of money invested as you can quickly find yourself with a large profit or loss in the matter of minutes….
Although we have seen stocks jump around the past few days precious metals have held strong with very little volatility. This is because of the economic fears looming for the US and other countries of possible financial collapse. This fear is helping to boost gold and silver prices because they are seen as the safe haven. Also we are seeing money move in the US dollar because the country is still seen as a leader in many ways helping to boost the US dollar.
Below are a couple charts on Gold and Silver ETF’s showing the end of last years rally and the correction in prices which are now looking to setting up for another leg higher.
GLD – Gold ETF Trading Vehicle – Daily Chart
I called this chart “The Golden Correction” because it literally is. We saw prices rally late in 2009 finishing off with a parabolic spike which we know is not sustainable and almost always results in a VERY sharp drop. This correction unfolded as planned with an ABC retrace which shakes out weak positions. We then we saw a reverse head & shoulders pattern form which again also shakes out weak positions. Once the neckline was broken from the reverse H & S the new up trend was started providing a couple trading opportunities for us along the way. The most recent low risk entry point can be seen on the chart as gold prices dropped back to a key support level.
Gold Futures Price – 60 Minute Day Trading Chart
Gold has been showing some very bullish price action the past week forming several mini bull flags with confirming volume levels. I think we should see gold pop another $5-10 bucks in the very near future if not continue higher for several days.
SLV – Silver ETF Trading Vehicle – Daily Chart
Silver formed much of the same patterns as gold but with much more volatility. Also silver has yet to break the 2009 high which is surprising but with a large part of silver being use for industrial purposes it does make sense as the economy is not as strong as it was thought to be in 2009. Silver carries much more risk when trading because it has more random moves and increased volatility.
Mid-Week Precious Metals Trading Conclusion:
In short, gold and silver are in an uptrend and looking strong. Both are currently trading at short term resistance levels on the daily chart which has caused them to stop moving up today (Wednesday May 26th) but on an intraday basis they look solid and could break though these resistance levels.
That being said buying way up here adds a lot more risk because a good chunk of the move has already been made and if prices do roll over and start heading back down the next support level is several percentage points away for placing a protective stop with the proper amount of wiggle room.
If trading Gold, Silver and Index Futures and ETFs interested you check out my trading services at www.TheGoldAndOilGuy.com
A question I often receive is, “How high do you expect the price of silver and gold to reach?” The simple answer is that no one really knows for sure, but it will most likely be far higher than the average investor expects.
First, a bit of background. Almost all markets go from undervalued to fair valued to overvalued, and this basic element is overlooked by many investors. I recall the wails about how high the Dow Jones Industrials had reached at the 3000 level, which was a far cry from the eventual top.
As I write this, and place the precious metals into the context of their rightful place in the overall investment universe, it is quite easy for me to state that the precious metals are still in the undervalued stage.
For readers this might be a conundrum, because anyone interested in business and finance can easily recall recent headlines about gold hitting all-time highs. But, alas, anyone with even a minute amount of ability to think would ask the question, “What does ‘all-time high’ mean?” Certainly, in U.S. “dollar” terms, the price of gold is higher than the price of $850 reached January 21, 1980.
As true as this statement remains, we all must realize that the amount of money in the M1 money supply (the quantity of currency and the value of checking accounts owned by the public) is at least 6 times (600%) greater now in 2010 than it was in 1980. So to put gold at a real, not nominal, all-time high, gold would need to be far higher.
Many arguments and emotions revolve around the precious metals. Some people hold them in mystical realms, other in disgust. Certainly, we can be objective enough to state that both silver and gold do represent an asset class that attracts investment and they have been doing so in a strong manner for the past several years. I would argue that gold is a currency and in fact a long and most respected currency of worldwide proportions.
A simple rule of thumb to determine the paper price of an ounce of gold is to simply divide the M1 money supply by the gold supply, and magically, you determine the price of gold in dollars per ounce. In round numbers, M1 (St. Louis Fed) CURRENCY ONLY portion is 900 billion, and the official U.S. Gold reserve is (261.5 million troy ounces). This simple division problem gives $/oz of approximately $3400 per troy ounce.
Does this mean gold is going to trade above $3000 per ounce at some point? No it does not, but at least this thought experiment provides a bit of logical thinking behind the question, “How high can the price of gold reach?”
Some will argue that the full M1 should be used, not just the currency component. Others will insist that M3—the broadest measure of “money”—should be used, not M1. I have no argument at all. My point is simply factual: if we call gold a currency and we use only the currency component of M1, we derive an answer. That answer is $3400 per ounce, at least until the money supply grows further.
Mr. Morgan has followed the silver and gold market daily for over thirty years. Much of this Web site, www.silver-investor.com, is devoted to education about the precious metals.
You can get his Ten Rules of Silver Investing — click here
It’s not all work here at Silver Investor. We like to let it all go once in a while. Most of you may not be aware but we sponsor a motocross rider. His name is Bruce Ross and yes…. he is the son of my technical guru here at Silver Investor.
We thought you would like to see a picture of the bike and watch a few videos of him riding. Bruce is in training all this summer and will be racing in a few races. We’ll keep you posted on his progress. In meantime, enjoy these clips.
Back in the third week of April I predicted here on Kitco.com a topping in the broader market indices. The theory was the VIX levels were extremely and historically too low concomitant with extremely high historical readings in investor bullish sentiment gauges. After thirteen Fibonacci months of a bull cycle rally, it was likely an A B C correction to the downside would begin. In further follows ups on TheMarketTrendForecast.com service I run on April 20th, I again outlined concerns with falling volumes on small cap stocks and too many “stories” being run up too far ahead of the economics.
At this point in the Bull market, it is common to have the crowd of investors move from a bias towards viewing all news as positive, to a negative slant on all news. Nothing has changed dramatically on the problems the world had before with Debt and currencies, but the reaction to those events turns negative. This works off the overly optimistic Elliott Wave patterns of the crowd, turning into a typical Zig Zag correction that lasts several months. There will be trading opportunities between that Mid-April topping forecast and my forecast for a bottom around mid-September. However, as recommended in April, Index investors and mutual fund investors should have been moving to the sidelines. I am looking for the SP 500 Index to drop to the 920-970 areas by mid-September before the next leg of the Bull market takes off. Now, the one caveat to that forecast is actually a lot more bullish. If the SP 500 can hold the 1100-1110 areas and pivot up strongly, we could move on to new highs. I put the likelihood of that around 20%, so be on guard. A counter-trend rally up in the next few weeks is highly probable, but the evidence continues to suggest working our way down into the 900’s in the SP 500 before the Bull resumes in earnest. We are selectively buying Gold and Biotech stocks in the Active Trading Partners service as well.
Gold has continued higher confirming my April 20th forecast on http://www.themarkettrendforecast.com/ a move from 1125 to 1235 in Gold. The Elliott Wave patterns remain extremely bullish for Gold to continue a 13 Fibonacci year cycle up into 2014. Gold has formed a very bullish pattern intermediately for a move to $1470-$1550 at the next major pivot top. In the interim, I expect continued consolidation in and around my $1,235 US levels before the next pivot high at $1300-$1,325 US. Fiat currencies are burning matches as foreign governments and other entities continue to attempt to put out a fire by printing more paper and covering the same fire with it. Until the analysts on CNBC stop questioning the validity of Gold and start questioning the validity of Fiat Paper, the bull will rage onwards with most of the pundits watching the caboose from the back of the tracks.
SP 500 Forecast from the Mid-May TMTF forecast service updates:
Gold Forecast is for $1570 over 6-9 months with pivot at $1300
Checkout my forecasting and trading services at http://www.thetechnicaltraders.com/
It’s been an exciting couple weeks in the market with gold now making new all time highs as money floods into this shiny safe haven. It has everyone all worked up wanting to take part or they are riding the rally up already. But the big question is when should some money be taken off the table to lock in gains and lower your overall risk during these crazy times?
Below are a few charts showing you how I see things at this time.
Day after day, bankers have been paraded before Congressional committees regarding their role in the financial crisis which brought the financial system to the edge of the abyss on September 18,2008. Every one has claimed that they were not responsible in any way for the disaster. They blame once in a lifetime circumstances that no one could have anticipated. It was a perfect storm and they had no way of knowing. These Harvard MBA Wall Street geniuses, who collected compensation in excess of $100 million each before the collapse, had no idea what was going on within their own firms. Ignorance and stupidity is no excuse for losing a trillion dollars. The truth is that the CEO’s of all the Wall Street banks encouraged a casino culture of greed and gambling. The generation of fees became the sole driving incentive for every firm. It started with collateralizing subprime mortgages into packages of mortgage backed securities. Then they created Credit Default Swaps as insurance on these mortgages. When they ran out of chumps to put into houses, they created side bets with Credit Default Obligations that didn’t require an actual homeowner.
The fees generated by creating this crap were incomprehensible. The Masters of the Universe were taking home pay packages of $25 million and weren’t satisfied. They only made one small mistake. They deluded themselves into thinking the crap they were selling to suckers wasn’t actually crap. They ended up buying their own toxic paper. Even though they knew that the ratings agencies were basically whoring out AAA ratings for fees, they believed that AAA rated securities they were buying and insuring weren’t actually worthless. They didn’t understand that they had created Frankenderivatives. Author Michael Lewis has done a fantastic job making this sordid tale of greed understandable to the common person.
Read rest of article here…
We were in front of this latest downdraft and also correct in my bullish projections for Gold at the same time. Gold has hit 1210, the SPY has hit sub 113, which was the initial area for a minimum bottom. We have to put aside some of the computer related problems and look at around 110-111 as the recent bottoming areas on the SPY ETF.
I’m looking again for the SPY to work it’s way down to 94-97 and probably over 4-5 months from mid April. My projections are for a bottom on or around September 15th, plus minus a few days. There are trading opportunities during this 5 month correction in this bull market, so it does not mean one has to be 100% in cash. However, mutual fund investors and index investors are best to be on the sidelines for the most part.
Below is my projection for the SPY ETF on a go forward basis. Back in November of 2009 I actually projected 121 on the SPY when it was trading well below that figure for an initial market top. Therefore, my projections now for 94-97 seem reasonable to me using my methodology, with potential to spill within a few points of that 94 bottom to 91-92 ranges on an oversold situation.
David Banister – www.ActiveTradingPartners.com
The past few weeks I have been talking about the SP500 forming a top similar to the January top we saw earlier this year. Well the charts below show exactly what I have been waiting for to unfold and I think the time has come for the market to take a healthy breather before continuing this strong bull market which could last another 12 -24 months before really topping out.
SPY – SP500 ETF Trading Chart
I am showing the SPY etf because that’s a fund most people know and trade, but this analysis is the same for trading futures like the ES M0 Mini SP500 contract.
You can see the similar price action which formed in January and what has happened recently. I feel we are about to see a correction which would last several weeks which is very exciting for us traders.
Read rest of article here…