Tuesday, July 18, 2006


Technicals Point Lower For Precious Metals

A quick look at the days numbers and then some technical stuff. "Gold tumbled late on Tuesday as aggressive selling was triggered by a rising dollar and speculation about another U.S. interest rate increase by the Federal Reserve to head off inflation, analysts said. Spot gold plummeted to its lowest level since July 11, at $628.90 an ounce. It was last quoted at $630.30/631.30 an ounce, way below Monday's late New York quote at $650.30/651.80."

"In other precious metals, silver fell to $10.48/10.58, from $11.02/11.12 previously. Platinum fell to $1,217/1,223 an ounce from $1,237/1,242 late Monday, while palladium declined to $308/313 an ounce."

Here is the Elliott Wave short-term forecast for Gold and silver, after trading ended last night. "Today’s strong downward reversal in August Gold, coming on the heels of two significant non-confirmations (XAU/Gold ratio and Silver, see Friday’s Update), along with a test of a Fibonacci retracement area and satisfying a Fibonacci time relationship, strongly suggests that wave 2 or B up is complete."

"In Friday’s Update we showed two charts of the significant divergence between the XAU/Gold bullion ratio and gold, plus the non-confirmation between gold, which pushed to a high today, and silver, which topped on July 12. These two bearish signals alone suggested that gold was in the very latter stages of its upward correction from the June 14 low ($546.40)."

"When one adds in the fact that prices pushed to a Fibonacci retracement area, and a Fibonacci time relationship exists whereby wave 1 or A down unfolded in the exact number of days as wave 2 or B up, 34 (-1), the odds are very strong that a significant turn down is starting right now."

"Today’s outside-down day is a good trading pattern to kick off this move. Prices should not revisit this morning’s $677.50 high again if the top is in. The target for this leg lower is $450-$500, the upper end of which is close to the point where there would be two equal legs down from the $739.20 peak (May 12)."

"The odds are that Silver’s upward correction from the $9.38 low of June 14 (basis spot) is over. Prices should be in the very early stages of a decline that draws silver to the next target of $6-$7. Prices have no business being above this morning’s $11.83 high again, so this is the 'risk' for a bearish stance at this juncture. While not expected, any push above $11.83 would mean the upward correction was extending. Next Update: Wednesday, July 19, 2006."

Anyone can sign up for the EWI fre week by clicking the icon at the bottom of my housing blog.

Keep in mind, these are short-term forecasts. I will check out their longer-term thoughts before the free week is over tomorrow night. This gives you an idea of how this stuff goes. I must say, it is much more meaningful with the charts and the wave counts.
Wow. If EWI's projections come to pass, I'm backing up the truck to the local dealer (especially since I missed the last bottom).

That's the way to use technicals, IMO, as entry and exit points.

BTW, another darned maintenance scheduled:

'Tuesday, July 18, 2006 Scheduled outage at 5PM PDT. We need to perform hardware maintenance on the photos system for Blogger.'
I'll start looking for an exit when everybody else is lined up at the entry point. Until then, there's only buying opportunities.
I posted this on the housing bubble blog because it seems like more folks read there. However, I feel it is important insight, and am posting it here as well.

OT, but important. We’ve agreed there is a housing bubble, and it’s bursting. Some ask what to do. Will there be inflation or deflation? How do I protect myself?

Inflation is an expanding money supply, and deflation is a contracting money supply. Notice that I didn’t say anything about the rate. It is either positive or negative. It is impossible for the gov’t to put the rate of it’s expansion of the money supply in negative terriotory. Too far gone for that based on our debt. So if the gov’t isn’t going to stop expanding the money supply (even if at a slower rate), how the heck are we going to have deflation? There in lies the rub. It is the fractional reserve lending that will do it. It is money that is created in the form of credit that never really existed in the first place. That is how the banks make money. They literally take your money (in the form of interest) from the money they loaned you (that didn’t really exist in the first place). It has been going on for centuries, which, in my opinion, is what has led to the deep distrust of bankers.

So, as the value of homes begins to decline and people now need to bring money to close, they begin to take money from their bank. As this cascade continues, eventually the folks at the end realize there really wasn’t any money in the bank to cover all their loans (even Greenspan said there is a risk of crossover defaults or something along those lines…essentially the same thing). This IS where the contracting money supply will come from. Unfortunately, it was never money to begin with…just debt that essentially turned into money (almost like magic).

So, yes, the gov’t certainly won’t be burning $s/putting the rate of expansion in negative territory. They’ll still be adding money to the system. As banks come under serious pressure, the gov’t will be creating more hard dollars (if you will) to fill the negative rate of monetary expansion by the underwater banks (this contraction will be the credit drying up folks talk about as banks are going belly up). So we will have deflation, and then inflation as FDIC money comes back to the banks as their savior. Unfortunately, that will be massive monetary creation by our gov’t (vice banks through fractional reserve lending) that will make the dollars you’re holding virtually worthless.

It should sound very similar to the Great Depression. It was the exact same thing. Then, our money was backed by gold. Fractional reserve lending still took place, as banks created money through credit on gold they didn’t have. The gov’t was in a spot because they can’t create gold out of thin air. They think they have a fix this time, because it isn’t backed by gold. They can create dollars with no problem at all. Well, other countries have tried that, and it didn’t work either. So…for those who know there is a bubble and it is bursting, if you wan’t to protect your savings, think twice about where you are putting it to be safe. I hope this helps understand the issue. It certainly is tough to figure out, because no one who sets the rules will ever give you a straight answer. If they did, how could they take money from you (whether rich or poor) by doing nothing without you ever knowing. Now you do.
This was the first time I heard that prediction. Although in for the long term, this makes me think whether to be the jump in/out camp. volatility is to be expected , but a $200 correction...Ahemmm. Wait ,and watch I guess, but sure will watching. I was reading the yahoo boards ,and several old timers were saying to jump out in May, and get back after the bump..Just as they predicted. Is EWI generally on spot? Not familiar with their predictions other than their long term wave charts...
Your comments are interesting. if what you are saying is true where is money safe? Treasuries? physical gold?
Just the mere hint that BB may pause rates has sent pms north...
What will happen when he starts
dropping them?
Economist, what will happen when BB cuts the overnight rate and long rates continue to rise? That is when the real appreciation in metals begins.
for all those who can't find a value for gold.

Gold & Historical Norm
This is why technicals need to be balanced with real world events. BB threatening to pause with raises boost metals.

True, but notice that with both currencies and metals, the retracement didn't even cover the losses from the past two days.
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