Tuesday, October 17, 2006


Metals Fail To Breach Key Levels

Gold markets ran into a technical wall today. "Gold futures fell by $5 an ounce Tuesday, and silver futures gave back more than 1%, with both metals relinquishing most of the gains from the previous session after failing to reach key price levels. 'Gold and silver are having a hard time with psychological resistance levels at $600 and $12, respectively,' said Dale Doelling, at Trends In Commodities. 'The recent bounce in prices may end up being just that, a temporary bounce,' Doelling said. 'Only time will tell.'"

"Gold for December delivery closed down 0.8% at $593.50 an ounce on the New York Mercantile Exchange, after dipping to a low of $589. The contract traded as high as $599.80 early on in Tuesday's session."

"December silver fell by 13 cents to close at $11.78 an ounce after a high of $11.98. It climbed 23 cents in the previous session. January platinum lost $8.30 to close at $1,083 and December palladium closed down $4.95 at $319.60 an ounce."

"Despite recent gains, however, 'gold still faces plenty of scaled up resistance with chart congestion likely to be heavy' between the 200-day moving average of $599.70 and $608,' said James Moore, an analyst at TheBullionDesk.com."

"Reports that North Korea is about to set off a second atomic device, oil prices around $60 and a 'markedly softer U.S. dollar should all have bolstered gold prices to well over $600 by now,' said Jon Nadler, at bullion dealers Kitco.com. 'On the other hand, imploding PPI figures prompted by the collapse in energy costs and a sharp contraction in U.S. industrial production have traders worried that while inflation may not be an imminent threat, stagnation (or worse) surely could be,' he said."

"The dollar fell Tuesday, touching a more than one-week low against the yen, after a report showed the U.S. industrial sector slowed more-than-forecast last month and as traders continued to digest the Russian central bank's recent decision to diversify its foreign-exchange reserves."

"The Canadian dollar fell to the lowest since July after the Bank of Canada kept its benchmark interest rate unchanged at 4.25 percent and cut its economic growth forecast."

"The currency's decline deepened after it weakened past the C$1.14 level, traders said. The central bank reduced its growth estimate for this year to 2.8 percent from a 3.2 percent prediction in July. The prospect of slower growth means the central bank is more likely to refrain from lifting borrowing costs further, traders said."

"'We're in a bearish trend for the Canadian dollar, at least through the end of this year,' said Linda Jespersen, managing director of currency trading at National Financial Bank in Toronto. 'There are a lot of motivated sellers for the currency at the C$1.1400 level.'"

"Canada's dollar has fallen about 4 percent since reaching the 28-year high. Crude oil fell for the first time in four days on forecasts that U.S. inventories rose and skepticism OPEC will cut production by 1 million barrels a day. Prices have declined about 8 percent in the past year."

"The U.S. dollar was barely changed against the euro Tuesday as new inflation data from the world's largest economy provided a mixed picture. U.S. Labor Department data on Tuesday showed that wholesale inflation plunged by the largest amount in more than three years in September, thanks to a record drop in the cost of gasoline."

"However, core inflation, excluding energy and food, jumped by 0.6 percent in September, well above economists' expectations of a 0.2 percent increase."

"Economic data are being watched closely for clues about the U.S. Federal Reserve's future course on interest rates. Another key inflation gauge, the U.S. consumer price index, follows on Wednesday."

Every day that gold is under its 200 day moving average reduces the chance that it will break-out, IMO. Everything is there to make it happen; global tensions, record trade deficits, yet traders are unconvinced.

If this drags out much longer, I expect to see a run at the lows around $544.

Since you've been a metals man for a lot longer than most of us, I'm curious what you would expect to happen in a major stock market crash. Although TPTB may forestall one prior to the election, IMHO it's gotta happen soon.

I do expect a stock pull back. When it happened on Black Moday, I was holding a lot of gold and silver and was very disappointed that gold fell $10 that day. Afterward, some analysts said that this was because traders had to liquidate to fill other positions. I doubt that there is a sure bet in those situations, even with gold.
I just got back from the Doug Casey Gold & Silver conference in Vancouver, BC. One of the many things mentioned was that we should expect mucho tax loss selling in the gold/silver stocks this year. With the high made in May, many Canadians who have different tax laws will be selling their losers.
While no one knows, I expect new lows before any move up, perhaps made worse by a general stock market decline which is over due.
I would appreiate any insights as to what would happen in X scenario..Stock crash etc. During the last mkt. correction PM stock were lowered as well. I have read many sources that as the market goes, so goes any stocks, PM included. I believe long term the dollar will be lower ,and thus PM's higher, but as mentioned above, I sense the decline before us....The 29 crash was Oct. 24. We are at record highs 12000.. I am not familiar with shorting so what is the prudent play with my fun money? My physical PM holdings aside..
I don't do puts or shorts. There are a number of mutual funds that are inverse plays on DOW, S&P, etc. Check ProFunds and Rydex Funds. Someone mentioned an ETF that shorts QQQQ (PSQ?) don't quote me on that.
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