Wednesday, August 5, 2009

Gold Shining, Silver Lustrous

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Gold traded as high as $970 in the futures markets yesterday. It is once again getting close to that magic $1000 level. Silver traded as high as $14.73, well above important resistance of $14.50. Meanwhile, the trade-weight U.S. dollar closed at 77.77. Tuesday was the second day below its breakdown level of 78.33. So far this morning it's trading lower.

A basic idea in technical analysis is that if a resistance point is tested enough, it will eventually be broken. Gold's all time high so far is $1032.70 set in European trading in March 2008. It broke 1000 again this February. It almost got back to 1000 again in early June. The end of the year starting in August is when gold is strongest seasonally. So, things look promising for the breakout from 1000 at some point fairly soon. A breakout after several tests is usually very bullish.

The fly in the ointment is of course the U.S. dollar. The key 78.33 level is the low during the late 1980s, early 1990s sell off. It was THE low for the trade-weighted dollar until it was broken in September 2007. The new low established after that sell off was under 72 when the dollar made a multi-month low between March and July 2008. While this is major support, there is some lesser support at 76.00. If gold is knocked down from the 1000 area again, that is where the dollar is likely to be trading when this happens.

In the long-term silver will do even better than gold. First though it has to break resistance as 16.00, which is bounced down from in the last rally and then it will head toward 21.00. Silver is both a monetary metal and an industrial metal. Economic recovery will increase demand (silver has been in a chronic shortage situation on and off for years as is). Inflationary worries will also increase demand. While silver ultimately outperforms gold, gold always moves first. Watch the yellow metal closely in the next few weeks.

NEXT: The Latest From Fantasy Land

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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