Silver Breaks Out of Trading Range

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

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Precious metals had a spectacular rally on Monday. While spot gold was up 1.9% on the day and hit another all time high at $1140.80, spot silver and palladium were the stars, rising 5.6% and 5.7% respectively (platinum was up 4.2%). At more than one point silver was up over a dollar and ended trading at 5:15PM New York time up 98 cents to close at $18.42. Silver has been stuck in a trading range between $16 and $18 since September and this was the first decisive break and first close above that range. Trading volume on the EFT SLV was approximately double normal levels and was highly supportive of the move up.

Now that silver has made its move higher, the spot price needs to stay above $17.70 (the low for the day) to maintain the breakout. The reason silver was stuck at the $16 to $18 level was because of a band of resistance at those prices established in March to July 2008. There is a further resistance point around $19.00 that still needs to be taken out. After that, a test of the 2008 high just under $21 will be possible. Some more consolidation should be expected around those levels and this is likely to take place in December. Silver and gold are seasonally strong in the early part of the year though and tend to form intermediate tops in March or April, so a move to the $25 area, long-term resistance from the late 1970s, is a target price for silver next spring.

As the precious metals continue to rise, you will hear more and more talk about a bubble. Ignore it. One well-known market guru said gold was in a bubble just yesterday. While gold and silver will eventually be in a bubble, this is a long way off. They are in bull markets. The two should not be confused. The simplest way to distinguish the two is by the price patterns and extent of the rallies. Bubbles have spectacular price rises that have been preceded by long multi-year continual rallies. Silver had a price collapse from almost $21 to under $9 in 2008. It is rallying up from the bottom. This is not a bubble pattern. Gold is up 53% off of its bottom from last year. When it was in a bubble at the end of the 1970s, it went up 400% the last year. Silver was up 1000%. When you see price rises like those in a single year, that is when you need to worry about a bubble. Until then, the trend is your friend.

The other nonsense floating around the media concerning the precious metals is they are not at inflation-adjusted highs and this is somehow a negative. Is it really? The same could have been said about U.S. stocks in the 1980s. Stocks had a major rally from those levels until they reached their inflation adjusted highs in the 1990s. Then, stocks had an even bigger rally after they reached this level. When an asset isn't trading at its inflation-adjusted high, this is a reason to invest in it because it means big profits can be made. Gold and silver have been reminding us of this almost every day lately.

Disclosure: Long gold and silver.

NEXT: U.S. Inflation Reports - Contradictions and Absurdity

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

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.

Dollar Breaks Support ... Again

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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The U.S. dollar fell below important support at 76.00 this morning. This is the third break of this level. The low yesterday was 76.02. So far today the trade-weighted dollar has been as low as 75.74 in the pre-market. This is another new yearly low. It will probably be the low for today because it certainly looks like some form of intervention took place to support the dollar when U.S. trading opened. Some weak chart support exists for the dollar at 74.00 and much stronger support around 72.00. The all time low is 71.50.

Market intervention in the U.S. can be seen in the trading of the precious metals as well. Gold was as high as $1068 (a new all time high) in London and then dropped around $10 shortly after trading in New York started. Silver reached a high of $18.02 in London and then dropped a whopping 40 cents after the New York open. Precious metals falling when trading in New York opens is not uncommon. It is in fact a recognized phenomenon that has been going on for decades. Academics studying the issue have concluded that the probability of this long term pattern taking place by chance is essentially zero and that only manipulation in the U.S. markets can explain what is going on. The CFTC, the U.S. regulatory body that is supposed to keep trading on the up and up, of course sees nothing, knows nothing and apparently reads nothing.

Platinum and palladium are less affected by U.S. government dollar manipulation than the monetary precious metals. They are mostly industrial metals which have extensive use in the auto industry. Palladium has been the best performer the last few days, but there is no ETF available in the U.S. to trade it (there is one that trades in London), even though one was announced last April. While the U.S. auto industry is collapsing again after the Cash for Clunkers program expired, this is not the case in China. Auto sales are up almost 84% there year over year. The rapidly growing Chinese car market is now bigger than the faltering U.S. car market. Think about that.

Meanwhile grains have been rallying nicely. Both RJA and GRU were up in the 4% range yesterday. GRU is more volatile and consists only of grains, with beaten down wheat the largest component. RJA is a basket of 20 different agricultural commodities. GRU confirmed a double bottom as a result of yesterday's trading action. Oil was trading around $74 this morning, not much different from the price in late June when we recommended selling DXO. Oil is seasonally weak in the fall and early winter when the precious metals are at their strongest. In the long term, uranium prices are connected to the price of oil, but the correlation can be very loose in the short and intermediate term. Dennison Mines (DNN) had some peculiar price movement Monday with a sharp rise at the close that appeared on the daily charts, but not the intraday charts until this morning. Trading volume was heavy yesterday. This definitely bears watching.

NEXT: Dollar Breaks Down; Nova Gold Breaks Out

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21


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.

Precious Metals Becoming More Precious

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.

Our Video Related to this Blog:

Gold had another all-time closing high yesterday in New York, the second in three days. It is trying to rally to an all-time intraday high and complete its long awaited breakout. Gold traded as high as $1020 in the overnight markets. The all-time intraday high, also hit in the overnight markets, is $1033. There is gold's third time trading in the over $1000 area (and there were two more times close to $1000) in the last 18 months. Unlike the first two times, which were sharp spikes up, this time gold has stayed in the $1000 area for several days. The other two times were also in February and March, times when gold tends to peak for the year. This time gold is hitting $1000 at the beginning of its seasonally strong period. The gold charts are extremely bullish looking and gold has put in an 18-month base. Conditions for a strong , powerful breakout look good.

Gold leads the precious metals. The other precious metals are not even near their all-time highs, although silver is much closer than platinum or palladium. All three have industrial uses. Silver is the only one of the three with a history of monetary use. Silver already became overbought on the daily charts in early September and has continued to go up since then. It was as high as $17.33 overnight. Gold has not yet become overbought on the dailies. In strong rallies a stock or commodity will get overbought and stay overbought for months.

While the precious metals are rallying, the U.S. trade-weighted dollar is slowly crumbling. As of this writing, it is trading at 76.38, but has been as low as 76.19. The yearly low is 75.89 and this was hit 11 months and 3 weeks ago. A new yearly low could be hit at any time from today onward. There are a lot of traders that automatically short yearly lows and this is seen as technical weakness. The U.S. dollar has already hit multiple yearly lows against the euro in the last several days.

Buying into a gold rally is a lot better deal than buying into the current stock rally. The gold charts are technically very strong, while the stock index charts have shown a great deal of weakness, yet the rally somehow continues. The premise behind the stock rally, the reviving economy, is also false. The premise behind the gold rally, rising inflation, is quite solid however. Both rallies are fueled by the money printing quantitative easing that the U.S. Fed is engaging in. This has always caused inflation in the past and gold is telling us this is happening again.

A correction to yesterday's blog: the ticker symbol for the natural gas ETF mentioned is HZBBF.

NEXT: The Inflation Trade

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

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.