Gold and Silver Market Updates
Jul 10, 2006
Although the last Gold Market update was bullish, gold has actually
exceeded our expectations, by rising smartly from the base area
that formed following the plunge, and now many market players
are understandably preoccupied with trying to answer the question
"What next?" - will it just carry on up, or is it likely
to react first, and if so by how much - and some may be wondering
if this rise is just a rally in a nascent bear market in the
yellow metal. This update attempts to answer these questions.
The fact that golds rally appears to have lost momentum at the
underside of a zone of strong resistance very close to its 50-day
moving average is the reason for posting this update now, for
the time to address these questions is now.
In the last update gold was described as being oversold and in
a buying area although it was expected to fluctuate for some
weeks between $540 and $590 before an advance got underway. Instead
it has just taken off, but has now, as already mentioned, run
into a zone of rather strong resistance, which has in recent
days slowed the advance.
we have already examined the reasons for the recent severe shakeout
in the Precious Metals, which, in a nutshell, was due
to fear of a liquidity crunch and soaring interest rates. We
will never know if the "Masters of the System," who
have their hands on the levers of power, deliberately manufactured
this scare in order to profit from it, which they are clearly
well placed to do, but from a practical standpoint, whether they
did or not is irrelevant. What is relevant is that it remains
a background threat. As Richard Russell has stated innumerable
times, it's a case of inflate or die, but this assumes that the
objectives of the Master of the System coincide with those of
the masses. There are some who believe that their ultimate objective
is to ensnare the majority of the population in an ocean of debt,
and then, at a moment of their choosing, collapse the system
and mop up most private assets at knockdown prices, and then
effectively enslave the population, who would be permitted to
remain in the homes they could no longer pay for as tenants.
Certainly the extraordinarily low interest rates in the face
of across the board exponentially expanding debts, deficits and
derivatives provide a strong argument for those who hold this
view. But even if this were true, it is still probably some years
away as the apparatus for completely controlling the population
is not yet fully in place - for example, in the United States
it will first be necessary to induce or coerce the population
to relinquish their guns. Thus, in the meantime, the policy of
endless money expansion can be expected to continue, which means
inflation, which means that the prices of assets that represent
refuges from the ravages of inflation, such as the Precious Metals,
are set to continue to rise. Only in the situation where the
Masters of the System have created a monster that they can no
longer control, and that runs away from them, resulting in an
abrupt liquidity crisis and interest rate spike, which would
result in a broad and devastating implosion, would the Precious
Metals be at risk from a general meltdown. As already observed
in the recent past on the site, we do have a potential Head-and-Shoulders
top in the gold stock indices, which would only be expected to
complete in the event that the worst case scenario becomes reality.
Gold is therefore expected to continue to rise, and the sharp
advance of the past week or so is believed to mark the start
of the next intermediate uptrend that should take the price comfortably
to a new high. The June base area is believed to have been left
behind and gold is not now expected to return to test the June
low, or drop back anywhere near it. However, it is considered
to have risen rather too far too fast, and is thus vulnerable
to a short-term reaction, which would "put the frighteners"
on a lot of people but is not expected to carry very far - probably
not below $600 at most, where there is support from the recent
base area. Experienced and nimble traders may want to sidestep
or partially sidestep this potential reaction, and, should it
occur, it will be viewed as a buying opportunity.
The last Silver Market update was bullish, but silver has performed
more strongly than expected in the intervening period, and like
gold, is now vulnerable to a short-term reaction, having risen
into an area of strong resistance rather quickly. Most of the
arguments relating to gold set out in the Gold Market update
apply equally to silver, and there is thus no need to repeat
Silver has slowed beneath a zone of heavy resistance in the $12
area which is reinforced by the falling 50-day moving average
being about at this level. Even if it first rallies a little
more, it is expected to get knocked back soon towards the support
near the upper boundary of the small base that formed in June,
i.e. it is likely to drop back to the $10.80 area. It will be
regarded as a buy here as the upleg of the past week is viewed
as the probable start of a new intermediate uptrend. As with
gold, only in the event of a liquidity crunch and associated
interest rate spike will the overall bullish pattern abort.
Jul 9, 2006
is an English technical analyst, holding a diploma from the Society
of Technical Analysts, Cambridge, England. He lives in Chile.
Visit his subscription website at clivemaund.com. [You can subscribe
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a consequence of trading on the basis of this analysis.
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