Gold, Silver and Other PMs

» Normxxx - BACK UP THE TRUCK ON GOLD

BACK UP THE TRUCK ON GOLD

By Doug Casey

Gold has fallen $34 since its peak on April 1 - what gives? Has the yellow metal fallen out of favor...or is this merely a pause in its uptrend? Doug Casey weighs in with an answer, below...

Since reaching a recent peak of $427.25 on April 1, gold has dropped about 7%, with most of the action happening in the last few days. Silver, which peaked at $8.29 on April 2, has come down even more, losing about 14% to $7.15 as I write. These moves have apparently scared a lot of people (mostly latecomers in the market) and they're wondering if the steep drop signals an end to the metals bull market.

In my view, the fall shouldn't concern anybody but a futures trader who was long and who didn't have a close enough stop-loss. Markets fluctuate more or less randomly in the short run, which helps account for why 95% of futures traders walk away losers. People with such a short time frame shouldn't be in the markets; they should go to casinos.

The skilled speculator and the experienced investor, however, take a longer view. The key is to identify major trends in the markets, understand why they're occurring, and stay with them for as long as possible. Jitterbugs that worry about daily movements will eat their capital up with commissions, fees, taxes, and bid/ask spreads in the process of whipsawing their accounts to death with the vagaries of their own psychology.

I don't have a crystal ball, but I do have a sense of market history. Most of the people that were active players in the last real gold bull market, from August 1971 to January 1980 (which took gold from $35 to over $800) are now either dead or retired. Most of the players in today's markets only know of gold as a dog, dropping from over $800 to under $253 in July of 1999. Those few who even watched it came to see every rally over a 22-year slide as nothing more than a selling opportunity.

Understandably, people tend to predict the future by the past. So they expect both bull markets and bear markets to go on forever. Right now, most of those who've even noticed gold has moved from $252.80 at the bottom to its present levels see it as just another rally in a never-ending bear market.

How do I know they're not right? Well, nobody can know that until long after the fact. But I've been long both the metal and gold stocks since the late 90's (I was early; generally speaking only liars buy at the exact bottom), and I'm planning on staying long for the indefinite future, but at least several years. Why am I so bullish? The purpose of this article isn't to make a definitive case for gold, but I will list six outstanding factors worth noting.

1. THE FOREIGN TRADE DEFICIT. The U.S. is currently importing about $500 billion more than it exports every year. That's been going on for many years, so there are trillions of U.S. dollars now held outside of the U.S. Since U.S. dollars are only "legal tender" within the U.S., whether foreigners continue holding them depends on whether they have confidence in the dollar. Confidence can vanish like a pile of feathers during a hurricane. I would suggest that they're becoming increasingly aware that the dollar is, in fact, an "IOU Nothing" on the part of the U.S. Government, which is itself bankrupt.

2. U.S. GOVERNMENT DEFICITS. The U.S. Government is also running $500 billion domestic deficits, and that number is not only grossly understated - because of (a) off-balance- sheet spending; (b) cash rather than more appropriate accrual accounting; and (c) the adding of Social Security funds into the general revenue - but it's likely to go way, way up. Why? It's being financed with some of the lowest interest rates in history, and when rates cyclically rise to more normal levels (forget about the 15% long rates of the last generation - which I expect will be exceeded), the deficit could reach a trillion. That's not counting greatly diminished tax revenues and the greatly increased government spending that always accompany a recession. And I think we're heading for something worse than a recession.

3. THE WAR. My guess is that the adventures in Iraq and Afghanistan are, for reasons I won't go into now, going to get much, much uglier. And likely spread to other parts of the Islamic world. The U.S., which has troops in over 100 countries, isn't going to withdraw; it's going to become more involved. This could be a $200 billion-per-year drain, on top of the regular Defense Department and Homeland Security budgets, for many years to come.

4. SUPPLY/DEMAND. Although most of the gold that's ever been mined is available (either as bullion, coins, or jewelry), the fact is that more is being consumed than is being mined each year by a substantial margin - by about 640 tons in 2003 alone. Most of this deficit has been made up by sales and loans from Central Bank inventory, compounded by forward sales from gold mining companies. The loans and forward sales constitute a short position of substantial size that will have to be covered. And my suspicion is that, at some point in the next few years, Central Banks will go from being net sellers to net buyers.

5. THE REAL PRICE. At $35 in 1971, gold was artificially suppressed in price by government edict. By the time it reached $800 in 1980, it was caught up in a speculative mania. Since then it's been able to achieve something of an equilibrium. But $400 today is really only worth about $75 in 1971 dollars - so it's quite under-priced. And, in real dollars (whatever they may be), gold isn't down just 50% from its 1980 peak; it's still down about 85%. I expect the conditions that drove the bull market in the 70's are going to be much, much stronger this time around.

6. GOLD AS A CURRENCY. Take your pick: a piece of paper with less than zero intrinsic value, or a tangible and relatively rare metal that has been viewed as a store of wealth over thousands of years? In addition to holding the physical metal, new services such as GoldMoney.com that offer electronic transaction services based on gold will revolutionize the ways you can buy and sell the metal.

In essence, you want to own gold because of all these reasons. But above all, you want to own gold because it's the only financial asset that is not simultaneously someone else's liability - which is why I expect Central Banks around the world will increasingly be selling dollars and buying gold in the future.

I believe we're looking at a gold bull market of historic proportions in the years to come. Retrenchments such as we're seeing now are not only normal, but trivial. You should use them to buy bullion and aggressively add to your mining share positions. Despite returns of 5-to-1 almost across the board in these stocks, there's every reason to believe that when the gold bull really gets under way, these stocks will be wilder than Internet stocks were in the late 90's.

Regards,

Doug Casey,
for The Daily Reckoning

-- posted by Normxxx

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» Normxxx - Gold's Indian rope trick

Gold's Indian rope trick to the rescue?

By John Brimelow | 12:25 AM ET April 22, 2004

NEW YORK (CBS.MW) -- Gold is back below $400 - but it may be about to perform its version of the Indian Rope Trick. Again.

I first reported on this phenomenon in a piece in February, when gold had also broken below $400. Subsequently, of course, gold bounced back, to a high of $432 on March 31.

Now we've returned to fun and games. Gold has come crashing down to test its 200-day moving average just below $390 Wednesday. Half that fall was in just 3 days last week.

Gold shares have fallen 20 percent in the same period. There is gloom and despondency everywhere.

And puzzlement. The return of measurable inflation at home -- mounting chaos and bloodshed in the Middle East -- shouldn't these be good for gold?

But the market action is undeniably intimidating. As adroit traders Refco Research, currently the proud owners of an enormously profitable silver short, said of gold on their Web site Wednesday night:

"Despite decent...physical interest; terrorist incidents...the prospects of an extremely tense summer, we cannot bring ourselves to think long until current downside momentum eases."

My view: It will. The bears have inserted their paws (at least) into what is likely to be a very vicious trap.

The critical factor: the news from India, the world's largest buyer. As I explained when gold got below $400 in early February, it is possible to figure out if India is actively importing gold by comparing the domestic price of gold with the appropriately timed world price. Bill Murphy's LeMetropoleCafe site carries my calculations every evening.

The principle is demonstrated on the Web site of India's National Multi-Commodity Exchange ("Commodity Study" section, gold segment).

Since gold slipped to $400 last week, India has been showing enormous premiums. Basically, the domestic price now exceeds the world price by more than $10. This means there will be massive imports.

This Indian premium is far higher than when gold went below $400 earlier this year. In fact, and significantly, the last time premiums of more than $10 were seen, briefly, was at the bottom of the major gold slide in March 2003.

I conclude the Indians will be dining on bear curry.

There are other reasons to expect a rally. The gold market shows all the hallmarks of an actively promoted short position. In the final hour of stock trading on Tuesday, gold shares staged one of their biggest and quickest drops of recent times.

This was followed by a quick and massive ($5) decline in gold on ACCESS, the overnight electronic trading system operated by Comex.

Since Tokyo and the other Far Eastern markets currently only open at 8 p.m. Eastern, for the first few hours after New York's close the only global counterparty on ACCESS is the Pacific Ocean. That's the easiest time of the day to move the gold price. And that's when it happened.

But shorting is a dangerous game. The weak longs have gone. And MarketVane's Bullish Consensus for gold dropped Wednesday evening to 67 percent.

For the past couple of years, readings in the 60s have marked bottoms.

Many shares have been savaged to interesting levels. Especially if the dollar continues to pummel the South African rand, Durban Deep (DROOY) and Harmony (HMY) will be exceptional value.

I am intrigued by the special situation Crystallex (KRY).

Two no-load gold funds worth noting are Tocqueville Gold (TGLDX) where the widely published manager plays a leadership role in the gold world, and Gabelli Gold (GOLDX) where the manager -- despite his comparative youth -- is actually the longest-serving in the sector.

In gold, scar tissue is inevitable -- and it helps.

John Brimelow is a stock broker and a brother of Peter Brimelow, who is a CBS MarketWatch columnist. He can be reached through www.johnbrimelow.com.

-- posted by Normxxx

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» Normxxx - Broad Market Crash

Broad Market Crash and Collateral Effect on Precious Metal Stocks   full text with graphs

By Clive Maund | 22 April 2004

A critical breakdown has occurred across the gold sector. Yesterday, the HUI plunged, violating crucial support at first the 200-day moving average and then the support at the 200 level. Many stocks crashed down through support levels that I had earlier indicated must hold, in a Marketwatch article on the 11th April, to maintain any prospect of an advance. It was no coincidence that the general market went into a nosedive later in the session, as what we are witnessing here is the start of a stampede out of any freely traded assets that can decline in value.

The reason for this is the sudden and terrifying realization that the Indian Summer of seemingly endless low interest rates is about to end. This would not be so bad were it not for the fact that debt is at extreme levels across every strata of US society - personal debt, corporate debt and Federal debt are at levels which can fairly be regarded as insane and catastrophic.

In the face of rising rates debtors have good reason to break out in a cold sweat - they are so highly leveraged that any significant rise in rates will crush them. They are now starting to scramble to reduce debt as fast as possible and are selling assets to raise the wherewithal to buy the dollars to pay off the debt - hence the recent and increasing support for the US dollar.

To understand the implications of what is about to happen, we'll start by looking at the bond market. The chart for the 30-year Treasury bond shows an ugly plunge, the drop on 2nd April being, I believe, the largest single one-day drop for about 8 years. The other bond and note charts look similar. The steepness of this plunge implies much lower levels to come, regardless of interim rallies to alleviate an oversold condition. What this means is significantly higher interest rates.

Higher interest rates will be a bombshell to the Real Estate market, which is why the Real Estate Investment Trusts (REITS) have plunged over the past couple of weeks, signalling that the real estate market bubble, which thanks to refinancing has had the afterburners on for a long time now, is about to go "POP!"

The dollar is continuing to strengthen as the "greenback buyback" for the purpose of paying of paying down debt gathers pace, and it is also being bolstered by the scent of higher rates. A major bullish development for the dollar will be the breaking of the long-term downtrend channel in force since the bear market began.

We'll now turn our attention to the general stockmarket, which is teetering on the edge of an abyss. As they have just engaged in a window dressing exercise with the Dow Jones Industrials index by swapping three more lively stocks for tired ones, we'll circumvent this chicanery by looking at the S&P500, which, in any case, has to be a far more accurate representation of the market. On the 10-year chart for the S&P 500 we can see the huge Head-and-Shoulders top that formed between 1998 and 2002, the normal consequences of which did not play out, due to the extraordinary policies of the financial authorities, who adopted "party now pay later" fiscal policies, everything being contrived for the purpose of short-term expediency and gain.

What this means is that the normal corrective processes were prevented from playing themselves out, and the corrective pressures have now built up to an explosive extreme - the thing is going to blow and there's absolutely nothing they can do to stop it. They've dropped rates to the basement, flooded the market with liquidity, borrowed until they can borrow no more, created a derivatives pyramid that reaches to the moon, bled foreigners white, and got the hapless homeowners to cash out the equity in their homes and even come up with a half-baked scheme to go to Mars. Hence we are going to see the implications of that Head-and-Shoulders top play themselves out after all, but, thanks to the procrastination, it's going to be far worse. The S&P 500 may not look that toppy to the untrained eye on the 10-year chart, so I also present a chart going way back to 1970 to assist comprehension - you ought to get the picture when you look at it.

There is the real danger that the commodities boom will turn to bust, due to the "dash for cash" and the prospect of a recession/depression with inflationary forces quickly being overrun by the forces of deflation, and the consequent drop in industrial demand. Although copper has not yet broken down from what looks like a potential top area, the giant Freeport McMoran, a major copper producer, has just crashed support at $35, an ominous sign. I can certainly understand Mr Friedland hastening to sell that big Ivanhoe Mining copper prospect in Mongolia - and I wish him "God's speed".

The ugly nature of the sudden plunge in silver a week or so ago and its continuing weakness has serious implications. In the kind of environment that we are moving into, silver is likely to be treated as a commodity, rather than a precious metal, at least in the earlier stages of the general meltdown. The big silver stocks have already crashed key support levels and are plunging precipitously. Silver stock investors are "voting with their feet".

In the impending "great liquidation" phase even gold may find itself being sold off as if it is a commodity. The action in the stocks that are now crashing key support levels, suggests that the $390 support is likely to fail soon leading to a test of the long-term uptrend currently around $375.

There was an ugly breakdown in the major gold indices yesterday, with the HUI plunging below critical support at the 200-day moving average. This is a decidedly bearish development, and as the index goes lower, so the large body of buyers above the 200 level from last October will create a ceiling of overhanging supply that will inhibit subsequent attempts at advance.

On the 3-year chart we can see the first "crash target zone" which the index is likely to fall to as the general market caves in. I say first because the extent of the decline will be dependant on the severity of the general market collapse.

Many gold stocks broke below critical support levels yesterday, the importance of these breakdowns being underlined by the simultaneous failure in the case of many stocks of their 200-day moving averages. The big silvers had already plunged below key support levels last week, although most of them were riding way above their 200-day moving averages. Hecla was an exception, which managed to break both key support and its 200-day moving average.

A selection of annotated charts follows:
http://205.232.90.194/editorials/maund/m...

21 April, 2004
Clive Maund

-- posted by Normxxx

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» Normxxx - Gold Prices

From A Usually Reliable Source. . .

Since the April 1 top, cash gold prices have fallen 8.2%, and the XAU Gold and Silver Stock Index fell 16.5%. We fully expect a bear market for gold prices, but this is a little too much too fast, such that both gold prices and gold mining stocks are deserving of a brief rebound. A snapback up move actually serves the purpose of keeping the bears from getting too excited all at once; for a protracted bear market, it is important to maintain a healthy level of plausible deniability. A good rebound from time to time helps to keep the gold bugs interested, and allows them to think that just maybe the bull market is goingto come back.

Our Trend Indicator is based on how far the price is away from a McClellan Summation Index of Price Oscillator values (divided by10) and it makes a fairly nice oscillator. The current oversold condition is equivalent to the bottoms we saw in October 2002 and March 2003. We do not think this one will bring about the sort of sustained up move that those prior bottoms produced, but it is deserving of a measurable bounce. Using the price action from the period surrounding the December 1987 top as our guide shows the initial selloff which we have just seen, then a rebound attempt before the real selling gets started.

The timing of that decline as depicted by this leading indication makes us to believe that the selling will be related to something that the FOMC does or says at its May 4 meeting. It is likely that whatever action is taken or proposed by the Fed at that meeting will be beneficial to the dollar, which will then be hurtful to gold prices and get the avalanche rolling.

Bottom Line: Gold prices are due for just a brief rebound over the next 2 weeks, but the Fed is going to kick the chair out from under gold prices and from the gold bugs who buy into that rebound.

-- posted by Normxxx

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» Normxxx - The ruff and tumble

Precious Metals Report: The ruff and tumble

By Leonard Kaplan | Apr 26, 2004
Prospector Asset Management

GENERAL COMMENTS:

WHOOSH! The sound of air escaping highly inflated, speculatively induced, market bubbles was the overriding theme last week in the precious metals. As notably forewarned in this commentary over the past several weeks, historical precedent ONCE AGAIN was resurrected. The devastation was truly impressive in all the white metals, while gold, for very good reasons, held its ground near its 200 day moving average.

Silver fell by almost a Dollar last week, and has fallen $2.50 in value in just 13 trading days. As noted in previous commentaries, every 5 to 10 years silver lures enough speculators, both large and small; to believe the "urban legends" of massive shortages, potential short squeezes, and improving fundamentals, to propel prices to truly silly levels, only to have the price completely devastated in short order. Let's add the recent rally in silver, and the subsequent devastation, to the long historical record of price action for this commodity. And, in looking at the Commitments of Traders reports, there could be significantly more downside, as we will see later.

As an aside, I took rather considerable abuse from the silver bulls when cautioning my readers about this market and its potential for a catastrophic sell-off, and in one conversation the gentleman told me that "this time it will be different." Every time I hear that phrase, I know in my heart of hearts that it won't be.

Platinum and palladium were not spared the rod either, with platinum falling in price some $76 week over week, and $104 in a three day period. Palladium fell by $33 for the week, and the price action in both metals was a debacle of mammoth proportions. The gold market did considerably better, down only about $5 for the week, even though the other precious metals were obliterated and the USD continued to make recent highs.

In order to understand what happened, it is imperative to understand two major phenomenons in the commodities markets.

One, which has often been trumpeted by this commentary, is just how important the large commodity funds are in setting both the trend and the current price, and their methodology in trading. First, most large speculative commodity funds are not run by humans, their decisions are generated by computer systems (black box) which DO NOT take into consideration any fundamental supply/demand considerations or external stimuli. These computer systems trade the PRICE, and nothing else.

Secondly, most of these systems are strictly trend-following or momentum driven, and these black box systems almost universally add to positions if the price goes in their favor, and conversely. As an example, if they buy, and prices rise, they buy more. If prices still continue to rise, they buy more. So, by definition, they have their very largest position at the very top of the market, a most foolish way of trading. Next, after driving a market to totally unreasonable levels and then deciding to sell, they find that there is no one to sell to, and prices completely plummet amidst devastating market conditions. This, ladies and gentlemen, is how the world operates in the ruff and tumble commodity markets these days.

Taking the recent silver market as an example, any rational trader would clearly see that the risks of being long silver at $8.00+ are noticeably higher than the risks of being long silver at $6.00, and would lighten his positions or leave the market altogether. Not so the large computer-driven funds who add to their long positions when "magic" technical numbers are surpassed on the upside. They trade against all logic, all rationale, and all risk-based portfolio theory, and the last week in the precious metals was a superb example of what always happens. And please note, it isn't just the precious metals, I have seen the exact same thing in many other commodity markets.

The gold market was a noticeable exception last week, with prices lower but stable at or near important technical support levels. As noted in previous commentaries, I expected gold to remain relatively strong due to the improving fundamental picture, and reports of truly superb physical demand at these levels from India and the commercial/industrial crowd. Gold is also drawing quite a "safe haven" bid in the markets as violence and terrorism continue to plague our world. While gold may indeed go a bit lower, pulled down by the other precious metals and the excellent probability that the USD may continue higher, any such decline should be rather minimal and would represent buying opportunities.

It would seem that the news reports indicate the Germany is closer to selling some of its gold reserves under the newly resigned Washington Accord. Gerhard Schroeder was quoted by Reuter's as offering tacit backing to a plan to use the proceeds of such sales to create a foundation for research and development in Germany. Of course, the government wants to just take the money raised and pay down the deficit, but the Bundesbank vehemently objects.

Quite surprisingly, news arose this week that at least two major gold producers continue to be very aggressive in the paring down of their hedge books. Barrick dropped 800,000 ounces from its books by delivering into previously sold forward commitments, while Buenaventura was a buyer of 120,000 ounces. As shareholders continue to demand a "hedge-free" environment, the gold producers continue to abstain from new hedges and continue to work to diminish their hedge books. This is unquestionably a very major support for the gold price as their purchases far outweigh all investor interest over the last two years.

Things are not going all that well for the South African precious metals producers, having to engage in one battle after the next. The rise of the South African Rand has significantly hurt their earnings and the government continues to seek one new tax after another. Now, their battle against the Mineworker unions seems another obstacle, with the mines unable to retrench workers without strikes and other difficulties. I continue to look for a much depleted yearly production from South Africa under the current trend long-term.

I am always delighted by the financial markets as they seem to "grab" onto one theme, only with the exclusion of much more important information. The Producer Price Index in the USA is rocketing higher, with this week's promulgation showing a .5% rise in prices. The markets see this as a NEGATIVE for gold, taking the perspective that higher inflation rates will cause the Fed to raise rates quicker, thus strengthening the USD, thus hurting gold. The markets are not considering that, historically, gold should rally mightily as inflation begins to surge but are "spinning" the story in an altogether different story. I sense that it will be a while until the correct thought patterns are resurrected, but it is clear that inflation is coming with a vengeance, and eventually gold will benefit. Just maybe, perhaps, this is one reason why the gold market has been supported of late.

I was going to write how Japanese gold demand continues, month after month, to completely disappoint and how total gold imports into that nation fell almost 70% in March to only a bit over 2 tons, but I decided not to beat a dead horse. But, it seems now, that the rallying cry for the gold bulls has finally dismissed any promise of Japanese demand and is now centered on Chinese demand. I can just hear that little voice, in the back of my head, from some rabid gold bull whispering, "This time it will be different." Yeah, sure.

Overall, I still remain bearish on the precious metals for the very short term, as the technical picture clearly shows that the USD is in its ascendancy. As long the Dollar rallies, the precious metals are going to continue to be pressured. As the Dollar rallies, and as the funds continue to liquidate, the path of least resistance appears to be lower. Gold must be considered the notable exception, with any prices in the $380-$385 range being seen as buying opportunities. I would not consider buying silver, platinum, or palladium even if you put a gun to my head. There is absolutely no certain indication that the devastation is over yet. Look to the USD for clues as to what may occur, but the trend is your friend.

COT Report
During the reporting period, gold fell by about $2 in value as total open interest plunged by over 66,000 contracts. The large speculators were massive sellers as the commercials were equally massive buyers. The statistics above clearly demonstrate that the physical market has reawakened, and with a vengeance, and that demand has rocketed at these price levels. Please understand that the overwhelming majority of the short commercials are dealers, market-makers, and they only buy back futures when a client buys physicals, or forwards, or the like, from them. There can be no more bullish signal than the data above.

Gold remains exceedingly well-supported at current price levels but I remain a bit pessimistic about its short-term prospects IF the USD remains strong, and if the other precious metals continue in their liquidation processes. All I know is that gold is not going much lower with such strong underlying upward pressures. I would be a seller of short-term gold puts and a buyer of futures on dips. Recommendations to follow.

During the relevant period, silver fell in price by about 50 cents and open interest dropped by about 10%. Amazingly, even though silver ended $1.50 off its recent highs, it appears that VERY FEW speculators, both large and small, exited the market. As of April 20th, they still held almost 100,000 contracts (500 Million ounces) in long positions. While it is uncertain what has exactly occurred since, I sense that there is still the potential for continuing liquidation. The ratio of long specs to short specs is over 7 to 1, a dangerous recipe.

While we may get a bounce off the $6.00 price level, as some bargain hunters emerge, I still see this market as very dangerous, with the risks firmly planted on the downside. From my contacts on the floor of the exchange, there are stacks of stop loss sell orders just under the $6.00 price level (just below recent lows), and I suspect that these orders represent just too tempting a target to ignore. The statistics above clearly demonstrate that the speculative liquidation is probably not completed.

Recommendations to follow.

GOLD RECOMMENDATIONS:
Expected trading range:
$390 to $404

This market is a screaming buy if external conditions and stimuli change. If the USD begins to falter, and if the Bond Market starts to rally, gold will rise smartly. As technical analysis of the markets rather precludes such events, look for gold to remain very well supported in the $388 to $391 price levels and rallies should be limited to the very low $400's. Short term traders should be buying dips near support and looking to sell as the price approaches the top of the range. I see gold as a trading range for the very short term, with very little risk to the downside.

With adequate evidence that the gold market is VERY well supported at lower levels, selling out of the money puts seems most prudent at this time. I really like the June 390 puts, and would be rather aggressive selling these options. Call our offices for specific recommendations for your account.

SILVER RECOMMENDATIONS:
Expected trading range
$5.80 to $6.50

The speculators are STILL very long this market and my experience screams that there could be more trouble coming. Aggressive traders should be selling rallies near the $6.25 to $6.30 with very small positions and close stops. I look for continuing liquidation to perhaps the $5.50 price level. There is no reason on earth to think that the carnage is over.

Things are way too dangerous in this market for the average trader. Please call our offices for more specific information as conditions are rapidly changing in this market. Sorry, but nothing looks good from the option side.

PLATINUM RECOMMENDATIONS:
Expected trading range
$780 to $850

We have seen total devastation to this market as prices are now down over $100 in just a few days. There is no reason to believe that the long liquidation by the funds is over. I would be a seller on sharp rallies into the $860's, with a stop at $880 close only. But, this trade is only for those with a strong heart, as market conditions are totally raucous.

Leonard Kaplan

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only.

-- posted by Normxxx

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» Normxxx - Have Metals Topped?

From A Usually Reliable Source. . .

Have Metals Topped?

The answer to the question above is YES, but only for the short term. Here is what my current analysis of the metals tells me:

1) The markets were overdone on the upside. Platinum prices have rallied almost without interruption for many weeks now. The decline was overdue since the market hit long term spike resistance dating back many years.

2) There is NO indication at this time that bearish divergence is a factor in the platinum decline. It merely appears to be a correction that is long overdue.

3) Although silver and gold have also declined sharply, the markets also appear to be hitting long term support levels that should hold. While the declines have certainly changed the minds and outlook of many forecasters, they have NOT caused me to change my point of view or my expectations. Six to nine months from now we may very well look back at the markets today and see that thie was a prime opportunity to go long for the next big leg up in these bull markets.

4) Copper prices have also peaked in an area of long term spike resistance. The decline here is also reasonable given the length and magnitude of the rally combined with the fact that seasonal patterns usually turn bearish at this time of the year (as pointed out to you for a number of weeks now in this newsletter). My overall view is that the current declines are excellent buying opportunities BUT I advise conservative traders to wait for an up turn before jumping back on board.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only.

-- posted by Normxxx

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» Normxxx - Richard Russell's DOW THEORY LETTERS

Dow Theory Letters

By Richard Russell | April 26, 2004

Extracted from the April 26, 2004 edition of Richard's Remarks

If interest rates break out on the upside, if the dollar continues to climb -- it's going to hit everything. It's going to cause an unwinding of the carry-trade. And it could trigger a move, even a rush -- to liquidity. It's going to set off a move to get out of all "things" and into cash. And cash is what the mass of Americans don't have. The real cash, the real liquidity, is owned and held by a very small percentage of Americans. What the great mass of Americans have is things: houses, cars, junk -- and lots of debt.

Now here's the hard part for me and my subscribers. If what I see above comes into being, there's a good chance that we could see pressure on gold shares. Gold shares are really a "call" on a higher price for gold. Sure, gold is real money, sure gold will triumph in the end, but for now the investment world sees gold as a commodity, like aluminum or wheat. They don't see gold as the only real money. So we could see pressure on gold, but more probably on the gold shares. I don't know for certain that we'll see pressure on gold, but it could happen. We've certainly seen pressure recently -- although this could simply be corrective action.

Personally, I'm going to hold my gold. Holding the metal doesn't worry me. I still have gold that I've carried from the '70s. Gold is the only real money. I don't care, inflation, deflation, boom or bust -- gold is money, and I can't say that about any paper currency. I'm holding all my gold.

The gold stocks could be another story. The gold stocks depend on rising gold for rising profits. In a deflation, or even in an atmosphere where gold simply "doesn't go up," the gold stocks could do poorly. For that reason and all the reasons that I described above, I feel that subscribers must make a personal decision about their gold shares.

In the long run, I believe both gold and gold shares will win. But a lot can happen between now and "the long run."

Personally, I've decided that I'm going to sit with my gold-share position. But if I do anything additional in the gold area, it will be to buy more coins. What I care about is my total position -- but I'll let you in on a secret, the market couldn't care less whether you or I have profits or losses. The market is a law unto itself.

We're in a primary bear market, and I've said this a hundred times -- this bear market is out to hand us losses. One way or another, we are going to deal with losses. The idea in a bear market is to arrive at the end of the bear market with as much of our wealth intact as possible. At the end of a bear market, you want some liquidity, some wealth -- assets with which to start up again, and cash with which to get into the new bull market.

-- posted by Normxxx

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» Normxxx - ST Bounce Due In Gold?

From A Usually Reliable Source. . .

Our expectation has been that we would see a ST top in gold coincident with the FOMC meeting on May 4, but that may be early for the short term up move in gold to be able to top out. As discussed above, COT readings this low over the last 8 months have produced price jumps of more than just a couple of days. A review of our Timing Model signals shows a top due May 10, which is after the FOMC meeting but in synchrony with the bottom we are expecting for stock prices, and so we now think that May 10 is a better time to top out any small countertrend rally.

But our view of the rest of May and June as a very negative period has not changed, and only the nimble should attempt to play the long side in gold at this point.

One last point: Some technicians might look at the chart of gold and conclude that it is a double top formation. Since the level of the intervening low between the January and April tops has now been broken, this should in theory produce a downside measuring objective of around $350/oz. The problem with this notion is that gold does not particularly conform itself to the descriptions of price structures discussed by Edwards and Magee. It also does not exhibit very good support/resistance behavior at specific price levels, so saying that “gold has broken key support at the $390 level” is a poor explanation of how gold prices really behave. The reason for this is that gold is an international commodity, traded in all currencies. So what might be a support level for gold on a chart of the price in dollars has little meaning if expressed in some other currency. Anyone who talks about static support levels for gold that are based on prior highs or lows is showing a poor understanding of how gold prices really behave.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only.

-- posted by Normxxx

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» Normxxx - Precious Metals Report

Precious Metals Report

By Leonard Kaplan | May 3, 2004
Prospector Asset Management

GENERAL COMMENTS:

Last week, the precious metals experienced the tidal wave of speculative liquidation expected by this commentary, as both large and small speculators bolted for the door, all trying to fervently sell their positions as buyers seemed the rarest commodity. While a week-to-week comparison demonstrates minimal losses for the gold and silver markets, down $8.20 in gold and only 9 cents in silver, it does not show the extreme volatility of the markets. Silver traded at a high of $6.31 for the week, and posted a low of $5.55, a 76 cent or so range. On Thursday morning, the silver market had fallen almost $3 in just 18 trading days. The gold market was not much quieter, with a weekly range from high to low of $22.80.

The trigger to this mayhem was news from China that the government desires to slow down the extraordinarily rapid rate of their economic growth by imposing higher interest rates, cutting down on bank loans, and other such restrictive legislation and policy. Such news that China may not continue to be the bullish panacea of the metals, immediately terrified the speculative longs in the market, and the result was a virtual "museum-quality" carnage in the markets. This commentary was one of the very few who foretold of this possibility, as it was clear that the precious metals markets were incredibly overblown, with speculative interest puffing price levels into the stratosphere. In my opinion, it will be a very long time before we ever see $8 silver again.

On the other hand, it would now appear that it is likely that the devastation is over, and that prices have once come back to levels where they represent "value." Friday saw the precious metals rally mightily, perhaps only short-covering to end the week, but perhaps not. I am beginning to get the sense that the incredibly sharp sell-off may have ended, and that higher prices are now rather likely. But, it is a bit early as the trend of the last few weeks has been decidedly lower. But, if we are not at the lows now, we will be shortly. Another few days of consolidation, another few days where we DO NOT make new lows, and I would become decidedly bullish. Perhaps not wildly bullish, but interested enough to play the long side for a significant bounce from these price levels.

[Normxxx Here:  There does not appear to be any great hurry; PMs tend to make rounded bottoms and spike tops. ]

GOLD RECOMMENDATIONS:
Expected trading range:
$382 to $394

We have now been healed, with greater equilibrium returning to the marketplace and I look for a period of convalescence, followed by attempts at higher prices. I still believe that the high level of physical demand for gold will be most supportive in the low $380's, and that technical resistance lies at the 200 day moving average, roughly $393 to $395, with more difficulties at the "round number" of $400. As such, look to trade this as a trading range, from the long side only please, with buys under $385, and sells against the resistance levels above.

SILVER RECOMMENDATIONS:
Expected trading range
$5.80 to $6.40

We have witnessed the complete devastation of this market, where 5 months of gains were lost in just 18 trading days. While I do now expect volatilities to decline somewhat, the immediate future is most uncertain. My best guess is that we bounce higher, to the $6.30 to $6.50, and then stage a retreat again. This market is still not suitable for the average speculator but those with a high risk/reward tolerance could be buyers under $5.90, with a narrow 15 cent stop. But I would absolutely take any profit one achieves on the upside without reservation. With silver volatilities at levels not seen for many years, finally I like the idea of selling some out of the money put options, at much lower levels of course. Think about it, if you would like to buy silver near $5.00, sell the December put NOW.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only.

-- posted by Normxxx

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» Normxxx - Gold bear sees speculator exit

Gold bear sees speculator exit
http://www.reuters.com/newsArticle.jhtml...

By Fiona Ortiz | Thu May 6, 2004 08:34 PM ET

LIMA, Peru, May 6 (Reuters) - Mining consultant Leonard Harris of Veneroso Associates market analysis firm said speculators who have taken huge, leveraged long positions in gold futures contracts encouraged by low U.S. interest rates will leave the market in the short term, taking gold prices down to $350-$360 per ounce,

Speaking at a gold industry forum in Lima, Harris took a bearish position that contrasted with analysts from Goldman Sachs and Gold Fields Mineral Services, who told delegates that gold was heading for $450 an ounce, or even higher.

"If speculator interest in gold contracts further we expect the price might be taken down to $350-$360 level," Harris said.

Gold peaked in January at 15-year highs of $430.50 an ounce but has since retreated. On Thursday June gold on the COMEX metals division of the New York Mercantile Exchange closed at $388.40 an ounce.

"Record net speculator long positions encouraged by low U.S. interest rates will correct. This correction is inevitable," Harris said.

He said speculative positions in gold futures are at an all-time high of 600 tonnes on COMEX and overall speculative positions, including over-the-counter transactions, could run into thousands of tonnes.

The reason speculative positions in gold are so huge, he said, is that normally conservative institutions like pension funds and private banks have invested in commodities as a hedge against what are seen as possible deliberate measures by the U.S. Federal Reserve to raise inflation.

"The recent explosive rise in commodities prices is due to a degree of speculation with no precedent," he said. "There is currently great vulnerability in commodities prices."

Near term outlook will depend on leveraged speculators, whose sentiment will be directly affected by a slowdown of Chinese growth, which has driven demand for commodities, or by a strengthening dollar.

He also said that unless U.S., European and Japanese growth exceed expectations there is little reason to expect continued support for today's commodity prices.

Bulls disagreed.
http://www.reuters.com/newsArticle.jhtml...

-- posted by Normxxx

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