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December 16, 2005

Tub Thumping
by John Mackenzie

If you do not understand Technical Analysis or TA, fear not, it is by no means an exacting science, but art. It is merely hindsight and changes within movements of price / volume relationships. Pseudo financial journalism remains a constant vector for change. At any given point in time everything and anything that occurs around the globe 24/7 moves squiggles on a chart. The key to successful long term trading is primary trend participation and adjusting to its ramifications on intermediate and shorter term adjustments.

One of the better mechanisms for timing the GOLD Market has been sentiment. When the usual suspects are out touting "broken faxes, parabolas, $600 GOLD, $1000 Gold" and the all time classic... "This time it's different" it is time to exit the crowded trade. GOLD's technicals were screaming over-bought, over-owned and over-done by any measure.

502.80 is a pivotal juncture for spot GOLD. It was lost several times on the TOCOM in the overnight. A volume push back down and through will bring 488 in a hurry, it will be interesting to see how New York behaves once again as the short side leverage employed there is nothing short of stunning, London had been experiencing large uptakes in physical demand, Asia had gone postal as well, literally and figuratively.

The fine line between Boom and ensuing Bust is here. It should snap between January and April of 2006 sending Global Financial Markets into a tailspin. Speculating with impunity is, for all intents and purposes, irresponsible. The present and special brand of mania will continue, but is fast becoming a crowded trade. The Federal Reserve is willing to foster the illusions at present in order to maintain appearances. Unfortunately for the rest of us, the shenanigans perpetrated by our Central Bank remain a callous and deadly gambit.

So how do we position financially for what lay ahead?

I continue to suggest taking delivery of the physical metals, GOLD and Silver, taking them into your possession and NOT "Banking" on paper GOLD as I have since 1999. We are purchasing the Euro as well and suggesting it as an alternative to the Dollar. Mining Equities are priced in Dollars, Mining companies need a great of energy to recover Copper, Silver and GOLD from the earth. Energy, Gold and Silver have been closely correlated over the past 28 months and worth paying close attention to at this juncture.

The volatility I suggested six weeks ago is underway, it looks quite similar to the October 1979 timeframe. Volatility simply implies risk and risk is abundant. How it resolves will be interesting as the fundamentals are far different, yet human behavior remains a constant. Or as one observer put it quite elegantly, buy fear and sell joy.

As an aside, several weeks ago I spoke with several contrarian thinkers about the precious metals markets and was pleasantly surprised to find consensus for this correction. A special thanks to Jim Puplava, Tony Dywer and Frank Barbera for their tireless efforts to make sense of what we are staring down. They represent the best of the best in my opinion and I would be remiss in not saying so as they have helped balance the din of emotional fervor ever-present in today's financial arena.

Merry Christmas everyone.

John Mackenzie

John Mackenzie manages private capital - Email: m2jrmfl@bellsouth.net

Copyright © 2004-2005 John Mackenzie

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