Market Wrap
Week Ending 9/19/08
Another fascinating week in paper fiat land: humpty dumpty had a great fall, and all the king's men came running - one and all. Unfortunately, however, as the rhyme continues: they couldn't put humpty together again.
Although the "plan" promises to protect the people's savings, quality is being sacrificed for quantity. When it comes to money what matters the most is purchasing power - the quality or value that money retains over time.
When the government is said to back anything with its full faith and credit, what this means is that you and I and all Americans back it, with the sweat of our brow. Our life's work is the faith and credit that backs all governmental or private promises - large or small.
The government is promising to back liabilities that have not even been quantified. More money will be had by either raising taxes or selling Treasury Bonds (debt). The more money that is created - the more it loses its purchasing power. Quality is sacrificed for quantity.
All the "plan" has accomplished is to guarantee that the U.S. Federal Reserve Note (dollar bill) is going to be worth less and less until it ultimately becomes worthless. Wealth is being destroyed by an unseen tax - its name is inflation. This is gold bullish and dollar bearish.
U.S. Dollar
The dollar hit resistance at 80 as mentioned in previous reports. It is getting ready to test its first significant support line. Interest rates went up this week, which should be dollar positive. So far it hasn't played out that way.
Interest rates suggest a higher dollar, but the chart below sports a negative MACD cross over, which suggests lower prices are coming. When interest rates rise and the dollar continues to fall - the end game will be starting. Long term the promises being made are simply creating more debt, which means continued debasement of the dollar (loss of purchasing power).
Bonds
Interest rates shot up as the week progressed, causing bond prices to fall. The chart below shows a huge gap down from 97 to 95, with a closing price of 93.97. Price is testing its support line going back to early July.
MACD made a negative crossover, suggesting that bond prices have further to fall. The CMF indicator shows money moving out of bonds.
Gold
Gold had a wild week, adding over $100 an ounce for a 13% gain. The action was fast and furious. The chart below shows GLD closing up above the "zone" highlighted in last week's report. Broken resistance has now become support, which will most likely be tested this coming week.
MACD made a positive crossover and the histograms are up into positive territory. RSI has plenty of room before becoming overbought.
The last few days' action has regained the important $850 level that says the gold bull is alive. Physical gold is no one's liability - the dollar is ours.
Silver
Silver was up over 15% for the week and outperformed gold. Year to date, however, gold is performing best.
SLV's chart shows it below the "zone" needed to be regained if the silver bull is to stay alive.
MACD has made a positive crossover and the histograms are moving up into positive territory as well.
Further upside potential remains but it is not going to happen overnight. Patience will be required. Last week's action is unsustainable at such a pace.
CEF is a good way to invest in both silver and gold without taking possession. Its chart can be viewed towards the end of the report.
Gold Stocks
Gold stocks had a good week. GDX was up 12.64%, which is about the same percentage as physical gold was up. On a risk to reward basis - physical is stilling outperforming the stocks.
There were a few gold stocks, however, that had spectacular gains for the week: HMY (22%), AEM (16%), RGLD (22%) and NG (36%). We were fortunate to trade in and out of Harmony, Aginco Eagle and Goldcorp all for nice profits.
The daily chart of GDX shows a positive MACD crossover with both histograms and RSI moving up nicely. The first fib retracement level is fast approaching and is the next line of significant resistance. Overall the gold stocks are not out of the woods just yet, but they are on their way.
The Central Fund of Canada (CEF)
CEF is one of the safest ways to invest in gold and silver without taking physical possession. The fund is well run and holdings are audited.
Its chart shows a positive MACD crossover with histograms and RSI moving up strongly.
Price is bumping up against its 50% retracement level and just above its 50 day moving average.
Goldcorp (GG)
Goldcorp had a nice run the last few weeks, breaking above its upper trend line, which now becomes support.
MACD has made a positive crossover and RSI and the histograms are moving up.
GG traded on huge volume Wed. and Thurs. providing good liquidity for those that like to trade in and out.
BP Prudhoe Bay (BPT)
The chart below speaks for itself. BPT has not only had a strong rally from its August lows, but it pays a hefty dividend as well. Oil is a tangible commodity in great need and demand.
Physical commodities are a safer bet than owning paper promises in today's turbulent times. As more money and credit are created in the coming bail outs - real tangible assets will be in demand.
Summary
The precious metals bull is alive. Gold regaining the $850 level was very significant, as that was the high of the last gold bull over twenty years ago. Gold and silver are not anyone's liability or promise to pay. The trillions of dollars of debt now being promised in bail outs insures one promise will occur: the purchasing power of the U.S. dollar bill will continually fall.
This is not going to help the average American. Bankers are being bailed out by the destruction of We the People's wealth through the debasement of our currency. The actions of the past week speak loud and clear that the bankers are favored over the average citizen.
Paper fiat debt-money allows this to occur, which is why the Constitution mandates gold and silver as money - and no bills of credit (paper money). It is time to return to the monetary system the Constitution ordains.
Good luck. Good trading. Good health, and that's a wrap.
Come visit our website: Honest Money Gold & Silver Report
New Book Now Available - Honest Money
