Week Ending 9/11/09
A few weeks ago I mentioned that palladium was breaking out to new highs for the year, and that its move was a good sign for the other metals, which would likely follow its lead. Platinum jumped in line this week and made a new high for the year. The weekly charts show platinum and palladium well off their all-time highs, while gold is knocking on the door to set new all-time highs.
The U.S. dollar continues to fall. It appears that the Fed has sacrificed the dollar in order to inject massive liquidity into the markets, resulting in rising stock and commodity prices, including gold and silver. Asset inflation is attempting to replace the financial deflation that occurred in the mortgage and related markets. This is similar to robbing Peter to pay Paul; and will end accordingly.
Both metals are making new yearly highs, which bodes well for the other metals.
Gold had a good week, adding $11.80 (+1.19%) to close at 1006.20. Its all-time high is about 3% above at $1033. The weekly chart shows the inverse head & shoulders formation still intact. Price is bumping into overhead resistance, represented by the neckline (white slanted line).
For the formation to be confirmed, price needs to break above the neckline on expanding volume, turning resistance into support. A strong breakout has the potential to reach $1300.00. Expanding volume is crucial.
It is possible that gold does not break through on the first attempt. A lot depends on the dollar. If the dollar continues to weaken, it will put a wind to gold's back. If the dollar rises, it could dampen gold's advance.
Silver had another good week, adding .54 cents to close at $16.77, for a weekly gain of +3.33%. The daily chart shows silver breaking above its June high.
On a short term basis, silver is overbought, but as we have seen with the stock market - overbought is a sign of strength until prices reverse; and assets can stay overbought for longer periods of time than first thought possible.
The weekly chart shows that silver has a long way to go to get back near its all-time high. So far this year, however, silver has been outperforming gold as the second chart indicates.
Next up is the same chart as above, but extending back to the beginning of the bull market. It paints a somewhat different picture, with gold performing the best.
Gold has protected purchasing power through both inflation and deflation, while silver and platinum took pretty good hits during the deflationary collapse.
This may be due to the fact the silver and platinum are industrial metals, while gold is more of a monetary metal or currency. In the next leg of the bull market I believe that silver will kick in as a currency - poor man's gold if you will.
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Good Luck. Good Trading. Good Health. And that's a Wrap.