As the year draws to a close, the markets have become very exciting. After months of not doing much, things have certainly changed and fortunately we're on the right side of the major trends.
Gold, silver, the shares, currencies and bonds... they all moved up strongly this month. We believe these markets have a lot further to go on the upside as 2007 unfolds. So we strongly recommend staying with your positions and continue reaping the benefits.
A LOOK AT THE MARKETS...
Gold rose strongly as the C rise kicked in. It reached a nearly four month high and it's now on its way to test the 26 year high at $722.
As you know, C rises usually take gold up to new bull market highs and if this pattern stays on track, then gold could surpass the $722 level. If it does, gold would be extremely bullish and it could then continue up to its 1980 peak near $850.
Silver has been even stronger than gold, continuing its pattern of superior strength like it's been doing for over three years. Silver is now rapidly approaching its May high near $14.85 and if it exceeds that level it'll be super strong.
At that point, silver would not have any further resistance until it reaches the $22 area last seen in 1980. Whether it goes that high or not, we'll have to wait and see but we wouldn't be surprised if it does. It's really just a matter of time until both gold and silver reach much higher levels.
Gold and silver shares moved up nicely too, along with gold and silver. These markets are also poised to rise further and they're looking good.
Some of the shares are obviously stronger than others. But in a major bull market, they'll all rise and the laggards will often catch up. That's why it's good to have a basket of shares rather than just focusing on one or two.
THE DRIVING FORCE
The main factor driving the metals higher this month was the steep decline in the U.S. dollar. It hit a 20 month low, it has resumed its bear market decline and the dollar looks poised to fall much further.
This will be reinforced if the dollar index declines and stays below 80, which would be a record low. If so, that'll provide even more fuel to the rise in the metals markets.
How low could the dollar go? We've shown you the dollar's big picture before but it's good in determining what we might expect on the downside from a technical perspective (see Chart 1).
This shows the dollar going back to 1972 when it first started trading in the free market. As you can see, it's been in a 35 year downtrend since then and it's also been trading in a huge downtrending channel.
Within this channel, large drops have taken the dollar from the upper side of the channel to the lower side over the years. Since the current dollar decline started at the upper end of this channel in 2001, it's reasonable to assume that it'll end near the lower end as it has in the past (see the X). If so, that would give the dollar a downside target near .85 against the Swiss franc before this bear market is over. And if that happens, it would mean a 29% drop in the dollar from today's levels.
Of course the currency markets benefited from the dollar's decline as well. They moved up strongly with the British pound and euro leading the way up.
The pound is now at a 14 year high and these markets are also headed even higher as the dollar falls further, reinforcing that the place for your cash right now is in the strongest currencies, and not in the U.S. dollar.
The oil price moved up too. Increasingly, it looks like it has finally bottomed and a renewed rise now appears to be getting underway. That'll be confirmed if oil now stays above $61.75 and then rises above $65.
The CRB commodity index hit a new record high and that too suggests oil is headed higher, along with other commodities. So the mega upmove in commodities continues to be alive and well.
Bond prices also rose strongly, hitting a nine month high as long-term interest rates declined. This was in reaction to more signs the U.S. economy is slowing and short-term interest rates are, therefore, unlikely to rise further.
On the contrary, 90 day T-Bills are now at a two month low. They're following long-term interest rates down and by all indications, the Fed will probably have to lower interest rates in the not too distant future. And when it does, that'll likely intensify the dollar's decline, and the rise in the metals and currency markets.
STAY WITH THE TRENDS
There's no question, these are interesting times. Even more so because so many of the markets are now near important junctures and so close to key levels. This suggests we could see even more excitement in the months ahead.
That doesn't mean it'll necessarily happen right away and there will likely be pauses and corrections along the way. But these major trends have re-exerted themselves, the markets are strong and they're telling us to hold onto to the positions we have.