Market Wrap
Week Ending 4/5/07
Economy
March ISM's factory gauge came in at 50.9 down from 52.3 the previous month. It remains just barely above the important 50 level. Most of the internal figures were weak as well.
The new orders index fell to 51.6 from 54.9. The Production Index fell to 53 from 54.1 and the Employment Index fell to 48.7 from 51.1. Even the Prices Paid Index fell to 65.5 from 69.
The ISM's non-manufacturing index fell to 52.4 in March, the lowest level in almost four years. Not the best of reports.
The Labor Department reported the jobless rate fell to 4.4%. Employment increased 180,000 that followed an 113,000 rise in February.
Average weekly hours increased to 33.9 from 33.8. Worker's earnings rose 6 cents or 0.3% after a 0.4% increase the month before.
The Commerce Department reported that sales at U.S. wholesalers increased 1.2% compared to a 0.5% rise in inventories. Last month the numbers were 0.9% versus 0.6%.
The Fed reported that consumer credit increased $2.973 billion to $2.410 trillion in January, and that consumer debt increased $6.61 billion.
China's Central bank Governor Zhou Xiaochuan ordered banks to raise the deposit-reserve ratio by 0.5% to 10.5%. This is the sixth time in less than a year that the PBOC has raised reserve ratios in an effort to slow down inflation.
The latest report had China's M2 money supply growing at 17.8% in February, which is enough reason to make anyone pause. Can't say they aren't trying to slow things down.
Iran has outlawed the US Dollar and will put anyone in jail that uses it. Euros are the currency of preference for international transactions, as in paying for oil.
Fannie and Freddie - the ma & pa of mortgages, have $79 Billion in capital, yet they have guaranteed $3.8 TRILLION in mortgage loans. Try that with your business some day and see where you end up. Must be nice to be subsidized by the government - but wait a minute - who subsidizes the government? That's right - we do.
In 2006, subprime lending in the US housing market totaled 22.3% of all mortgages. Not to worry says the Fed; the damage seems to be under control.
Precious Metals
Gold
Gold put in another good week closing up $10.40 to $679.40 (+1.55%). This was gold's highest weekly close in 6 weeks, and was the daily high close for the week as well.
Gold's next target is the Feb. high of $686.70 on a closing basis and $692.50 on an intra-day basis. From there the next target is the multi-year high of May 2006 at $730.40 (intra-day).
Next up is the daily chart of GLD. It shows a clearly defined rising channel with the pog in about the middle of the channel with plenty of room left to the upside trend line.
Silver
Silver's chart is not as bullish as gold's. Note the negative divergence in RSI, and the recent negative cross over in the MACD indicator.
For the week silver gained .29 cents to close at $13.74 (+2.16%). It was silver's highest weekly close in five weeks, and it was the daily high close for the week.
Now it needs to put in a positive MACD cross over and correct the negative RSI divergence.
Next is the silver ETF chart (SLV). It shows a rising channel with prices below the middle of the channel but rising. There is plenty of room to the upside if it decides to keep moving in that direction.
HUI Gold Stock Index
For the week the Hui gained 16.46 to close at 354.15 up 4.66%. The gold stocks out performed the metal this week by about 3 to 1.
It was the Hui's highest weekly close in 6 weeks. It had a higher daily close on Wed. at $356.02.
The chart below shows resistance at approximately 362.00. Once that level is breached on a closing basis that holds, the next target is the Sept. 2006 high at 306-308, and then the long term high at 401.69 from May of 2006.
The second chart is the monthly of the hui/gold ratio going back 5 years. The ratio is trying to break out above its upper falling trend line. Such a move would be very constructive.
XAU Index
The XAU chart below shows overhead resistance fast approaching. MACD and the Histograms have turned up positive.
The xau/gold ratio has broken above its upper trend line; however, RSI shows negative divergence. So the signals remain mixed with the weight of the evidence leaning towards the bulls. It could go either way.
The long term monthly chart moves from the bottom left to the upper right - a bullish signature until it isn't.
Individual Gold Stocks
First up is Harmony (HMY), one of our largest holdings. The chart pretty much speaks for itself. A recent break out on high volume occurred along with a positive MACD cross over.
On balance volume is increasing sharply as well. Only caveat is that RSI is touching overbought and the recent move is parabolic and is reaching horizontal resistance levels.
Next is Goldfields (GFI), another of our largest holdings. It is bumping up against horizontal resistance at around $19. On balance volume has picked up significantly. RSI is approaching overbought.
The last chart is Miramar Mining, which we own as well. It too is bumping up against horizontal resistance, and has moved up on high on balance volume. RSI still has room to move up if it is so inclined.
Summary
The $64 dollar question of the day is whether the subprime mortgage debacle is behind us or not, along with its attendant thugs: carry trades, derivatives, and market swoons.
I remain unconvinced that all is well in paper fiat land; there is just too much debt and no money to pay for it all. Every credit boom ends in a bust, and this one will as well.
The Fed no longer has its coveted inverted yield curve, as long term rates have begun to rise. One day the Fed is perceived to be going to lower rates; and the next (as today after the employment figures) they can't possibly lower them, and may have to raise them.
It appears that the Fed is stuck between a rock and a hard place. They're damned if they do and damned if they don't. Either the dollar goes or bonds go - or perhaps both. Gold is picking up the scent.
Those who squeal about commodities being down and out for the count are obviously looking at weighted indexes that skew the picture. The CCI Index shows the trend is up.
Oil has had a nice rally back up and the industrial metals are once more on a tear. Gold and silver are performing well, as are the gold and silver stocks.
Will May bring a low or a high or perhaps neither - perhaps we just keep on keeping on. We wait for the market to show its hand. We are long the pm stocks and will add more on weakness that holds above previous lows.
For now all appears quiet on the eastern front, as Iran has returned the British marines. Still there are rumors out of Russia of a U.S. attack in mid-April. We hope and pray that none occurs, but hope with this regime is like hope with investing - it's a no no.
Iran no longer accepts U.S. dollars in payment for oil or anything else; as a matter of fact they will throw anyone using the U.S. currency in jail.
The non-existent cold war seems to be getting hotter. Something about a star wars scenario in Europe in favor of the U.S. against Russia. Somehow the mid-east is said to be the target.
Australia has vowed to protect Japan from encroachment from China, which is more then a bit odd.
But Easter is upon us with a 3 day respite - so may April showers bring May flowers that can replace the bullets and bombs.
Don't take out any debt. Get debt free as soon as you can. It's the best investment there is - bar known. Then buy those shiny yellow bars.
Invitation
Stop by our website and check out the complete market wrap, which covers most major markets. There is also a lot of information on gold and silver, not only from an investment point of view, but also from its position as being the mandated monetary system of our Constitution - Silver and Gold Coins as in Honest Weights and Measures.
There is also a live bulletin board where you can discuss the markets with people from around the world and many other resources too numerous to list. Drop by and check it out.
Good luck. Good trading. Good health. And be careful out there - things are getting a bit whacky. And that's a wrap.
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