Market Wrap
Week Ending 6/22//07
(Editor's Note: This is an abbreviated version of Market Wrap. There is a link at the end of the page to the Full Report)
GOLD & SILVER
Gold fell -$1.70 to close the week out at $657.00 (-0.26%). Its intraday high for the week was $665.80 and its low was $650.50.
Gold remains below its lower trend line support that has now become resistance, and is well below its 50 day moving average (672.05). First it needs to close back above its lower trend line and then its 50 dma (and that's just for starters).
Last week we said that the signals were mixed for gold, but that it had put in a positive week and if it continued this week things would be looking up.
Well, things didn't continue up - they continued down, but not by a significant amount.
One or two good days up could easily see a cross over and above the lower trend line, and the 50 dma, which is only $15 away. In the volatile world of precious metals that is very often a daily occurrence.
Let's take a look at the weekly chart for gold to see if it provides any further clues.
The most notable marker on the chart is the negative MACD Cross accompanied by negative histograms.
Any kind of sustainable rally is going to need to see both of these indicators turn up and remain positive. A negative bias presently exists.
HUI INDEX
The Hui closed down -0.22 points to 336.05 (-0.07%) for the week. Its intraday high for the week was 341.55 and its low was 329.94.
Tuesday's close of 340.97 was just above its daily 50 dma (338.01). Its weekly 50 ma is at 331.01, which it closed above for the week on Friday. It did not hold these levels for Friday's weekly close.
This shows that intraday during the week there was a lot of testing of recent lows that held, as well as probing into higher significant territory. Overhead resistance continues to be worked off.
Thursday's action was particular strong as intraday the Hui was down about 7 points and came back to close in positive territory. This was on a day when interest rates and the dollar were up, which showed that buyers came in with confidence to buy and they did. This was positive and encouraging action.
First up is the daily chart. It shows a right angle triangle formation that suggests a powerful move up is coming.
MACD has made a positive cross over. The Hui/Gold ratio is close to breaking above its upper trend line.
SUMMARY
Stock markets are still floating on a sea of liquidity; however, the sea's pollution and toxicity levels are coming under scrutiny. Markets have corrected some, but will most likely return to their asset bubble ways, as greed and the madness of crowds is not an easy thing to quench.
In last week's market wrap summary (Full Report) we mentioned the three amigos, which this week we are morphing into the four horsemen. We said quote:
"Together the above three amigos make a most unholy alliance, one wrought with huge risks for the world's financial and monetary markets and systems."
This past week past witnessed the Bear Stearns derivative debacle, unfortunately a much faster occurrence then even we had thought possible. For better clarity as to what lies ahead, we now refer to the four horsemen:
- Rising sea of world wide liquidity (credit/debt/money)
- Rising interest rates (cost of credit)
- Yen carry trade (large source of liquidity)
- Derivatives (paper relationships/ratios of obligations in lieu of other obligations, for that which neither exist)
As was also stated last week, which applies even more here:
"This is not doom and gloom scare tactics - it is simple Austrian economics and applied physics with the strong smell of chaos theory hanging in the air."
Interest rates on US Treasuries have been rising. Presently, they are receding in a counter trend rally. A bear market in bonds has begun. It will not be that noticeable right away, but it will become so over time, just as a cancerous tumor starts small and unnoticed, and eventually grows large enough to consume its unwary host.
In today's New World Order, money is debt and debt is money, both of which are conjured forth by the issuance of credit - the lending of that which does not exist. This is the key to the inner chamber of the temple, where the holy of holies is said to be - when in fact there is nothing, perhaps less than nothing. The temple priests remain the same as from the days of Babylon - be not beguiled by the beguilers.
Always present in any economy, including and especially the global economy, are both deflationary and inflationary pressures, constantly battling against one another. Paper fiat debt-money is inherently inflationary - it is buried inside its genes, it carries its own self-destruction within.
When money that does not exist is loaned as credit, debt is thereby created. The banker does not have the money to loan. He creates the money as an accounting entry on his ledger by the very act of loaning it to you. It is spoken (fiat) or scripted (written) into existence, by the very same scribes of the temple priests of old.
But the banker does NOT create the money that you must pay him back to service the credit/debt/money he has just loaned you (that doesn't exist except on his books as your debt).
In other words he does not create the interest (money) that you must pay him - that you must labor for, exchanging your life's energy as work for money that you then pay as interest; to service a debt that only exists on the creditor's books - money that he did not have and never existed, yet he loaned it to you. Some would call it fraud, embezzlement, and thievery.
Money is created by three means:
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The literal and actual printing of money (very limited amount).
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The monetization of the national debt through the issuance of US Treasury Bonds, which are allowed to circulate as the currency of the realm: Federal Reserve Notes (second most used method).
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By fractional reserve lending (credit issuance) whereby commercial banks loan money they do not actually have on deposit, but merely enter on the ledger as script using double-entry bookkeeping (by far the most prevalent method).
As noted earlier, foreigners are becoming more and more reluctant to buy our debt: US Treasuries, as they are mere promises or obligations to pay. Some are questioning whether the wherewithal to honor all these trillions of obligations truly exists, or if someone is going to be left holding a very large bag of toxic waste.
Hence the reluctance to buy our debt - thus interest rates are going up to entice and cajole others to loan their money to the Treasury.
Now, it must be noted that only Americans MUST accept Federal Reserve Notes as legal tender, according to the laws of forced compliance (legal tender laws).
Foreign entities, including central banks, are NOT under forced legal compliance, at least not the same as domestic investors are. If they don't want them they don't have to accept them, and there is no legal recourse or remedy.
As interest rates rise, many borrowers become reluctant to take out more loans. They are already maxed out, and the additional strain of higher interest rates is more than they can bear. Some actually pay down their debt and SAVE rather than consume.
This behavior will have much stronger deflationary pressures then presently exist. But remember - the Fed is the LENDER OF LAST RESORT. Their job is to inflate to whatever degree is required to keep the music playing. If the music stops the gig is up - time to close shop and find a new job. Consequently, the Fed will inflate to whatever degree it has to.
Because the profligate amount of existing credit/debt is causing more and more deflationary pressures, the Fed will have to dramatically increase inflation (monetary) to ward off building deflationary pressures. It is going to continually require more and more oxygen to keep the patient alive.
This is known as Russian roulette - a mugs game if ever there was one. One mistake and hyperinflation will take hold, and then there is no turning back. Once the bifurcation point is breached - chaos theory takes over and runs its course until all energy is dissipated. A pretty sight it's not. This is why it is imperative to institute Honest Money of Gold & Silver coin now - before it's too late.
The above is obviously reason enough to own gold - the ultimate store of purchasing power and wealth. When paper fiat money systems go into their death throes - gold shines brightest, as it is no one's debt or obligation - it is Honest Money.
When the gold bull began back in 2001, the price of gold was $250.00 per ounce. Be it remembered, I neither agree nor believe that gold should be priced in paper fiat Federal Reserve Notes, but that is presently the way things are. Gold and silver should exchange by weight and weight alone. All goods and services should exchange by the use of honest weights and measures of gold and silver.
Today the "price" of gold is $650.00 per ounce. That is an increase of $350.00 (650-250=350) or a 140% increase. In 2001 the dollar was trading at 120, today it's trading at 82, which is a difference of (120-82=38) 38 points or a 48.3% loss.
Gold has increased by 140%, while the dollar has decreased by 38%. So much for the theory that the dollar is THE driver of the price of gold; although yes, it is an important contributing factor, but there is much more here then meets the eye.
Purchasing power is the concern, as well it should be. Money as a medium of exchange that holds its purchasing power as a store of wealth, well into the future is another concern, as well it should be.
Gold stocks presently look promising, and barring any overall stock market disaster, which in today's Brave New World always remains a distinct possibility, they appear ready to make a move. We are of the opinion that the move will be up.
Invitation
Stop by our website and check out the complete market wrap (38 pages and over two dozen charts), 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 that's a wrap. Full Report
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