Week Ending 11/30/07
Gold had a tough week getting hit hard for a loss of $35.60, closing the week out at $789.10 (-4.32%).
The chart below shows gold testing its bottom trend line; which it is sitting directly on top of.
Next is a point and figure chart of gold. Overall, it remains quite bullish, with a projected target of $960.00. However, it also shows a high pole warning on November 28th.
A high pole warning is signaled when a previous high is broken above by at least 3 boxes, but then reverses and gives back at least half of the rise.
The chart below suggests that lower prices may be coming.
Next week will be important for gold, as it is sitting right on support, which if broken below will become resistance.
The warning is indicating that as the price of gold rose, sellers sold into the rise more than buyers were willing to buy, thus creating the reversal.
For the moment supply is stronger than demand. It remains to be played out.
Silver fell -0.57 cents to close at $14.16, for a loss of -3.87%. Notice, however, that just as gold did, and on the same exact day, a high pole warning was given - Nov. 30th.
The Hui Index was down a large -23.67 points to close at 406.21, for a loss of 5.51%. Below is the weekly chart, which shows the index testing support that so far has held.
RSI is turning down, but is still above the 50 level (56.01). Histograms are receding towards the zero line, while MACD remains positive but is starting to roll over.
Next up is a point and figure chart for the Hui Index. It has turned bearish with a price projection of 380.00.
This was triggered by Friday's trading loss, which shows a double bottom breakdown. Price reversed and broke below its prior bottom.
Such a break indicates that previous buyers are no longer able to sustain enough demand to overcome the supply or selling taking place, hence price breaks down.
Does this mean we are going down to 380? No, not necessarily, but it is quite possible. It is, however, indicating the path of least resistance.
It remains to be seen if the path is taken or not. Also, note that 380 is about 5% lower than present prices.
Next is a daily chart of the Hui Index. Since August the index has carved out a nice rising channel, however, Friday's close dipped just below the bottom trend line.
This is no big deal, if, it doesn't follow through to the downside. RSI has dipped below 50 (46.26), but has so far put in a higher low - now it needs to turn up.
MACD still has a negative cross over in effect and is the dominant chart feature for now.
The histograms are receding back towards zero, and may portend an upturn and positive cross over of the MACD indicator to be forthcoming.
Last up is the Hui/Gold ratio. So far, a higher low has held in place, however, the ratio needs to turn up and break through its overhead resistance trend line (marked in blue) to signal that the gold stocks are out performing physical gold.
In a strong bull market the gold stocks should be stronger than bullion. The ratio has put in a series of lower highs that need to be taken out.
Higher lows need to be established first, which is the present case. Then higher highs need to build off the higher lows. This has not been the case since the high in 2004 of the ratio.
Credit conditions are tighter because of the subprime mortgage contagion and the fallout there from. Of significance is the question: where did the tale of woe begin? What was that guys name - the maestro?
Recall that although interest rates have been going down, the credit markets have been under tighter conditions, not looser. As was asked earlier in the report - is the Fed really in control?
Let's go back to the days of the maestro. Under the direction of his magical wand the greatest largess known to modern day man sprang forth - trillions were at his beck and call.
During his reign, interest rates were continually lowered, seemingly headed towards zero - much the same as our savings rate. The punch bowl was filled to the brim - no reveler went without. This was the time of easy money, or so it seemed. Credit and debt were piled on high.
Yet, after a zero interest rate policy had nearly been reached, suddenly in 2005 and 2006 rates were raised, from 1% to over 5%. But did this huge increase in rates slow down the credit markets - no, not in the least.
It was at this time that credit, via structured finance, was seen as the new universal system, to travel where no man has gone before - uncharted waters were now the course, straight on towards morning.
But things changed, rather than salvation, structured finance has become damnation, or perhaps things haven't changed, but no one quite understood them to start with; or even worse - they did, but they didn't care.
Now, they do - an epiphany of sorts, in a strangely twisted sort of way. So, reverse course once again, and start lowering them damn interest rates. And so they have, under a new maestro, but the song remains the same.
Isn't it strange, now that interest rates are headed back down, credit has become tighter - not easier. Just look at the Libor rate and TED spread - they don't lie.
So what gives? Is the Fed really in control, or not? Something seriously appears to be out of order.
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