This essay is based on the Premium Update posted on August 20th, 2010

This week we have sent out several messages to our Subscribers regarding the current market situation. Now, the markets have calmed down for the weekend, and we are able to provide you with a report summarizing precious metals performance over the whole week, and – to some extent – provide you with our thoughts regarding gold’s next move.

Specifically, we will comment on the link between gold and the U.S. Dollar, and in the following part of the essay, we will also comment on the price of gold directly.

We will start with the long-term USD Index chart (charts courtesy by http://stockcharts.com.)

In this week’s long-term USD Index chart, we see some consolidation after last week’s small rally (reflection of the current consolidation in the Euro Index). Since these consolidations often take place in the middle of the move, we might expect the recent rally to take the dollar higher to 84.5 or so. Similar examples can be seen – in a bigger way – in the recent December to June prolonged rally.

The rally itself lasted for nearly seven months and it included one big consolidation – from Feb to April 2010, which was right in the middle of the move.

Again, it is likely that the USD Index will move higher very soon. The probable downtrend for the euro, which we discussed previously, is an important contributing factor to the dollar’s likely near-term direction. By comparing the current rally with that seen earlier in 2010, a target for the top of this USD Index rally seems to fall in the 84-85 range. The main determining factor here is the assumption that this current consolidation period is somewhat near the mid-point of the rally. It is important to note that the term mid-point refers to index levels which may or may not correspond to mid-points in time.

Precious metals have, for the most part, been moving on their own lately. It is possible, however, that their turning points could coincide with those of the USD Index.

In this week’s short-term chart, there are two developments worthy of note. First, the break above the declining trend channel has been verified this week. We have seen several consecutives closings above this level, which was surpassed last week. It is likely that the dollar will rally from here.

The second observation clearly seen in this chart is the vertical red line which indicates a likely turning point to the upside for the USD Index. A close inspection of recent turning points reveals that in seven out of the last eight, gold and silver declined either immediately thereafter or in the next few days. Since we are in this position today, it is something which cannot be overlooked in our precious metals analysis and a decline in gold, silver and mining stocks therefore appears quite likely for the near-term.

The likely short-term trend for the Euro Index appears to be down. As is normally the case, this is bullish news for the USD Index and a rally may very well be seen here soon.  Gold, silver, and mining stocks will likely see lower prices in the close future. Speaking of gold, let’s check how did the yellow metal perform in the previous weeks.

The long-term chart for gold this week provides some evidence in support of a soon-to-be-seen local top. The RSI has risen to levels which often marked previous local tops. The GLD SPDR level is presently only slightly above the 61.8% Fibonacci retracement level, and the long-term resistance line (rising thick black line) is being touched right now.

The situation is quite similar from the non-USD point of view.

From a non-USD perspective (valuable for instance to Investors/Traders watching gold priced in the euro, sterling, or rupee), it also seems that gold is approaching a local top as is gold in USD. The 50-day moving average seems to be a resistance level. This average has provided strong support or resistance on many past occasions, so we shouldn’t ignore it here.

Keep in mind that gold in non-USD currencies will likely trend similar to USD gold markets, that is local tops may very well coincide.

Before summarizing, we would like to comment on one of the questions that we’ve received this week (thank you for your feedback, we really appreciate it).

The question came from an Investor, who purchased shares of a silver producing company in order to profit from a speculative trade that was supposed to take only a few days (this was a bet on good earnings report). The company didn’t do well, and this Investor finally end up with about 1/3 portfolio allocated in this company’s shares. The question is what to do given the current market environment. Our reply is that if it was our money on the table, we would close the position right away, not only because of the possibility of a correction from here. We would do that mainly because the factor that made us open this position in the first place is no longer valid and because we would not open such a position if we didn’t own any shares – at least it would not be this big.

If – at any point – you are not sure if you should hold on to a position that you currently have (and there are low transaction costs), all you need to do is ask yourself a different question – would you open this position at current market price in the amount that it currently equals to in your portfolio. If the answer is no, then you have just told yourself to close the position.

Summing up, it is likely that the local top for gold is in or very close to being in. Bearish indicators are in place for the near-term and if the expected downturn does not begin immediately, we expect it will be seen very soon. Much of the doubt present today will be erased once the downturn is confirmed. Additional information, detailed price/time targets and explanations are available to our Subscribers along with the in-depth description of a new way to analyze the gold market.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you’ll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It’s free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
www.SunshineProfits.com

* * * * *

Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

Sunshine Profits provides professional support for precious metals Investors and Traders.

Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free weekly trial to see if the Premium Service meets your expectations.

All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

This essay is based on the Premium Update posted on July 30th, 2010

In the last two essays we have emphasized the influence that the dollar and main stock indices might have on the precious metals and we have summarized our last essay by stating that we are likely to see a short-term bounce to the upside (…) perhaps very soon. Since this is what happened we would like to let you know where – in our opinion – gold is likely to go next.

However before providing you with gold charts, please take a moment to study the following euro charts, as it will provide you with useful background information. Let’s begin this week’s technical part with long-term Euro Index chart (charts courtesy by http://stockcharts.com.)

Once again, this week’s long-term Euro Index chart shows that there has been little change from last week. However, we have seen a struggle for movement above the resistance line created by the lows of 2005 and 2008. This also closely corresponds to the 38.2% Fibonacci retracement level (of the massive 2000 – 2008 rally) and we presently see the upper border of the resistance area being tested.

During a similar period in the past – at the end of 2008, the RSI move to 50 before the euro showed any serious decline. It then moved below 40 for some time as euro tested its previous bottom. This is quite similar to what we have seen recently. The RSI actually dipped into the 20’s and has now rebounded to near 50. Although the euro doesn’t need to go as low as its previous low (meaning 120 on the above chart) – and we would not recommend basing such forecast based on the RSI alone – there is a possibility that we are very near a local top today with a brief correction likely to be seen in the short-term.

Close inspection of the long-term chart shows how the 38.2% Fibonacci retracement level corresponds to today’s index level. This is an important point since the retracement level itself is based upon a noteworthy downswing. Let’s take a look at the short-term chart below for more details.

The short-term Euro Index chart confirms a movement above the Fibonacci retracement level created by the 2000–2008 Euro Index rally. This is also true for the retracement level created from the decline seen between December, 2009 and June, 2010. So, in fact we have two Fibonacci retracement levels that intersect at the same level, thus making the resistance here even stronger.

The RSI based on the daily prices is presently near 69 which corresponds to the recent local top seen in mid-July. At this time, we remain bullish for the euro over the next several months or so. A slight move lower may be seen in the short-term which will likely be coupled with a corresponding move higher in the USD Index. The currency exchange rate accounts for more than 50% of the USD Index and for this reason the Euro and USD Indices remain tightly tied in how they react to one another. The implications for gold, silver and mining stocks are positive in the short run as well, which confirms bullish points made above and also in our July 27 Market Alert, in which we’ve suggested closing short and opening long positions in precious metals.

For more details, let’s take a look at the below chart.

As indicated in that particular alert many strong support levels intersect near the $113 level: the 150-day moving average, the 50% Fibonacci retracement level based on the February to June rally, the lower border of the trading channel, and strong support as indicated by high volume levels.

When gold prices decline after a prolonged downward trend and very high volume is seen, this frequently indicates the final day of declining prices. This week’s chart indicates the possibility that this may well be the situation at present.

The targets, which we projected in prior updates, are being reached now. The first target, circled in red in the chart corresponds to the $113 level. A bottom appears to be in, and the contra-trend rally now seems likely.

Moreover, based on Friday’s close, the risk-reward ratio appears to be even more favorable than was the case when we’ve created the above chart. The next target, marked by the blue ellipse above is in the $115 – $117 level for GLD ETF. Higher levels are possible, but it is too early to set higher targets at this time. We will continue to monitor the situation and advise our Subscribers as warranted.

That’s an important statement so we would like to emphasized it once again – based on Friday’s intra-day action it seems that we might need to raise our targets for this rally, but we need some more information to do so.

Looking at gold from a non-USD prospective we continue to see a steady decline in price. At this time however, it appears that most the decline is now over. The RSI has moved below 30 and this increases the probability that a local bottom is in. Further confirmation will likely be forthcoming and the bottom we are now close to is probably an initial local bottom and likely not the final one.

The lower section shows gold’s daily price from our regular USD perspective. Please note that RSI based on the gold:UDN ratio works not only as a bottom indicator for the ratio, but also for gold itself.

Summing up, gold appears to be starting a contra-trend rally and it seems that it may be a good time to bet on higher prices in the short-term. The next likely target level for gold is $115-$117, possibly higher. Although $119.5 is a possibility, it does not appear very probable at this time.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you’ll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It’s free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
www.SunshineProfits.com

* * * * *

Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

Sunshine Profits provides professional support for precious metals Investors and Traders.

Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free weekly trial to see if the Premium Service meets your expectations.

All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Here is the ‘Wrap Up’ segment from the 15 page NFTRH86, which went in depth on a range of relevant issues currently facing financial markets:

Currency

Euro hype to the upside was expressed for years by touts who had presented a picture that it was just the big, bad USA alone that had major problems. All along as a public writer and then in NFTRH I had presented the euro as just another piece of paper with no real value backing it. So recent events are somewhat refreshing from the standpoint of the analysis, which sees major currencies in a race to the bottom [of the barrel].

It appears that the mania toward the opposite pole from over-bullish has gone too far however, and the euro can rally at any time, possibly providing a good relief story for the broad market to pin its ‘hope’ on once again. Similarly, the US dollar has expressed itself in ‘too far, too fast’ fashion amid the euro hype.

The euro just made a weekly close above important support while Uncle Buck remains below the highs last seen during the worst parts of Armageddon ’08. Again, this is a picture of potential short-term relief for many markets, first and foremost obviously, the euro. Longer term, these two debt backed basket cases are featured players in the race to the bottom in the currency world. All major currencies are contestants in this race by the way; at least all major paper currencies. That is how pervasive the ‘debt as economic fuel’ ethic of the current global economic system has become.

While on the subject of currencies, let’s have a look at the progress of gold as measured in a few of them by way of our Gold-Dow, Gold-Currencies ratio chart. The breakout in Gold-Dow from its Hope ’09 consolidation is very early in its progress. While there can be some post-breakout chop and grind, the risk vs. reward in gold vs. Dow is favorable.

In the currency panels we see gold correcting from over bought in British Pounds and euros after having achieved the rough upside targets of the Cup ‘n Handle patterns. Further upside is projected after some corrective consolidation. Gold in Canada dollars breaks out from the handle but hits resistance at the rim of the cup. It looks to go higher after dealing with this resistance. Gold-Aussie dollar was noted previously as not being a cup due to very low right side, yet was bullish above support. This expressed well in a strong rise up toward resistance.

We are in the age of natural economic contraction being fought by policy makers in the only way they seem to know; leveraging confidence in their respective currencies into debt creation in a massive, world-wide funding scheme. How long can this work? Perhaps longer than you or I could hold out if we take a strong, active stance against it.

The last year of euphoric bullish activity tells us something, and that is that the masses are not yet ready to accept that the Fed, Treasury and their counterparts around the world cannot ultimately control financial events. So by definition, a confidence scheme runs as long as its one underpinning – confidence – remains intact.

Biiwii.com
Biiwii.blogspot.com
Notes From the Rabbit Hole

This essay is based on the Premium Update posted on May 21st, 2010

Countries bailed out the banks. Now who is left to bail out the countries? While the decline in the euro appears to be very close to being over (as explained in the following part of the update), the fundamental situation of the Eurozone still appears to be one of the most popular topics these days, so the first part of this week’s update will be dedicated to this particular part of the world.

All that the European Union’s unprecedented package of almost $1 trillion did is buy Europe time. The underlying problem still exists.

David Marsh, author of “The Euro: The Politics of the New Global Currency,” put it best. He wrote in a New York Times column:

“The dream of monetary union across Europe has turned into a nightmare. Led by France and Germany, European countries have decided to spend colossal sums of taxpayers’ money they cannot afford to heal mounting internal disparities they cannot conceal to shore up an edifice many believe cannot stand.”

The mountain of debt that shook the foundations of some of the world’s biggest banks and drove the international financial system to the brink of disaster has shifted. Now that some sovereign countries are threatened by insolvency it is more expensive to buy insurance against national default than it is to insure against corporate failure.

Deficit spending, rapid money supply growth and negative real interest rates (inflation rate higher than nominal interest rate) are a good recipe for higher gold prices.  Right now we have all three ingredients, plus political risk, in what has become the “new normal.”

Ten years ago $1,000 bought nearly four ounces of gold. Today $1,000 won’t even get you a single ounce. That works out of a 78 percent fall in the value of the dollar in the past decade. In Abu Dhabi they have taken this to heart and the United Arab Emirates press reported this week that a gold bar vending machine, called the “Gold To Go”, has been installed in the Emirates Palace Hotel. It dispenses bars in denominations of one, five and ten grams and one-ounce, along with different gold coin ranges including the Canadian Maple Leaf and the South African Krugerrand. In case you were wondering, it is “self-guarding” and shuts down if anything appears to be untoward.

To see if it’s worth our while to make our way to the “Gold to Go” vending machine, let’s begin this week’s technical part with the analysis of the Euro Index (charts courtesy by http://stockcharts.com.)

Although at first glance, the chart may be unclear, let us emphasize that the solid lines are most important, sending clearer signals as compared to the dashed lines, which are less likely to be valid. Today we see the euro at a very strong support level. The decline recently has been very sharp and indications are today that it is extremely oversold. What this means to the USD is that the rally we have seen of late may be ending and a decline in the USD likely.

The RSI on the above euro chart has been extremely low, which is a contrarian bullish signal. The RSI is at a level lower than it has been in 10 years. It is lower than the’00 bottom, the ’05 low following a sharp decline and also lower than what we saw in ’08 after a similar sharp decline.

What this suggests for the euro is that lower prices are unlikely in the near-term. The euro is also at a very strong support level created by a long-term support line, which also used to prove as a resistance in the past. This is one of the points that leads us to believe that the euro is not likely to decline further. It is also close to a previous bottom and close to the 50% retracement level of the full ’00-‘08 rally. Prices often decline 38.2%, 50% or 61.8%. We have now seen the euro move to one of these levels, actually slightly above it, and it’s likely to hold the current decline for at least a while. However, if we do move lower, it’s still likely that we won’t go much lower, not below the area marked on the chart with the lower red ellipse (1.16 for the EUR/USD exchange rate).  However, it seems that the current support level is likely to hold. The question is if the following upswing would be caused by the increased trust in the euro (gold could decline), or the distrust in the dollar (gold would likely rally).

Again, this is one of the questions that is yet to be answered by the market itself in the following days, and that’s why – as mentioned earlier – it will be crucial to monitor the way in which PMs and PM stocks react to the next move in USD and EUR. As always, we will issue a Market Alert to our Subscribers should any major change develop.

Therefore, the signals coming from the euro at this time point to its price level being close to a bottom right now. Support levels appear to be strong, and it’s very unlikely that we will see further declines.

Moving on to the gold priced in currencies other than the U.S. Dollar (very close to the gold in euro chart), let’s take a look at the following picture.

From the non-USD perspective recall last week we suggested selling gold to Subscribers, who trade gold for currencies other than the U.S. Dollar. Those who did should be please with this action as gold from a non-USD perspective declined. In fact we just got a confirmation from the RSI indicator.

What is important here for the U.S. Investors is that this top does not have to coincide with a top in gold from the USD perspective.

In the previous Premium Update, we wrote the following:

Please take a look at the red rectangle on the above chart, as we may see similar performance in the following days. A decline in the USD could easily cause the price of gold to increase (in USD terms) but at the same time it could have no effect on the price of gold in other currencies, for instance in euro.

The above paragraph is up-to-date also today.

We don’t want to make an impression that we are gold perma-bulls and we never suggest getting out of one’s positions. To the contrary – we have successfully done so numerous times in the past, but the key point is always making sure that the rules, on which particular suggestions are based, are sound. By using this approach one will still not be able to be correct each and every time (simply because it’s impossible, and that’s why we have always suggested diversification of strategies), but it will ensure that huge profits are to be made over time.

What’s important here is that the USD and general stock market appear close to providing bullish signals for the PM sector. The USD in a decline along with the general stock market on the rise would be a strong bullish factor for the PM market.

It’s important to look at that way, in which PMs respond to the USD and general stock market. Trending upwards with high volume is a sure sign of strength.

Summing up, the indications are that the gold rally may continue on for a bit longer, but not necessarily from the non-USD perspective.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you’ll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It’s free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski

Editor

www.SunshineProfits.com

* * * * *

Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

Sunshine Profits provides professional support for precious metals Investors and Traders.

Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free weekly trial to see if the Premium Service meets your expectations.

All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Here is an NFTRH chart that was used to support a bullish stance in gold vs. all the paper garbage many weeks ago when there still seemed to be some doubt as to whether the monetary metal was going to assert itself sooner rather than later.

Gold in Aussie, Canada and Yen are joining the gold explosion in BP’s and Euros. US Dollar? Ha ha ha… don’t make me laugh.

Protect yourself from global monetarists who pretend to be in control.

Source: http://biiwii.blogspot.com/

Since early 2009 we’ve written about the super-bullish long-term cup and handle pattern in Gold. It dates back to 1980 and has a logarithmic target of about $2,100. We noted that previous cup and handle patterns in Gold all reached their logarithmic target¹. We expect that this move to $2,100 will be the recognition move that awakens the masses to the Gold bull market and the reality of severe inflation in the near future.

Speaking of the near future, the relative strength of Gold in the face of a strong US dollar (or weak Euro) is one big hint that this recognition move is around the corner. We’ve noted this before and it is important to explain to new readers. Gold priced in foreign currencies has been leading Gold in US$ terms. It is true for the entire bull market and is quite evident in just the past few years.

In the chart below we use the foreign currency ETF (UDN) to show Gold against currencies ex the US Dollar. The lower half shows Gold in US Dollars. Note how Gold/UDN is breaking away to new highs. That chart is so strong that it barely had time for even a small correction. Since Gold/UDN has been leading Gold reliably, this is an indication of what is eventually coming in the US Dollar price of Gold.

Nowhere Close to a Bubble

As Gold pierces $1200 and makes a new high, surely we will hear a new round of calls that Gold is in a bubble or it is a crowded trade. Be sure to avoid this unsubstantiated nonsense, as it will only serve to waste your time and inevitably reduce your net worth. Let me provide you with just a few pieces of information, which refute this baseless claim.

First, did you know that as of a few months ago, Gold equities and ETF’s only accounted for 0.7% of all managed assets in the world³! Can you imagine how high precious metals could rise, if everyone in the world just put 2% of their assets in this sector? What if it was 5% or 10%?

Second, Jim Rogers recently spoke at a conference with, in his words, 300 big-time money managers. Apparently 76% of them had never owned Gold!

Third, superstar fund manager John Paulson of subprime fame has had great difficulty raising money for his Gold fund⁴. Even one of the top fund managers can’t even convince people to get aboard the Gold train.

Finally, consider public opinion on Gold, courtesy of sentimentrader.com. In the past, public opinion followed Gold higher. Yet, since the end of 2008, public opinion has stayed in a range, while Gold has climbed about $300/oz. The public hasn’t budged despite the historic breakout and holding of $1000/oz level.

Policy Makers are Shooting Blanks

Mainstream and amateur analysts will make the claims that the Fed will tighten or that the government will get serious about its troubling finances. There is almost nothing the authorities can do to stop the coming inflation and the roaring bull market in Gold and Silver.

First and most importantly, because of the overall debt level, which is massive compared to 1980, the US cannot afford to let interest rates rise. If interest rates rise, the market will only lose greater and greater confidence in the US as the interest burden will accelerate thereby hurting the economy’s ability to grow and hastening the threat of bankruptcy. However, if interest rates remain low, speculation in hard assets will become rampant as these markets continue to rise, inflation ticks up and purchasing power declines.

Second, the Fed would have difficulty trying to tighten the money supply. Remember that to do this, the Fed would need to sell assets into the market. Remember, the Fed’s balance sheet consists of garbage assets that the Fed overpaid for. Yes they could raise interest rates but then how would the banks survive? They wouldn’t be able to borrow at 0.25% and repair their balance sheets. If the Fed would raise rates above the level of inflation, it would certainly end up threatening the financial system.

Moreover, as we’ve noted again and again, severe inflation results from a loss of confidence in a government’s ability to meet its debts. This manifests in a falling bond market, rising interest rates and currency weakness. Debt crisis’ go hand in hand with currency crises. Hence, we see Gold breaking out against numerous currencies even though “the banks aren’t lending” and “velocity is falling.”

The last line of defense is the Treasury market. If and when interest rates breakout to the upside, the authorities will effectively lose both control and power. At that point, the inflation genie will be out of the bottle. The action in Gold is already hinting at that outcome.

Conclusion

Even though Gold has risen nine years in a row, it is nowhere near a bubble. Just take a look at this chart courtesy of Frank Holmes. It compares Gold’s current bull market with its bull market in the 1970s.

Note that Gold rose about six-fold the first eight years into the bull market (it began in 1970). Ultimately it rose 25-fold. The Nasdaq from 1982 to 1992 advanced about four fold. Ultimately it rose 29-fold. The Nikkei advanced less than three fold from 1970 to 1978. From 1970 to 1990 it gained 19-fold. Gold is nine years into its bull market and has advanced less than five fold. See a pattern here?

If you’d like professional assistance riding the coming acceleration and eventual mania in the Gold and Silver market, then visit our website and consider a free 14-day trial to our premium newsletter.

Jordan Roy-Byrne, CMT

Jordan@TheDailyGold.com

Footnotes:

1) http://thedailygold.com/chartstechnicals/gold-cup-and-handles/?p=3117/

2) http://wallstcheatsheet.com/trading-markets/gold-in-euros-is-about-to-go-parabolic/?p=6862/

3) http://thedailygold.com/chartstechnicals/gold-is-0-7-of-global-managed-assets/?p=887/

4)http://online.wsj.com/article/SB10001424052748703615904575053793439062452.html

This chart below from http://www.kitco.com/, which shows the trading action gold vs. major global currencies over the last 24 hours:

“If you have $100 today, you buy that much less in terms of a basket of goods and services then you did ten years ago – paper money has already lost a lot of value and in my view it will continue to lose value. The price of gold will adjust on the upside according to the loss of the purchasing power of money…If someone is rich they should buy a ton every month.”

Here is the link to the interview – it’s brief and well worth reading:  Faber on Gold, the Fed

If I were the U.S. policy-makers sitting in Congress, the Fed and the White House, I’d be careful about asking for whom the bell is tolling – it’s not Greece, Europe or Goldman Sachs…

This essay is based on the Premium Update posted on March 12th, 2010

In our previous essay we mentioned that although it was not clearly visible in the past weeks, looking at the charts with the RSI and stochastic readings in mind, silver’s historical cyclical tendencies point to a downturn. This decline could be easily triggered by a downturn on the general stock market.

However, the main stock indices did not move lower recently – instead they moved above their January 2010 high. Please note that the breakout has not been confirmed by all indices, so the risk of a downturn is still not low at this point.

Given the high correlation between stocks and the PM sector, this is generally a bullish factor, but caution is necessary in the short run – especially given the high level of similarity between the situation in the gold market in August 2009 and the one that we have today. Let’s take a look at the long-term chart (charts courtesy of http://stockcharts.com) for details.

In the previous Premium Update we wrote the following:

(…) the situation on the gold market is still self-similar also in the short run. It appears that the RSI Indicator moved has formed a high around the 60 level, just like it was the case in early August 2009, after which gold prices moved lower for about 2 weeks. Since the current move is still very similar to what we’ve seen in the middle of 2009, we might see some kind of consolidation here – perhaps 2-3 weeks of lower prices.

This is precisely what we’ve seen this week – gold moved lower along with the RSI and Stochastic indicators. Please note that we’ve mentioned 2-3 weeks of consolidation and so far we’ve seen only one week of the corrective action, which suggests that caution is still necessary. The bullish analogy is that when the previous correction (August 2009) was completed, gold surged very high. Still – as mentioned earlier – much depends on the general stock market.

The short-term chart provides us with details:

The red ellipses on the long- and short-term charts mark the self-similarity on the gold market, and the vertical dashed line shows where “we are today” if the situation is to repeat itself so closely as it was the case in the past several days. Please note that the analogy does not only cover the price itself, but it is also present in the RSI indicator, and – what is very interesting – gold’s performance relative to the U.S. Dollar (as seen on the last chart.) It currently suggests that the recent small rally was just a pause within the 2-3 week correction, and thus another small move lower is to be expected.

Please note that during the first half of August 2009, gold declined along with the U.S. Dollar, however once the negative correlation returned – in the second half of August – it was a sign that “something is in the works.” Soon after that we got a confirmation in the form of a big rally on strong volume, and the massive upleg begun. Taking the historical performance into account, once we see that the negative correlation between gold and the USD Index has returned we might consider it as a “get-ready-to-buy” signal.

Speaking of the U.S. Dollar, let’s take a look on the price of gold from the non-USD perspective. UDN is the symbol for PowerShares DB US Dollar Index Bearish Fund, which moves in the exact opposite direction to the USD Index. Since the USD Index is a weighted average of dollar’s currency exchange rates with world’s most important currencies, the gold: UDN ratio means the value of gold priced in “other currencies.”

The above chart is generally bullish in the long-term, as the trend remains up, but it does not provide us with a specific trading signal at this point. Still, it shows that the price of gold is not at a support level at this point. This means that a move lower from here is possible.

Summing up, based on how gold prices have behaved, as measured by the Gold ETF (GLD), it points to a further pullback after which PMs are likely to rally strongly. During the similar situation in the past the stochastic, RSI and price were all aligned this way the prices retreated back to make another short-term bottom before returning back to its uptrend. Still, much depends on how the situation resolves on the general stock market. We will continue to monitor the situation and report to our Subscribers you as soon as we spot anything that would invalidate points made above.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you’ll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It’s free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski

Editor

www.SunshineProfits.com

* * * * *

Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

Sunshine Profits provides professional support for precious metals Investors and Traders.

Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free weekly trial to see if the Premium Service meets your expectations.

All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

This essay is based on the Premium Update posted on February 26th, 2010

We’ve started our previous essay, by describing several interesting facts about the U.S. Dollar. We wrote the following:

We’ve recently read something (http://www.lewrockwell.com/margolis/margolis179.html) that can elucidate the enormous, almost incomprehensible, size of the U.S. government debt. The numbers are so huge that it is difficult for most people to get a handle them.

If you had spend $1 million each day from the time of the establishment of the ancient city of Rome-about 2,700 years ago-until today, you would have accumulated about $1 trillion in debt. But hold on. You would have to double that figure to get to the $2 trillion in foreign debt that must be repaid or refinanced each year by the U.S. government, a feat accomplished in only a few short years.

It doesn’t take a genius in economics to understand that when you print ever-increasing supply of fiat currency, it will inevitably lose its value.

Since fundamentals are one thing, and the short-term situation is quite a different thing (people, and thus markets that they create tend to act emotionally in the short-term), we decided to also provide you with the analysis of USD charts (courtesy of http://stockcharts.com.) Let’s begin with the long-term chart.

The long-term USD Index chart didn’t change much since the previous week. Back then we wrote the following:

Silver and gold managed to rise without the positive influence from the dollar, which is generally a bullish sign. Moreover, it suggests that PMs may move higher even if the USD Index rallies as well. Just a few days of data are not enough to get overly excited about this phenomenon (that’s why our Correlation Matrix doesn’t reflect that), but it serves as a subtle clue that if we saw another upleg in the USD Index we would not need to be very afraid that PMs would tumble dramatically.

PMs continued to show strength despite the fact that USD Index did not tumble. This is positive for the precious metals, especially that this phenomenon has been visible for a few weeks now.

Since the correlation between USD Index and the precious metals market has been decreasing lately, further strength in the U.S. Dollar does not have to automatically translate into lower prices of gold and silver.

Generally, if PMs are able to rise even along with higher values of the USD Index, it usually means that the sentiment is very positive for metals, and once USD finally declines, PMs are to soar.

This time, however, we need to consider the fact that gold is trading very closely with the main stock indices, which were moving higher during the past several days.

The analysis of volume (of the UUP ETF which is a proxy for the USD Index) confirms the abovementioned point.

The USD Index crawls slowly higher despite lower volume, which is a bearish sign for the U.S. Dollar, and bullish for the precious metals (after all, PMs are priced in dollars.),

Let’s take a look at the short-term chart for more details.

The graph above clearly shows the close relationship between the USD and precious metals. However, recent blows to the European economy (Greece) have created some uncertainties to their unusual coupling, because of the structure of the USD Index. After all, this index is a trade-weighted average of 6 currency exchange rates, and the weight for the Euro is 57.6%.

Should the cyclicality present on this market once again successfully provide us with a turning point, we might see it around the second week of March.

Moving on to the analysis of the gold market, this time I would like to provide you with the analysis of gold from the non-USD perspective. The following part of the update is in fact a follow-up of the December 18 Premium Update, in which we also covered the following chart.

In December we wrote the following:

UDN is the symbol for PowerShares DB US Dollar Index Bearish Fund, which moves in the exact opposite direction to the USD Index. Since the USD Index is a weighted average of dollar’s currency exchange rates with world’s most important currencies, the gold: UDN ratio means the value of gold priced in “other currencies”.

From the average non-USD perspective, gold appears to be forming the “handle” of the cup-and-handle pattern. This is a bullish formation, meaning that the following move could take gold to new highs. The trend remains up, but the correction may not be over yet.

The corrective phase was not over in December, but according to the points made above, it may be over or be very close to its end.

Quoting from the December issue:

In 2007, gold had needed to correct 50% of the first stage of the substantial rally, before the move was resumed. It also moved below the 50-day moving average, which corresponded to the 38.2% Fibonacci retracement level. We have a very similar situation today – also confirmed by the Relative Strength Index. Consequently, gold may need to move lower – below the 38.2% Fibonacci retracement level, 50-day moving average, and stop at the blue rising trend line / 50% retracement level. I have marked the latter with the red ellipse.

This is exactly what we’ve seen in the past several weeks. Currently, the RSI indicator on above chart is not even close to being overbought. Summing up, it looks like the handle is close to being complete and the next big move up may begin soon – naturally, given that the general stock market doesn’t drag it down.

Summing up, from the long-term point of view, the situation stays bullish, and gold chart in currencies other than the U.S. Dollar confirms it.

The situation in the USD Index market appears bearish, but it has not been the main driver of the PM prices lately. It’s been the general stock market that used to drive gold and silver prices lately, which means that the situation is now less than perfectly bullish, especially in the short term. Our short-term analysis is available to our Subscribers in the March 3rd Market Alert.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you’ll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It’s free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski

Editor

www.SunshineProfits.com

* * * * *

Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

Sunshine Profits provides professional support for precious metals Investors and Traders.

Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free weekly trial to see if the Premium Service meets your expectations.

All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.