Market Wrap

Gold

Gold closed up $7.90 for the week to $652.00 (continuous contract) or +1.23%. It had a higher close the prior two days, and an intra-day/week high of $659.80 on Friday.

This indicates that as of now, rallies are being sold into, as gold moves from weak hands to stronger hands. Overhead supply/resistance remains - needing to be worked off, which is occurring. The process takes time. It does not happen overnight.

The next target is a close above $656.00, then the resistance zone from there to $675.00. From there the supply begins to lessen considerably.  

The price has traveled to the upper limit of the Bolinger Bands and back down to the lower limits. Presently it is approaching the mid-point. The upper band should act as resistance, and the lower band as support.

Different indicators on the chart are flashing positive, while others are flashing negative. It is a mixed bag as of now. Next week should decide the way to be taken.

Several sentiment indicators such as the put to call ratio, upside versus downside volume, and stochastic readings are showing oversold pessimism. From a contrarian viewpoint this is positive.

However, the indicators that are presently flashing negative readings should soon begin to turn up, as an increase would indicate further negative divergence and resulting price weakness.

Also, on the weekly chart that follows the daily chart, there are even more negative indicators. Both the lower Bollinger band AND the 65 ema are at the SAME price.

The POG recently hit its upper BB and then backed off. This kiss and run could mean a move to the lower BB may occur. It doesn’t have to, but it could.

Presently the POG just kissed its upper trend line and also backed off. Caution is warranted.

Silver/Gold Ratio

Silver has been out performing gold for some time now, as the chart below shows. The higher the number the stronger silver is. The lower the number the stronger gold is.

From Oct. of 2006, silver has had four “waves” up out performing gold. Overall the trend favored silver. Notice the three peaks at 0.02326, 0.02277, & 0.02311.

This area has acted as strong overhead resistance on three occasions now. Recently it kissed this level again and then fell quickly & sharply. Support was breached but price closed back above.

This support level must hold, as a breach would indicate further weakness in silver – at least compared to gold. Recall, however, that the weekly chart of gold showed several negative indicators.

Silver

The next chart of silver seems to indicate that a buying opportunity may be close at hand. As the chart shows, the last three times that RSI was near 30 (oversold), MACD & STO indicators were also oversold & the bottom of the BB’s were near. Is the same set-up occurring again??

Thus the signals are mixed. Guarded optimism with caution is warranted. 

The weekly silver chart shows many negative divergences. Caveat Emptor!

Now let’s see what the monthly chart of silver shows: another mixed bag??

Xau

The Xau closed the week out at 132.04, down -0.31 or -0.23%. It was not the low close of the week – that distinction went to Monday’s close of 129.28. The intra-week low was 128.83 and the intra-week high was 132.29.

Worthy of note is the Gold/Xau ratio is presently at 4.92.  Readings of 5 are very strong buy singles (marking bottoms). It’s possible that this ratio may go above 5, and if it does I’ll be in there buying. Gold = 650 and Xau = 132.04 = 4.92.

The chart below of the Xau shows the Xau/Gold ratio, which is at 0.20 = an extreme oversold reading consistent with past bottoms. It is simply the inverse of the above ratio. They both express the same relationship or ratio.

Also, note that the Xau did not better its Dec. 2006 high – thus putting in a lower high (so far). It also made a lower low than its Jan. 2007 low, but a higher low from its Oct. 2006 low.

Once again a mixed bag of signals, however, in a bull market one buys weakness and sells strength. The present signals show very oversold/weakness readings consistent with past bottoms.

Thus the weight of the evidence goes to the buy side. Unless the bull turns into a bear – the present level(s) warrant incremental accumulations of positions. It’s a bull market until it isn’t, and as of now – it is.

Hui Index

The Hui Index closed the week out up +4.95 points to 328.24 or +1.53%. It did not close at the high for the week – Thursday’s, Wednesday’s, and Tuesday’s closing prices were higher. The intra-week high was 336.15 made on Thursday.

This price action shows that overhead supply is prevalent, and that rallies are being sold into. Shares are moving from weak to stronger hands. 

The daily Hui chart below shows more strength than the Xau chart. The Hui closed up for the week, it has put in a series of higher lows, it is rising up off of oversold readings, and the only negative is that it has not bettered its Dec. 2006 high (at least not as of yet).

Higher lows are more important in sustaining a bull market. As long as higher lows are kept intact – higher highs eventually follow – until the bull turns to a bear. It’s a bull market until it isn’t, and as of now it is.

We have been, and will most likely continue, to incrementally add positions on weakness. See our gold portfolio where all buys and sells are:

Real trades - not theoretical wishful thinking

Hui Point & Figure

The below point and figure chart shows a bearish price objective of 268, after a low pole reversal on March 8, 2007. This is the traditional P&F chart. See the second chart below, which is a percentage P&F chart, which has a higher price objective.

Xau Point & Figure

The Xau point and figure chart also shows a bearish price objective of 110.00.

Summary

The stock market appears to have stopped falling and may be constructing a short term bottom. Most of the sentiment indicators are flashing oversold and pessimism abounds.
 
Call to put ratios are very high, as well as downside versus upside shares. Lowry’s figures hint at a short term rally. From an intermediate and longer term view a bear market may be about to resume this summer to fall.

The carry trades with the yen and Swiss franc are back in vogue. The world has returned to its comfortable position of asset bubbles and derivative extremes in paper fiat land.

The bond market is starting to show higher rates. Will they continue or is this just a blip to the upside? If they continue up real estate will take a much larger hit than it is already experiencing. Sub-prime lenders problems are spreading to others. The process is going to get worse before it gets better.

Commodity prices are varied – some are up and some are down, however, the CCI Index gives a much clearer view of the overall commodity market, which does not look bad at all. Energy has rallied but still remains in a downtrend.

Gold & silver took a hit along with the other markets in the carry trade debacle. They have since recovered some but still remain subdued. Sentiment indicators show pessimism, as rallies are sold into and product moves from weak to strong hands. The indicators were more negative than positive and hint that further downside action could occur.

The Hui Index is in better shape than the Xau Index. The indicators show a mixed bag – some are positive, while others are negative. Sentiment indicators are mostly positive; suggesting that a move up may soon follow. We are slowly accumulating selective shares on weakness.

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 that's a wrap.

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