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Precious Metals Fundamentally Sound Despite Market Havoc
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Our recent waterfall selling event in futures and commodities created a major dust-up as prominent analysts proclaimed gold is dead and crude oil is headed for $60. Somebody has to be on the other side of the trade so let’s set aside the histrionics and take a cold, hard look at reality.
When we do work on markets to figure where we’ve been and where we go next, fundamentals are first in line for strategizing. After this work is settled, we go backwards from the longest, many years’ monthly charts reversing to weeklies and dailies. For trade entry and exit we check all the faster ones including real time, 1, 5, 15 minute and those important intraday patterns.
Weeklies are used for spotting entry and exit price positions for one complete trade and for identifying where to install risk stops. Most importantly, we know going-in what to do next if a trade wins or fails. As gold and silver trade ever faster with wider daily price ranges and volatility, there is little time in the midst of this excitement to make critical decisions. Have a preplanned trade and stick to your plan.
I have to be particularly careful as we have a large stable of traders busy with my ideas using real money. This is not a game. This is a business. In our view, we do not like to short anything in a longer term bull market but this personal rule may be altered slightly in the future. We do not want to arbitrarily reject an obvious trade just because it temporarily goes against our favorite markets.
We attribute most of our trading success in futures and commodities to technical analysis. The old related Chicago joke goes something like this: Two traders in the pits were arguing the merits of using pure fundamentals versus technical analysis to trade. The younger trader using pure tech work finally said in exasperation, "If you think my theories will not work I would like to invite you to lunch at my waterfront mansion in Lake Forest. By the way, I can have my chauffer pick you up in one of my several Mercedes automobiles. Would you prefer the 600 limousine or, the 600SL roadster?” Since the kid was barely 30 years of age this settled that argument.
We cite this joke as we know from experience we personally could not be successful in this work based only upon fundamentals. However, do not disparage others using them as they provide the larger view framework for where we belong in our choice of markets. For now, fundamentally, we obviously know we shouldn’t be fiddling with financial’s considering that death knell is currently ringing world-wide. Fundamentals are very important for all trading and investing. Do not lose sight of this fact.
Technical’s confirmed our trades. Now newer fundamentals do, too.
Our work takes us out many months in advance of some trades as we use spreads, futures and options. To discover our select positions we confirm by using cycles, history, seasonals, and a variety of other tools appropriate for each special trading market. To make these assumptions we have to be fundamentally confident of the larger, long view in a markets’ direction.
When we’re on the receiving end of a big smash like the past few weeks, it tends to rattle your confidence despite mountains of tech work saying otherwise. We, like others in the precious metals industry, have recently taken some hard licks. However, our technicals told us we were correct in the long and intermediate view, and most importantly, while our trades’ values diminished, we didn’t get knocked out or stopped out of any of them. This means temporary losses were on paper and we have adequate time to recover and earn our projections. And, just today, a larger grouping of international, institutional essays and reports confirm on-going fundamentals supporting our positions.
We’re constantly searching for scraps of information confirming and re-confirming our technicals provided by quality fundamental research. Today, I am happy to report, we got several new ones and I am a happy camper.
On this day of August 20, 2008, we feel fortunate to have gathered and read enough classy confirmations reinforcing our trading positions from this date into April, 2009. No one can predict or forecast those Outliers or Black Swans conceivably arriving with a rush, wrecking the big picture. However, life is not perfect and we have to expect a few losers periodically as long as they are controlled and small in stature. The only bad loss is big one. We are diligent to prevent those.
Here is the good news for precious metals traders
Gold found a very strong supportive base between 780 and 820. This $800 bottom is the spring board for our next rally. Could we get whacked again by cartel short sellers? Yes, we can but several factors indicate those problems are probably over for now.
The U.S. Dollar had a nice rally, which of course was heralded by the anti-gold crowd. The truth is the dollar stinks but the Euro just happens to stink more for the time being. The dollar didn’t rise, it was pushed up by its inverse falling Euro. The Euro will probably sell some more as Europe’s problems increase, but Mr. Dollar’s rally is over as long it stays under 78.00 on the index. We think it will and then follow with a pivot reverse, selling gradually after weeks of sideways choppy trading.
The main dollar trend is down as Chopper Ben ran out of meaningful rate cuts. All he can do is print more money. This of course sinks the dollar, creates more inflation and makes things worse.
This financial crisis is on-going as barely a small portion has been addressed. As the mess grows and the world sinks deeper into this morass, the smarter crowd, growing larger by the day, is running to buy gold and silver and trade it. This is the reason bullion dealers are short on product for resale.
Shares, at least those not in the PM sector, are rapidly becoming toxic. We see those fund managers in a strain for gain squirm around on daily tout TV as announcers ask tougher questions as to where to trade with new cash. They are treading water at best and at worst several slide toward wipe-out city.
The FDIC does not begin to have enough insurance money in its massive fund to cover the hundreds of banks going bust on specious real estate and construction loans. If the public at large was aware how little they have in reserve and how many banks face their imminent demise, bank runs would be massive.
The F&F Fannie and Freddie debacle is now on the table and foreign buyers are saying no to new stock buys for this trash. The size of this debt is truly legendary. The Federal Reserve and other governmental sectors prematurely shot their mouths off saying they are going to cover. Now, we are certain they regret those comments. This one is the "Mother of All-Covers” causing untold public relations damage to US Government fiscal and management credibility. Prospective accidents looming for the banks, bonds, notes, bills and mortgage markets are beyond scary.
Regional banks, as we reported months ago, are toast carrying an overload of real estate and construction loans. We estimate between 5,000 and 10,000 banks and savings and loans will fail. Most could fail over the next 12-16 months. Watch September, notoriously the worst trading month for equities and credit. Considering the dimension of our problems, we could see a back-breaker next month. Unfortunately, that month is the peak of the hurricane season as well.
Banks of all stripes and sizes are borrowing to stay solvent, calling-in both good and bad loans, canceling lines of good credits and most of all tightening lending terms to the extreme. In many cases this prevents hope of expansion, preventing new growth so badly needed to keep our economy afloat.
We have inflation and deflation at the same time, which we call stagflation. Some dispute the name but there is no denying what’s happening in lending land. Food, energy, utilities and taxes are rising with abandon in an open-ended uncapped disaster. Governments from townships, counties, villages, states and the federal sector are all scrambling for cash as they stupidly hire more people and make no efforts to economize and cut waste. Meanwhile, those who really work for a living, or are unemployed must keep paying more from diminishing resources. We certainly hope we can get moved far away this year before our state tanks into fiscal obscurity on several fronts.
The final and most important failure to drive precious metals higher is the consumers’ failure. We’ve all seen housing markets crash and burn. The flames grow higher in this sector as analyst Pollyanna’s say the bottom is in and the end is near. The end is near all right but it’s not the ending they hope for.
This next and what we consider the most important consumer failures will be auto loans, credit cards, student loans, retail sales, municipal government bankruptcies, independent business-commercial loans, inventory loans on receivables, and total loss of any confidence giving people the will to expand commercialism. With no engine to pull the economy and no desire to expand and build, what’s next? Watch what happens when mammoth pension and health care plans self-destruct. They are funded with bad financial credits and sinking shares.
As unemployment screams higher our unofficial Michigan count is 17% and nationally it’s at 12% as pressures increase exponentially. Some states including ours are running out of unemployment benefits fund cash. Thousands have used-up their benefits and have nothing with which to get by. Next we’ll see an unprecedented crime wave. Previously law-abiding fathers will be committing robberies to get milk for crying babies.
We get all of this as inflation goes on an extended rampage later in 2008 and especially in 2009. Meanwhile, Washington and New York are oblivious, work very little and basically tell the public to "eat cake." Soon the chickens come home to roost in the guise of large, black, nasty vultures.
Crude oil and other energy sectors’ prices have based and entered new rallies. New England residents are primary users of heating oil for winter warmth. Yesterday, we forecast 2008-2009 heating oil February, 2009 futures to top out at $5.09. This is probably triple what homeowners were paying only a few years ago. This winter, modest income residents will be choosing between heat and food or medicine. The next bunch of newly elected stinkers in Congress will be getting an earful and then some. They deserve it for the damage, destruction and ruination their wrong-headed policies have caused throughout the land. Bush’s popularity rating is about 32%. Congress’ is only 16%. This tells the whole story.
In Summary
So you think gold and silver are going backwards? That we might possibly see $500-$600 gold? That we could see $7 silver? Are you kidding me? Precious metals and those “must have” household needs are where remaining cash goes next. Other optional choices are avoided. Our forecasts remain intact and we feel stronger than ever about our prognosis for gold and silver.
New reports are pouring in daily regarding shortages and unavailability of the precious metals’ supply. Better get your orders in, hunker down, dump the debt, and get ready for a less stressful 1950’s Ozzie and Harriett lifestyle.
As they say so often when lightening bolts hit us out of the blue; "This too shall pass."
Gold and silver traders, shares’ investors and those with enough foresight to prepare, will endure this mayhem without too much disruption and can in fact be handsomely rewarded.
Late Summer Buying Cycle Arrived August 18 As We Forecast
Watch for new rallies in most all commodities markets. Now it’s time to buy. Our late summer forecast has finished the haircut in precious metals. The only action to prevent selling is our stunningly time-worthy Plunge Protection Team who had multiple recent failures propping shares. Will they win during the fall push-‘em-up event? We think with all the other market dangers they will prop their little hearts out and not permit the Dow and S&P 500 to get out of control; but it will sell somewhat. In our newsletter, Trader Tracks, we provide weekly guidance and extra e-mail alerts to report our best new trades and offer suggestions for trade management. Visit our website at (webeatthestreet.com) for more information on our spectacular futures and commodities trading record.
Whatever you do, make a concerted effort to stay with the trend and hang onto your core holdings of preferred shares, cash, and coins. Physical gold should never be sold or, traded but rather accumulated steadily on a monthly savings plan and squirreled away. Should you be having difficulty buying physical metals on new orders, we suggest placing an order and being patient. Big traders are always ready to buy on the dips and normally never sell their gold and silver. You would be amazed how quickly your physical gold and silver will accumulate using this strategy. -Traderrog
Roger Wiegand
Editor Trader Tracks Newsletter
& The Rog Blog at webeatthestreet.com
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Roger Wiegand is Editor of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and longer term traditional stock shares, futures and commodities trading with specifics for individual trades. See webeatthestreet.com for more information
Contact Claudio Bassi, at Trader Tracks New York City publishing offices for a free 30-day trial subscription 718-457-1426 Monday through Friday, 9:00am to 5pm or, e-mail Claudio at cbassi@miningstocks.com
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