| |
| Gold and Crude Oil Will Exchange Bullish Positions |
|
|
“Crude oil rallies June through September. Gold corrects and sells during same cycle. Crude corrected on supply news, no storms and temporary peace in Lebanon. Gold is ready for bullish moves with silver in fall cycles.” –Traderrog
October Weekly Crude Oil Futures are Settling for New Rally. Crude
Needs Market Moving News to Continue Rally Efforts as Cycle End is Near.
December Gold Weekly Futures Finish Correction. Fall Rally is next with $714 next resistance. Following Resistance is $750-$760-$850-$873.
GDM Amex Gold Miner’s Index on 9-1-06 Closing
The GDM is a relatively new index but has been calculated backwards several years to show us a true picture. Notice the standard cup and handle pattern beginning in 1996 and concluding with the handle in 2004. Note also the bullish double bottom indicator with one bottom in 2004 and one in 2005. This was telling us bull market ahead and was confirmed as the index doubled from mid-2005 through mid 2006 gaining +100%. When price topped out at 1,200, the standard A-B-C correction followed. Now we are trending into the fall bullish cycle in a new set of five waves higher. Precious metals stocks have been moving upward ahead of the physical metals but this will change soon as futures rally. We expect the 2007 high on this index to be 1771.
Gold Supplies Lower for 2006
Gold production is moving from a small 2005 surplus to negative supply for 2006. The world’s largest gold mines in Indonesia and Peru are expecting to produce less bullion per planned forecasts. Our gold and silver charts are all pointing to a positive breakout for the metals and stocks. Silver has been particularly strong with a major silver stock breaking through new upper resistance last week as silver prices rose over $13.
We are fed a constant stream of news regarding the global central banks buying and selling gold. Several nations issued statements they intend to add more to existing gold reserves. We reported last week those central banks authorized by agreement to sell more gold are either selling tiny bits or stalling. The Central Bank of Germany holds the world’s second largest bullion bank supply according to published records. Observers and politicians were wondering out loud last week about selling some German gold to pay down debt. This was met with a loud no from those in charge.
For awhile it seemed gold had decoupled from the U. S. Dollar and we reported this more than once. However, in the last 60 days gold has again found its position trading inversely with the dollar. United States interest rates paused last month as we had forecast. With the election in November, the party in charge will move forward with a full court press doing everything possible to ship-shape news perfecting appearances all is well. This could include more mystical jobs numbers, interest rate cuts before the election, spinning-up positive Middle Eastern War news, and spending tax-payers money more freely proclaiming positive administration news for re-election. The Detroit News reported today several incumbent and new politicians are distancing themselves from the President and some of his policies. We are expecting politically induced market distractions this fall that bode well for precious metals.
In reality, we have stagflation with the worst of both worlds; higher inflation in food and energy and deflation in pricing power. Sales for corporations and the retail sector appear weaker. August pumped retail a little which we attribute to back-to-school-spending for kids’ needs. A recession will be officially apparent in late 2006 or early 2007 as genuine numbers can no longer be hidden. The American housing industry is now in a free-fall.
The dollar will become weaker and interest rates lowered to contain deflation. Credit is advanced in every way possible to keep the game afloat. Pushing on a loose easy credit string never works when consumers are tapped out and refuse to buy. Since the enormous bond market (70 times larger than stock markets) will immediately react to this easy money, there is big trouble ahead in bonds.
From May to current date, dollar formed a diamond chart pattern which is very negative. N ote the lower closings on the last two weekly bars in this September on U. S. Dollar Weekly Futures Chart. When 83.10 is broken we sink to 80.00.
That is our last chance main support before serious trouble in this market.
Futures trading contracts show trends and measure amounts or percentages in these trades either up or down. The U.S. Dollar is sinking with September at 84.89, December 84.53, March ’07 84.18 and June ’07 83.84. Lower dollar prices mean higher gold prices. The dollar on an average negative day can sell down ½ point. On a really bad day the dollar can sink 3/4ths to 1 ¼ points down. Watch the relationship between the dollar and gold prices. Also observe as the Euro rises when the dollar sinks. All of these relationships help us understand gold’s direction and to what degree price moves.
Stocks Markets are Weaker
Crude oil is stuck in the middle of these other markets and is being pulled several ways at once. Oil prices will rise on shortages, perceived or actual. They will rise on political instability in the main oil supply countries. They will rise on shortages of heating oil for this winter and shortages of aviation fuel or diesel for truckers. All of these are gold positive factors including hurricanes. However, the primary energy Achilles heel is lack of refinery capacity and America’s gasoline supply helplessness. USA imports of unleaded gasoline are growing. If the current pace continues, in less than five years 50% will be imported. If those gas laden boats stop shipping, America will stop functioning.
Oil supply is always a question mark but refining capacity is critical. Should refined gas arriving in tankers be curtailed or interrupted, several markets will go nuts. If gasoline becomes tight, crude oil and the rest of the energy sector will rally with gold and silver. Further, do not underestimate the power in distillates providing heating oil for the Northeastern United States. Jet fuel for airlines and diesel for transport is equally important. Mississippi River water is low from drought. Barge shipping weights are curtailed for lower water. Great Lakes shipping has the identical problem as lake water is four feet below normal. Railroads are short of enough track and rolling stock which tightens these transportation sources. These latter sources are the cheapest and they are cannot increase capacity while continuing to lose productive delivery.
Trader Tracks forecasts a selling stock market this fall but not a crash. Business is headed into a recession and will have a lousy 4h quarter. Recessions use less energy and transportation stocks are selling strongly. The great unknown energy wild card is the list of negative factors mentioned above. Even if we move to a slower economy this is not a guarantee energy prices will subside as even lesser demand can spike prices on other news or problems. Energy market shocks are bullish for gold.
After the usual September energy cycle is completed, that’s no guarantee prices will drop. If heating oil distributors see a shortage, all distillates will rise in price in spite of slower commercial business.
Gold: Heads We Win-Tails We Win
A key and critical point that we focus upon for gold and silver is we win either way. If business rallies unabated with rampant inflation, traders flock to precious metals preserving buying power. If a recession arrives or worse, we’ll see deflation coming faster, as gold and silver rally preserving value. Commercial and retail prices, dollars and bonds will take a recessionary dive in unison.
Since the fragile financial condition of the United States is exceedingly worse than most other western nations, our currency will take the hardest hit. At that point crude oil may sell as demand is lessened. On the other hand, holders of gold and silver stocks and their physical metals triumph beyond expectations. Trader Tracks Newsletter provides swing trades and investment advice on precious metals, energy and their stocks. -Traderrog
|
