GOLD: CLOSE 4/2705: CASH GOLD: 433.00; JUNE GOLD 434.10
1. Please review my posting of April 13 regarding gold since it still holds true today.
2. On April 14th, cash gold went to a low of 421.70, in the upper range of the 415.00 to 422.00 mentioned in my posting of 4/13.
3. Since then, it went pretty much straight up to a high of 438.20 basis cash ( 439.1 basis June ) on April 26th.
4. At that point, on the daily momentum charts it was seriously overbought ( as was silver ) and had reached momentum points from which it usually gets turned back and I was very interested to see what kind of a correction would be coming up. As you well know, when the bull gets going, overbought can last for quite some time, even on the daily charts, with minor corrections, until the weekly gets also seriously overbought. As of tonight, the daily is still in overbought territory but all the other momentum periods are in neutral to oversold. What this means in the short term is that we may correct further down but I wouldn't expect a test of the recent lows of April 14th for a number of reasons which I will mention below.
5. I view the move from the April 14 low to the April 26 high as constructive, i.e. positive, which means that we should be correcting that move and then move higher.
6. The 50DMA on cash gold is 432.04 and the 200DMA 423.87, so we are sitting above both for now and I suspect the 200DMA +or- a few dollars would provide very strong support. This is all a technical plus.
7. I will write about the cash dollar index below but let me say, as it pertains to gold, that just as the daily momentums for gold were significantly in the overbought category yesterday, the daily cash dollar index momentums were seriously oversold and thus the pop up in this morning's market for the dollar index. However, my analysis is that the cash dollar index has relatively little upside and is running out of time ( don't forget the dollar has been correcting for almost 4 months now ) to put on a show since with every passing day, as explained in the comments above, the twin deficits keep rising ever higher. In my opnion, we are getting ever closer to the tipping point.
8. As mentioned in my posting of April 11, the demand for gold out of China is going to surpass anyone's expectations. On that score, it was reported in the People's daily, on April 22: " The China Gold Association ( CGA ) announced recently in Shanghai that the vocation of gold investment analyst had passed examination of the Ministry of Labor and Social Security and will become an authorized job shortly." It was also stated that: " About 700,000 people are working in approximately 10,000 gold ornaments shops across the country, constituting another footnote for the rapid growth of the industry."
9. The US stock market is correcting a previous downleg and will soon break its recent lows on the way to 1124 to 1127 basis cash S&P. As the market breaks down once more, this will be a bullish event for gold as the dollar will be under pressure and it will become ever clearer, even to the most naive, that the federal deficit is going to surpass last years by a good margin as receipts to the US Treasury drop off like a lead balloon.
10. In conclusion, the gold bull market is intact and is destined for much higher prices. My sense is that all major economic indicators to be released forthwith will show greater weakness than expectations, bearish for the dollar, bullish for gold and silver. Friday we get the Chicago PMI, and next week will be a barn burner: Monday, ISM Manufacturing Index, Tuesday the Fed meeting on interest rates, and Friday the Unemployment Report.
SILVER: CLOSE 4/27/05 CASH SILVER: 7.14; MAY SILVER: 7.135; ALL PRICES BELOW BASIS CASH SILVER
1. As I mentioned above, the daily momentums of silver were seriously overbought in the last few days and a correction was to be expected. This happened just as the option expiry for May silver occurred on April 26 and the First Notice Day is this Friday for May silver - we all know what usually happens during this time period.
2. As I have mentioned on numerous occasions, silver is not mentioned once on either Bloomberg or CNBC - it just doesn't exist. I view this as extremely bullish for this previous metal.
3. The 50DMA stands at 7.235 and the 200DMA at 6.97 so silver is right in the middle of these moving averages.
4. I have two technical analysis on silver:
i. One is extremely bullish after we relieve this daily overbought momentum condition.
ii. The other is also bullish but allows for more time before we launch upwards.
In both cases, we are going to 9.00 to 9.12 minimum.
5. I'm a buyer should silver drop between 6.80 tol 7.04.
6. A look at the weekly chart shows a huge wedge formation since March 2004 which I expect will be resolved by a take out to the upside.
It's getting quite late once more and I like to be up early for the european markets. You already have an idea of my view of the stock market and the cash dollar index which I referred to above. I will discuss both tomorrow ( I promise ) in greater detail along with crude oil. All the pieces are falling into place.To those who have emailed me, I will contact you shortly.
Wishing you successful investing,
Michel de Chabert-Ostland
