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Let me make one thing clear. The long-term fundamentals for gold and silver remain extremely strong. I see no sign of this changing while Ben Bernanke is in charge of the Federal Reserve and our own glorious leaders run our Sceptr'd Isle.
Government monetary policy worldwide remains inflationary. Banks remain in crisis. The plane is still crashing. All that recent moves to pump yet more money into the world economy boil down to, is that the Captain has gone over the loudspeaker, said everything's going to be all right and had the hostesses serve some more drinks.
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Even so, the severity of last week's smackdown in the precious metals took me - and many others - by surprise. And you could be forgiven for asking if $1,000 marks the top for gold for now.
So does it?
As regular readers will know, I have been comparing the latest move in gold and silver prices, which began last August, to the move we saw in the nine months leading up to May 2006. One was a virtual mirror of the other, except for one thing: the junior miners haven't moved.
But the remarkable similarities meant I was expecting (and had been predicting) that some time this spring or early summer we would see a nasty correction like the one we had in May 2006, when we saw the biggest sell-off since 1980. But I wasn't expecting it just yet. I was expecting a more parabolic run up first.
So is the game over in the short term? Can we expect more violent moves to the downside?
Well, actually, I'm feeling rather bullish.
If this was an orchestrated move by those evil market manipulators trying to suppress the gold price (and mankind's freedom with it), I take my hat off them. They conducted it brilliantly. They didn't try to stop $1,000 gold with any real conviction. They let the bulls have their thousand dollar landmark. They let them go home, uncork the champagne and guzzle it over the weekend. The French authorities even extended the borders of the Champagneregion to aid the celebrations. The market had bought the Fed rumour of a full point cut. They then sold the heck out of the fact when the Fed actually only cut by three-quarters of a point.
It also gave all those futures traders with short positions on the COMEX an opportunity to close out their short positions without too much of a loss before options expiry this week.
Why gold looks oversold
But the thing is, they've oversold it. And now the technical set up looks rather good.
If you look at the chart below, you can see that a nice channel has developed from August 2007 to now. Gold retreated from the top of the channel, where it was overbought, to the bottom. But the lower part of the channel at just above $900 held.
For those technical traders that use them, you can also see that the RSI and MACD indicators, along the top and bottom of the chart, also suggest that gold is oversold and a buy here. And sure enough we're getting the bounce now.
I'd like to see this bounce take gold back to about $960-$970. Then I would like to see those lows just above $900 re-tested, perhaps even a couple of times. If they are re-tested and they hold, we will have a nice base around the $900 mark from which to make the next move upward.
If that channel doesn't hold, the next line of support is at $850.
More excitingly, there are signs that the junior miners are rallying. If you look at the chart below, which shows gold (purple line) vs the juniors (green line) vs the Dow Jones Financials (yellow line), you can see that the juniors have been trading as though they were financial stocks. If gold stays firm, and the overdue bear market rally in financials continues, that would be very bullish for the juniors.
I was asked to follow up on last week's piece on the subject of the Martin Armstrong March 22nd turn date. It's too early to say for sure, but it does look like we are enjoying the early stages of a bear market rally with the financials having bottomed on March 17-18, since when we've seen about a 10% move up. If this pans out, he was four days out. Given he made the prediction in 1999 or before, I think we can forgive him that. But I'll keep you updated.
Finally, on Monday April 28th at 6pm at the Allen and Overy Auditorium, London EC2, I will be speaking at a Socit Generale Seminar on the subject of commodities. Do come along I'd be very pleased to see some Money Morning readers in the audience.
Turning to the wider markets
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Economic worries return to Wall Street
An early triple-digit slump on Wall Street saw London's blue-chips end the day in the red. However, good news from Sainsbury's on sales growth helped the FTSE 100 end above intraday lows, down just 28 points at 5,660.
Elsewhere in Europe, the Paris CAC-40 closed 15 points lower, at 4,676. And in Frankfurt, the DAX-30 was 35 points lower, at 6,489, by the close.
On Wall Street, data showing falling business spending along with the possible collapse of the Clear Channel Communications buyout hurt investor sentiment and saw stocks fall for the first time in four days. The Dow Jones fell 109 points overall to end the day at 12,422. The S&P 500 closed 11 points lower, at 1,341. And the tech-rich Nasdaq was down 16 points at 2,324.
In Asia, the Nikkei had fallen 102 points to end today's session at 12,604. In Hong Kong, the Hang Seng was up 476 points, at 22,664.
Mortgage approvals down one-third
Crude oil futures were slightly lower this morning, at $105.79, following yesterday's rise of nearly $5. In London, Brent spot had risen to $105.50.
Spot gold hit a one-week high of $954.50 this morning. And silver rose to $18.46.
In the currency markets, the pound was trading at 2.0107 against the dollar and had risen to 1.2749 against the euro. And the dollar was at 0.6339 against the euro and 99.57 against the Japanese yen.
And in Londonthis morning, the British Bankers' Association reported that mortgage approvals were down 33% last month from a year earlier, as tighter credit conditions deterred buyers. Approvals for re-mortgaging had risen by 5.5%.
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Economic worries return to Wall Street
An early triple-digit slump on Wall Street saw London's blue-chips end the day in the red. However, good news from Sainsbury's on sales growth helped the FTSE 100 end above intraday lows, down just 28 points at 5,660.
Elsewhere in Europe, the Paris CAC-40 closed 15 points lower, at 4,676. And in Frankfurt, the DAX-30 was 35 points lower, at 6,489, by the close.
On Wall Street, data showing falling business spending along with the possible collapse of the Clear Channel Communications buyout hurt investor sentiment and saw stocks fall for the first time in four days. The Dow Jones fell 109 points overall to end the day at 12,422. The S&P 500 closed 11 points lower, at 1,341. And the tech-rich Nasdaq was down 16 points at 2,324.
In Asia, the Nikkei had fallen 102 points to end today's session at 12,604. In Hong Kong, the Hang Seng was up 476 points, at 22,664.
Mortgage approvals down one-third
Crude oil futures were slightly lower this morning, at $105.79, following yesterday's rise of nearly $5. In London, Brent spot had risen to $105.50.
Spot gold hit a one-week high of $954.50 this morning. And silver rose to $18.46.
In the currency markets, the pound was trading at 2.0107 against the dollar and had risen to 1.2749 against the euro. And the dollar was at 0.6339 against the euro and 99.57 against the Japanese yen.
And in Londonthis morning, the British Bankers' Association reported that mortgage approvals were down 33% last month from a year earlier, as tighter credit conditions deterred buyers. Approvals for re-mortgaging had risen by 5.5%.
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M&A feels the credit crunch
- In an uncertain market with less access to debt, M&A activity has hit its lowest levels since 2004. So why are advisory firms still hiring M&A bankers? For more from M&A expert Scott Moeller on the outlook for the market, read: M&A feels the credit crunch
How to make money from nuclear energy
- By commissioning 5 new nuclear reactors, Brown has finally given Britainhope of cheap fuel. Uranium prices have also dropped so is this the time to invest in the coming nuclear boom? To find out why Merryn Somerset Webb believes going nuclear makes economic sense but isn't necessarily a good idea for investors right now see: How to make money from nuclear energy
