Friday, December 30, 2005

GOLD AND SILVER REVIEW; Friday, December 30th, 2005 - Waltzek


First Edition

Friday, December 30th, 2005

By Chris G. Waltzek


Friday marked the close of another interesting week for precious metals, one of the hottest investment sectors. Before the holidays began, a Christmas rally rocketed the gold and silver bull market to multi-decade highs. Gold reached $540 and silver $9.20+. Yet the holiday cheer in precious metals was dulled by a market pause. Gold pulled back to the $500 level and silver fell to $8.50 just as Christmas approached.

Since the market correction, several jolly elves were seen buying gold and silver which helped firm the market this week. They filled their pockets with gold and silver at discounted prices, making their cheeks extra rosy this year. Gold closed at $515, up about $15 and silver at $8.80 a gain of around $.30, for the week.

In last weeks FSN, Weekly Radio Broadcast, financial analyst heavyweight, Jim Puplava, announced his firm contention that the precious metals market has recently entered the second wave up in a new bull market. Jim Puplava was a t.v. financial news anchor in the San Diego area and has been remarkably prescient in his market forecasts over the past several years: "gold should reach $1,000 and silver $50 in this second phase of the bull market in precious metals."

Similarly, market analyst, Marc Faber believes that gold will skyrocket to incredible heights, as reported this week in Barron's: "Hong Kong based fund manager Marc Faber believes that gold will reach $3,000 per ounce due to the US Government eventually defaulting on its debt."

Ned Schmidt of, The Value View Gold Report, concurs and insists that gold remains a very strong buy. His newsletter has been predicting $1,300 gold for some time and continues to hold to that price target: "Gold is regaining a leading role as a monetary store of faith as the Federal Reserve has demonstrated both an unwillingness and an inability to properly manage the U.S. economy. The world is shifting from the fiction of paper money to the reality of Gold. Government money is in general being divested. Given the U.S. Mortgage Debt Bubble and the Global Liquidity Bubble, $1300 Gold and a $3 Euro are likely. Schmidt goes on to say: "If the average ratio and today's value for the S&P 500 are used, $Gold should be at $1,533, or 204% above the current level."

Jim Sinclair, a veteran of the 1970's gold and silver bull market and brilliant independent trader-analyst, forecasted the recent gold ascent to $540 well in advance. Sinclair's latest prediction for the gold market:

"The gold price having moved over $529, regardless of the retreat, means to me that the next visitation will be at $750... Spectacular is defined at $750, sooner than even I suspected it might happen."

Mr. Sinclair backs up his convictions. He offered a guarantee to his readers who bought gold coins when gold was trading near $400 per ounce. Sinclair personally backed any losses that they might incur. Needless to say all of his readers who followed his advice have profits of more than 25% in less than one year.

Lars Lungren from Jim Sinclair's web site posted a forecast for silver this week of $15 by 2006 and $40+ in the next 2-3 years, as viewed in the chart below:

Even the most deluded, tea leaf reading technical analyst, such as myself, would conclude that the choppy market behavior in the silver chart indicates a huge move is brewing. Prices have been winding up for a significant move. In fact, in my October 27 article, I included the chart below, suggesting that a break-out was underway:

Right on cue, the market roared higher, breaking above the high printed almost two years earlier. Since then, the silver market has pulled back and appears to be finding support as viewed in the chart below:

Bottom Line:

In the short to medium time frame, my technical gut instinct is telling me that we still need to blow off some steam in the gold and silver markets. The near parabolic rise in precious metals should have further to correct, given the recent surge higher. Gold may decline to as low as $450-$475 and still remain in a bull market. Silver could slide to the high $7 area.

Once the markets find support and consolidate for a few weeks-months, the advance should resume. This is particularly true in the silver market. Silver had clearly been in a choppy market for almost two years. Gold on the other hand moved far above its consolidation level and may require a consolidation before new high prices are recorded.

On the long-term time horizon, the price forecasts of top analysts listed above: $750, $1,000, $1,300 and $3,000, seem more and more plausible. The recent break-out in silver should lead to at least $10-$11 in the new year. 2006 should bring another exciting chapter in what is shaping up to be the greatest bull market in history. Thanks for reading.

Happy New Year.

Chris Waltzek

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