Sunday, July 30, 2006

THE GOLD AND SILVER REVIEW 181st Edition, July 30th

July 30th, 2006
181th Edition
Chris G. Waltzek
*$635 Gold - $11.28 Silver*
Gold soared this week, rebounding from last weeks consolidation amid the backdrop of a weakening dollar due to Mid East turmoil and the Fed's Dovish Beige Book Report. Seasonal volatility increased as traders took much needed summer vacations - reducing market liquidity and increasing violent swings higher and lower in the markets. Fortunately, the phenomenon is temporary and calmer market conditions are likely to prevail in the months ahead. Gold and silver have posted positive closes in 4 of the last 5 weeks. Gold closed at $635 up $15 while silver finished at $11.28 increasing $.43. So far in 2006, precious metals have eclipsed all major investment classes. Gold is now up by more than $110 an incredible 20 percent in 2006 and silver is higher by $2.50 almost a 30% increase! For further perspective, gold is up well over 100% in the past 5 years and silver by almost 200%, simply the best investments available and still under the radar screens of most investors.
On Monday, the hope of a cease fire in the Israeli Lebanon war temporarily lead the dollar higher and gold below $600 for the first time in one month as Secretary of State Condoleezza Rice made a surprise visit to to Beirut - meeting with Lebanon's prime minister, according to media reports. But hopes for peace were dashed as Lebanese Prime Minster Fuad Saniora rejected Rice's diplomatic solutions, on Monday, leading gold to recoup almost all of its earlier losses.
Despite diplomatic efforts on Monday, conflict escalated among Israel and Hezbollah forces. Israel continued its push deeper into the Southern Palestine area. More than 380 Lebanese and 37 Israelis have died since fighting began on July 12.
On Tuesday, Condoleezza Rice met with Israeli Prime Minister Ehud Olmert, who reiterated Israel's intent to continue its offensive on Hezzbolah forces. Both Rice and the current administration support Israel's battle citing the need for Hezbollah factions to release control of southern Lebanon before a cease fire can commence.
Making matters worse on Wednesday, peace talks in Rome broke down as tempers flared between the Secretary of State Condoleezza Rice and the European envoy. Rice disagreed with U.N. Secretary General Kofi Annan regarding the need for international peace keepers in Southern Lebanon. Officials from the United Nations, five European and four Arab countries, attended the Rome conference. As a result of the peace meeting stalemate, Israel's justice minister, Haim Ramon, stated that the indecision granted Jerusalem the authority to continue its assault on Hezzbollah troops.
In economic news, Wednesdays Fed Beige Book report sent the dollar reeling. The report indicated stubborn inflation numbers despite declining growth in the housing market and the general economy. As a result, traders sold the dollar and purchased gold and equities due to lessoned concerns over another rate hike. The futures market is currently indicating only a 50% likelihood of a rate hike at the upcoming FOMC meeting, slated for August 8th.
One London based trader noted: "Gold is up, down and round about. The market is interest rate driven. When the market thinks that the Fed is going to increase interest rates then the US dollar strengthens and the gold price falls, when the market becomes concerned that that the Fed is not going to hike rates then the dollar slops and gold goes up," a London-based trader said.
Meanwhile, the dollar continued to suffer as it slipped to a two-week low against the Euro and yen and a near two month low against the British pound amid worries that the Fed might not continue its policy of rate hikes due in part to lower than anticipated GDP numbers. The dollar has now fallen 6 percent against an average of major world currencies.
Moving on, media reports indicate that gold investing in China is increasing rapidly following the removal of the ban on gold ownership in recent years. Adding to demand for gold, China's central bank continues to accumulate a massive gold position in its attempt to sell off depreciating dollar reserves. Russia, Kuwait, the UAE and many other countries central banks are sited as taking similar steps to insulate their citizens from the inflated dollar. Furthermore, Japan has not increased its dollar reserves in over a year despite its powerful export economy, according to sources. Looking over at the energy markets. Light sweet crude rallied this week following a government report indicating the largest gasoline inventory decline in over three months. Black gold purchasers were further emboldened by news of Nigerian export disruptions. Oil producer Shell announced that a suspicious pipeline leak will lead to a 50% decline in oil exports from its Bonny light terminal in the politically unstable region. Crude oil ended the week near $75 per barrel, close to the break even point.
In a related story, high gasoline prices are encouraging domestic mass transit. The president of the American Public Transport Association noted that many cities are witnessing double digit increases in public transportation ridership as a result.
It's estimated that U.S. riders of public transport save 855 million gallons of gasoline per year, according to the APTA.
In Salt Lake City, ridership is up a resounding 43 percent versus a year ago. The trend is expected to accelerate as the price of a barrel of oil heads to and beyond $100.
Looking at gold stocks in the news this week. On Thursday, one of the largest gold producers Denver's mining firm, Newmont Corp, reported its second-quarter profits almost doubled, while revenues climbed to $1.31 billion from $997 million in the previous quarter.
Meanwhile, the third largest gold miner AngloGold Ashanti's CEO Bobby Godsell noted this week that, "The supply-and-demand position for gold was favorable, with very strong investor interest in the metal... "The demand for gold is as strong as it ever has been"
In related gold news, market pundit, Peter Grandich, editor of The Grandich Letter, commented on what he views as a heavy "short" position in the gold market, "based on the fact that gold has been hit hard on several occasions of late shortly after the second London fix when European physical buying is over. He went on to say that he thinks short selling is reaching a climax and a short squeeze is likely in the gold market.
In numismatic news this week, 10 rare gold 'double eagle' coins from 1933 considered the most rare and valuable coins in the world, go on display on Aug. 16th-19th at ANA's World's Fair of Money convention in Denver. The ten recently recovered "double eagle" gold coins, will go on public display next month for the first time. The coins are held at Fort Knox and are so rare that their value cannot be calculated. However, the article indicates that in 2002, a 1933 double eagle was auctioned for $7.5 million, the highest price ever for a coin. So listeners in the Denver area, this might be an interesting event to visit in August.
Gold stocks were hit hard on Monday only to rebound like the phoenix from its ashes to record a positive close. Following last weeks minor setback, gold stocks tacked on more than 8 points - closing at 141. Despite recent weakness, gold stocks are showing a near 10 percent gain for the year.
Looking over at the XAU charts. Last week I noted that the market left a bearish candlestick on Friday. I expected to see lower prices which should then be followed by bargain hunting. The market did slam down hard and then rebound to much higher levels. Looking forward to next week, Friday's close was very bullish, I would expect higher prices on Monday. The weekly close was less informative. I expect prices to remain somewhat firm as we approach the August 8th FOMC meeting on buy the rumor behavior. The only caveat would be a sudden shift in the Fed's rate hike outlook or a big dollar rally.
Shifting over to the gold and silver charts: Last week, I expected gold to retest the $600 level to fill the unfilled gaps. The market did exactly that. I also reported that silver had not participated in much of the recent gold rally. Subsequently, silver appeared less bearish than gold. Like clockwork, the silver market firmed and close higher. Silver also had a very bullish close on Friday. I expect to see higher prices next week in both metals followed by backing and filling as the markets prepare for the next leg higher.
In equities news the markets move up briskly this week posting a broad based rally. The bulls secured the market reigns as bargain hunters picked up recently trashed stocks at discount prices. Despite the incredible push higher, the Dow and S&P remain within broad trading ranges.
Following two months of consolidation, equities investors were rewarded with a powerful updraft in prices by Friday's closing bell. The Dow rallied an impressive 351 points, climbing by 3 percent to 11,219. The Nasdaq rose almost 74 points finishing at 2,094, while the S&P gained 38 points closing at 1278.
Looking over at the stock market charts. The Dow and the SPX are both sitting at resistance within their trading ranges. Watch the resistance area for a potential break-out next week or a return to the consolidation. The Nasdaq improved considerably this week. I would not be surprised to see higher prices in stocks next week followed by a consolidation of recent gains.
July 29th Goldseek Radio Highlights:
*Dr. Stephen Leeb & David Bond*
*Dr. Stephen Leeb joins us to discuss his latest book: The Coming Economic Collapse. Dr. Leeb correctly forecast the 1990's bull stock market as well as the 1999 peak and impending market crash in tech stocks. Dr. Leeb shows that the 1970's were worse than the 1930's for investors. Stocks, bonds and even cash provided a negative return when adjusted for inflation. Then in 2004 while oil was at merely 33 dollars per barrel, he predicted crude oil prices would soar. In his latest text, he proves that the US is approaching on the greatest economic crisis in the nations history.
*David Bond shares his gold and silver price projections in the second hour. David is precious metals journalist and commentator of the highest caliber. He expects gold to eclipse $1,000 while silver will leaps to $100 in the next few years. David tells us what makes a great gold stock pick and provides two that he thinks will make great investments. David is a regular at gold and silver conferences and shares his industry insider viewpoint that he's gained from years experience.
*Gary Kaltbaum returns to the program following a brief sabbatical. Gary gives his take on stocks and explains why he's not a bull at this time. Next, Jack Chan takes a look at equities and the energy markets. Plus, Bob Chapman tells us why he thinks the gold and silver markets will improve by September and then gold will rocket to $850 before year end. We examine the economic outlook and recent statistical reports as well as timely gold related articles.
To This Weeks Guests and the Trading Wizards Gold & Silver Forecasts, Please Go To:
Bottom Line
The Golden Guru Award of The Week goes to David Bond on this weeks radio broadcast. The average of this weeks gold experts is as follows:
($1,000 + $1,700) / 1 = $1,350
Thanks for reading.
Chris Waltzek