Sunday, July 30, 2006

THE GOLD AND SILVER REVIEW July 23, 181st Edition


July 23rd, 2006

180th Edition

Chris G. Waltzek



*$620 Gold - $10.85 Silver*


Following a 4 week advance, precious metals took a break this week to consolidate recent gains. On Wednesday, The Fed. Chairman's Ben Bernanke's speech before the House Financial Services Committee, lead to a short covering rally. Bernanke noted that the weakening housing market and higher energy prices are the slowing the economy which in turn will dampen inflation concerns. But enthusiasm dwindled as traders booked profits on Thursday and Friday. Gold closed at $620 off about $47 while silver finished at $10.85 closing lower by $.60.

Gold has now climbed near 15% from its two-month low posted on June 14 and is up by almost $100 for the year while silver is higher by approximately $2.00. When compared with this years losses in the SPX, Nasdaq and 20 year T-bond markets, gold and silver are showing impressive gains so far - unmatched by most alternatives.

Sources are indicating that the precious metal may trade between $615-and 665 for the next few weeks. Uncertainty regarding domestic interest rates, climbing global rates, high oil prices and the dollar is likely to increase market volatility in the weeks ahead.

In geopolitical news this week, tensions continued to flare between the Israeli army and southern Lebanon. Israel called up thousands of reserve troops and issued warnings to the southern Lebanese people on Friday. After 10 days of consecutive Israeli bombardment upon Lebanon, Hezbollah rocket attacks continued unabated. As a result, many believe a ground offensive is imminent.

Meanwhile, Secretary of State Condoleezza Rice announced her intention on Friday to meet with the Israeli Prime Minister and Palestinian President in Rome. Sources indicated that the Israeli-Palestinian conflict appears to be contained between the two nations and is unlikely to spread across the region. Traders concluded that oil production will not be threatened by the dispute, which in turn sent crude oil lower this week. Following last weeks climb to a record $80 per barrel, crude oil remains up by more than 20% for the year.

In related news, the dollar rallied sharply to a 3 month high on Monday and Tuesday, but then reversed course on Wednesday following The Fed Chairman's comments. However, investors were not convinced by the dollar sell-off and precious metals followed the dollar lower. Traders noted that the new dollar high point recorded earlier in the week, may indicate further strength in the currency at least in the short term.

On Thursday, the June FOMC meeting minutes were released. The summary noted that higher rates may not be foreordained, hinting that a quarter point rate hike at the upcoming August 8th FOMC meeting may be less likely. Also, the Fed Chairman noted that the he was wary of increasing rates much more. In turn, the dollar sold off as investors sought the Yen and Euro due to the bank of Japan and European central bank higher rate policies.

In related news, The Commodities Futures Trading Commission is reportedly considering an end to the COT, commitment of traders reports. According to Mike Shedlock, the decision will be based on public response to the issue by August 20th. If you would like to defend this important market report and keep it from going the way of the M3 statistic send an email message to Please put COT report in the subject line or the message will be ignored. The deadline is August 20th.

Meanwhile, there's been considerable buzz surrounding the new 24 Karat US Indian head gold coin. Collectors and investors were equally excited by the timeless and majestic design by James Earle Fraser. However, published an interesting piece this week concerning an issue with the packaging. In order to meet a June deadline, the US Mint choose mylar wrapping to ship the coins. The large mylar sheets are very difficult to store and cannot be easily held in safes. Bill Haynes of CMI Gold & Silver noted that the sheets require large boxes which increases postal expenses. Whereas simple plastic cases could be stacked safely and neatly into very small boxes and safes. Clearly the US Mint's attempt to protect the new pure gold coins backfired. Let's hope they listen to Mr. Haynes advice.

Following two weeks of consolidation the XAU breached its trading range on the downside. Gold stocks struggled all week giving back 12 points - closing at 133. Despite recent weakness, gold stocks remain in positive territory for the year.

Last week I noted that the weekly candlesticks had been bearish for two weeks in a row. The bearish indicator proved to be correct and the market sold off hard. This week, the market left a bearish candlestick on Friday. I expect to see lower prices next week which may then be followed by bargain hunting at the end of the week. I would not be a buyer until a bullish weekly candlestick is recorded.

Shifting over to the gold and silver charts: Last week, I noted that the precious metals ETF's GLD and SLV had left 2 unfilled bearish gaps and appeared to be short term overbought. Also, that silver did not participate in the huge gold rally this week and that Gold put in a bearish candlestick on Friday. I announced my concerns about gold and silver and insisted that new capital should not be put work at those levels. As anticipated the markets did give back some of their recent gains. Looking forward, GLD appears to be headed toward the two unfilled gaps below. I expect gold to retest the $590-$600 level and close the large unfilled gap in the next few days to weeks ahead. Silver is a different story. The worlds shiniest precious metal did not participate in much of the recent gold rally. Subsequently, silver appears less bearish than gold at this point. However, I would not be putting any more capital to work at these levels and I'm not currently a buyer.

In equities news the markets posted mix results. Stocks rallied sharply into Wednesdays close but by Thursday, it was clear that the bear had regained advantage once again. Tech stocks were hit hardest this week, sending the Nasdaq to even lower lows. While the Dow and S&P remained within broad trading ranges posting modest gains.

Following last weeks 350 point bloodletting, Dow and SPX watchers were pleased with the closing bell this week. The Dow tacked on 129 points, climbing by 1.2 percent to 10,868. The Nasdaq declined by almost 17 points finishing at 2,020, just above the important 2,000 psychological support level while the S&P gained merely 4 points closing at 1240.

Looking over at the stock market charts: Last week I noted that the markets appeared to be in oversold territory and I expected the markets to find a bottom. Right on command the markets rallied into Wednesday. Looking forward, the tech laden Nasdaq tends to lead the markets and it is currently flirting with new lows. Unless you enjoy taking high risks, like base jumping. I'd wait for a trend change before putting new money to work here.

________________________________________ Interview

July 22nd, 2006

*Paul Van Eeden & Bob Chapman*

In the first hour, Bob Chapman and I discuss the latest batch of economic statistics to determine what it all means for the typical American. Bob believes that the summer doldrums in precious metals will pass and that the market will then launch gold and silver to record high points in the next leg higher of the precious metals bull market. Listen close for Bob's latest gold and silver price predictions. Then Jack Chan and I look at the stock charts to decipher what the markets are telling us. Jack called the top in crude oil last week with his $80 per barrel alert, he remains bearish on stocks and expects a four year cycle bottom in the weeks ahead.

In the second hour, Paul Van Eaden tells us why he expects four digit gold prices. Paul thinks that the currency crisis's of the 1990's are a primary driver for the economic woes the nation is facing today. Next, Paul is the first guest on this program to explain how the Former M3 statistic can be easily calculated. In fact, he directs us to the Fed's website and provides a simple technique to find out what the PTB's don't want you to know!

Paul explains why the Fed. has its back against the wall. He insists they must either raise interest rates to encourage Asian bond purchases or monetize the debt, buying treasuries from the government to continue refinancing the domestic debt albatross. Paul tells us how we can follow what he is buying and selling in his portfolio as well as calculate gold's true value.

To This Weeks Guests and the Trading Wizards Gold & Silver Forecasts, Please Go To:


*The Gold Guru Predictions*

The recent gold correction has quieted many believers. Here is
Peter Zihlmann's gold forecast: "We follow the DJIA/gold ratio, - which since 1990 fluctuated between 1 and 40, and since the year 2000, when it reached 40 points, slid back to 20 points. We assume that it will continue to fall, as no solution has been found for these considerable problems. If the DJIA drops to 6000 points and if an ounce of gold rises to
1,000, we would have a DJIA/gold ratio of 6:1 - by all means a possibility in our opinion. But it could be worse, as last century we often recorded a ratio of less than 2.


Bottom Line

The Golden Guru Award of The Week goes to Peter Zihlmann price projection. The average of the intermediate-term pundit estimates for gold leads to a single price target of, $1,000

($1,000) / 1 = $1,000

Thanks for reading.

Chris Waltzek

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