Thursday, August 10, 2006

The Gold and Silver Review, Aug. 6th.

August 6th, 2006
182nd Edition
Chris G. Waltzek
*$644 Gold - $12.37 Silver*
The Gold and silver bull stampede continued this week, trampling the bears underfoot as prices continued their skyward trajectory - adding to last weeks impressive gains. This is a traditionally strong season for gold as jewelry purchases heat up, primarily due to Indian wedding ceremonies. Gold and silver have recorded higher closes in 5 of the last 6 weeks. Gold closed at $644 up near $10 while silver finally caught up with the yellow metal, soaring over one dollar to $12.37 a two month high point. This year precious metals continue to surpass all competing asset classes. Gold is now up by $120, 25 percent - while silver is higher by $3.50 almost a 40% increase, twice that of gold.
Precious metals have been running lately in anticipation that investors will return to the king of currencies and bellwether investments gold and silver. Sources are indicating that all eyes are now on the $680 gold resistance level. Once that point is breached it should be quickly followed by $700 and finally the 730 dollar area, the recent 26-year record. Many experts now expect seven thirty to be followed by Gold's all time peak of $870, recorded back in 1980.
Market pundits commented on golds potential this week: A World Gold Council economist, Katharine Pulvermacher said that "Stagflation is something that has the potential to exist again... Gold offers investors the opportunity to have a little insurance policy," Next, Peter Grandich from the Grandich Letter noted: "A new all-time high in gold is not a question of if, but when," Plus, Mr. Gero, another market watcher said: " we hit certain key points and the funds just come in and buy. The same old fundamentals and geopolitical reasons for higher gold prices still apply and, if this continues, I would not be surprised to see $700 again."
In gold equities related news, North America's fourth-biggest gold producer, Toronto-based Kinross Gold Corp., posted record net income of $65.6 million in the second quarter with a per-share profit of 19 cents. Last year Kinross experienced a net loss of $16.4 million, according to a Kinross report.
Kinross's stock gained 30 cents, or 2.3 percent on the news and surged 78 percent in the last twelve months.
Moreover, the world's third-largest miner, Anglo American announced a 52.5 percent jump in operating profits noting a very positive expectation for precious metals price appreciation in the year ahead.
Meanwhile, higher than expected Unemployment figures suggest a cooling economy against the backdrop of soaring commodities prices. The Commerce Department noted core U.S. consumer inflation matched an 11-year high in June, the highest since 1995 - while Non farm payrolls expanded by merely 113,000 in July, much lower than expected. Furthermore, lowered consumer spending in the second quarter was the result of higher energy prices - effectively cutting economic growth in half when compared with the preceding quarter, according to the Commerce Department.
Clearly, the Fed's 17 consecutive rate hikes have stifled job growth and discouraged industrial expansion while capping the once vibrant domestic real estate market. As a result, stagflation, the worst possible economic scenario is unfolding - leading many to believe the fed will halt its rate hike policy at its upcoming Aug. 8th FOMC meeting. As of Friday, sources indicate that there is only a seventeen percent chance of a quarter point rate hike on next Tuesday's FOMC meeting.
In related news, The Bank of England raised its primary interest rate by a quarter point, to 4.75% England's central bank noted that the pace of economic activity has quickened in the past few months and that higher energy prices have led to greater inflationary pressures. The European Central bank also raised its rate to 3%, to help curb inflation, a few days before the Fed's upcoming rate decision.
Meanwhile, the dollar fell sharply on Friday below trading range support to a two-month low point following the negative U.S. employment report, the final economic statistic to be released before next weeks FOMC meeting. Although many sources indicate that higher rates tend to boost the dollar and suppress gold, the feds two year string of rate hikes has had the opposite effect if any on both markets. Traders dumped the dollar in favor of the Euro and Pound due to their respective central banks rate hikes.
In geopolitical news, the middle east powder keg fuse burned even more brightly as Hizbollah forces launched a new salvo of terrorist rockets - further bombarding Israel's innocent civilians. More than 2400 Hezbollah rockets have landed on Israeli soil since the war began. On Friday, media reports indicated that Iran has admitted to supplying Hezbollah forces with missiles. As a result, four more civilians died due to rocket attacks on Friday. In response, Israeli air strikes destroyed four highway bridges near Beirut. Hizbollah forces launched at least 150 rockets into Israel as 6,000 Israeli troops stormed into south Lebanon. An Israeli cabinet minster noted that the army will drive the Hezbollah forces from its border in approximately two weeks. Israeli police are instructing all residents to remain in shelters at this time. In related news, North and South Korean forces discharged weapons at a border location according to media sources.
Moving on to the energy market, light sweet crude oil prices advanced briskly early in the week on fears that Tropical Storm Chris might gain hurricane status and threaten gulf oil facilities. However, on Thursday and Friday, pressure abated as it became clear the storm was losing strength. Black gold ended the week at $74.75 per barbell, up more than one dollar.
In numismatic news this week, an interesting article at by Dr. Steve S. discussed an investment opportunity at Numismatic Investments Corporation. The president and CEO Gary Knaus claims to have identified a large number of undervalued investment grade coins. The articled noted that the documented benefits of rare coins in an investment portfolio include increased returns and reduced volatility as well as the fact that they tend to be negatively correlated with interest rate sensitive securities. Put simply it helps to lower the overall risk of ones investments. So during inflationary periods they tend to outperform many alternatives. Interestingly, rare coin prices are 63 percent below their 1989 high. The article adds that a history of growth, excellent returns, high liquidity, independent coin certification services, opportunities for 1031 tax-deferred exchanges and the fact that there are currently about 5 million collectors in the US to trade among indicates that this may be a great opportunity for a small portion of ones wealth. The article recommends no more than a five to ten percent investment and a minimum five year holding period. A limited supply is available and they are not sold to the general public. Have your financial planner or broker contact Numismatic Investments at 630-963-6350. or for more info.
Here's a review of the Gold Stocks & Precious metals charts.
Following a big rally on Tuesday, gold stocks consolidated for the rest of the week The XAU closed at a 3 week high point on Friday, tacking on almost 4 points - closing at 145. Despite this years poor equities market performance, gold stocks are sporting a 10 percent gain for the year.
Moving on to the XAU charts...
Last week I expected higher prices on Monday and for gold stocks to remain somewhat firm as we approach the August 8th FOMC meeting on buy the rumor behavior. The market performed as expected. Looking towards next week: the weekly candlestick was marginally bearish with a long upper tail. Similarly the daily candlestick is indicating further selling pressure ahead early next week. I'd expect the consolidation to continue into the Fed meeting on Tuesday, followed by considerably higher volatility. I do not expect gold stocks to run to fill the huge unfilled gap at the 155 at this time.

Shifting over to the gold and silver charts: Last week, I expected to see higher prices in both metals followed by backing and filling as the markets prepared for the next leg higher. Gold and silver did both close higher. Silver was the big story this week, vastly outperforming gold by adding more than a one dollar gain. The trend is clearly up, however, the markets appear slightly overbought at this time. I expect to see a pause next week as gold and silver continue to carve out their very broad trading ranges.

Shifting over to the stock markets
In equities news the major indexes posted mixed results. On Wednesday following a minor pullback earlier in the week stocks staged an impressive come back. However, the bulls were discouraged somewhat by Friday's economic report and retreated from new highs to post modest gains. The Dow rallied an impressive 21 points, climbing by 3 percent to 11,240. The Nasdaq gave back almost 9 points finishing at 2,085, while the S&P gained 1 point closing at 127. Interestingly, the Dow and S&P closed above their broad trading ranges for the first time in months. However, the Nasdaq retreated back below resistance. I expect the Nasdaq to signal direction next week. If techs cannot rally along with the blue chips, the advance is suspect. Expect a new trend to develop following the FOMC meeting on Tuesday.

August 6th Goldseek Radio Highlights:

*Chris Powell & Kal Gronvall*

In the first hour, after a review of this weeks top market headlines, we'll hear from the Goldwizards. Gary K, remains bearish on stocks and offers his outlook on the markets. Next, Jack Chan and I discuss the market technicals and investigate various trading concepts. Jack added precious metals positions in his market letter this week and continues to think that the energy market is overbought. Plus, Bob Chapman answers listeners questions and we examine this weeks economic reports, noteworthy precious metals articles and events.
In the second hour, Chris Powell will melt your speakers with his scathing but inspiration treatise on gold price suppression - the collusion between central banks and the investment banking cartel. Chris reveals documentation including court case information to back up his research. He proves definitively that gold has been suppressed and that the manipulators are almost out of gold to continue with their illegal operations. You won't want to miss Chris Powell's explanation as to why there will not be enough zero's to put behind the gold price when it finally breaks free from their grasp. Next, precious metals expert Kal Gronvall shares his new inflation indicator. Kal was fed up with the government's bogus Consumer Price Index, or CPI numbers. So he took a novel approach to solving the government inflation reporting problem, resulting in what I refer to as the Kal Price Index or KPI. Don't forget to bookmark for your required daily precious metals related reading. Plus, accredited investors should investigate goldseek's latest investment opportunity near the top of the page at

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

Thanks for reading.
Chris Waltzek