Sunday, September 17, 2006


September 17, 2006
188th Edition
Chris G. Waltzek
*$577 Gold - $10.72 Silver*

Despite strong seasonal tendencies, investors lost their appetite for gold and silver this week as the metals retreated to the lower bounds of their broad 4 month trading range. Market watchers cited the 20% decline in crude oil prices, the sliding CRB index, a firmer dollar and lowered geopolitical risks as the primary drivers compounding the recent metals consolidation. However, jewelry related gold purchases are expected to increase within a month due to the upcoming holiday season, leading to a possible surge in demand.
To the delight of bargain hunters, the yellow metal shed $32 closing at $577. Meanwhile, silver declined by $1.36 ending the week at $10.72. However, gold enthusiasts took heart as gold and silver continue to outperform all major sectors. In merely one year, Gold has accumulated an impressive 25% while silver has tacked on more than 50%, not bad for the barbarous relics...
In related precious metals news, sources are indicating a floor in precious metals prices may be near: One standard bank report noted: "...the market struggles to come to terms with the meltdown in the commodity sector with gold looking vulnerable to test $540, if technical support at $570 fails to hold."
A UBS spokesperson agreed: "Although some physical bargain hunting has been noted, a move towards $550/oz could be on the cards before prices bottom out,"
Meanwhile, analysts pinned additional blame for lowered precious metals on central bank gold sales. Media sources indicate that although Central bank sales dropped sharply in the first 6 months of the year, more than 50 percent less than last year, 163 tons of the annual quota are still available for sale per the Central Bank Gold Agreement. Central banks must conclude gold sales by September 26th. Non CBGA nations are net gold buyers, adding substantially to demand for the yellow metal.
According to the ECB, 2 member banks sold over $100 million in gold last week.
The Bank of Portugal announced it sold 20 tons in recent months.
In related news, lower demand from jewelery makers is putting pressure on market prices, according to one source. Indian jewelry fabrication declined by 50% while related nations fell by over thirty percent this year. However, with Christmas and related holiday's fast approaching jewelery manufacturer demand is expected to advance briskly.
Meanwhile, according to a Labor Department report on Friday, the CPI and core rates climbed merely 0.2 percent in August against the backdrop of a report showing slowed industrial demand. The CPI and core consumer prices climbed 3.8 and 2.8 percent respectively, in the past year alone. The consumer price index excludes food and energy costs. In the past 4 months, the reading was .3 percent, indicating that the economy is slowing. Furthermore, manufacturing growth was negligible in August. Increased durable goods orders were unable to overtake the decline in nondurable goods production, according to a Fed. report. Investors interpreted Friday's reports to mean the Fed would continue to hold rates steady at the upcoming September 20th FOMC meeting on Wednesday. The Goldseek Radio Fed Watch is currently indicating only a 10% chance of a Fed. rate hike next week. Conversely, the European Central Bank announced that it would raise rates at its meeting next month.
Moving on, the group of seven nations met in Singapore this week to discuss the US housing situation and the global economic environment. The G-7 central bankers are reportedly concerned that the US housing decline could lead to slower consumption which could in turn spill over into lowered global economic expansion. In response, Canada's central bank held interest rates constant due to fears of a weakened US consumer.
Meanwhile, in energy news this week, black gold continued its steady sell-off. News of Iran's lessoned atomic ambitions, improving Mid-East sentiments and OPEC promises lowered the threat of supply shortages - putting downward pressure on crude oil prices. Also, British Petroleum announced its Alaskan oil reserves may be back online soon. In related news, natural gas is trading near two year lows due to a record reserve figure. Winter storage supplies are far above the five year average, according to an Energy Information Administration report. Crude oil declined more than two dollars, ending the week near $64.
In Geopolitical news, the US agreed to further talks with Tehran regarding its nuclear enrichment program. Currently talks have stalled between the two nations. The UN Security Council continued its saber rattling policy regarding sanctions if Iran fails to comply with its demands. In related Middle East news, on Tuesday, four men attempted to destroy the U.S. Embassy in Damascus Syria. According to media sources, one guard was killed and 13 were injured during the assault. Fortunately, the car bomb was faulty and the security guards ended the dispute with out detonation.
In numismatic news, the government related GSA identified 5,000 rare domestic coins in its vaults. The coins have been certified by the Numismatic Guaranty Corporation the NGC and were subsequently sold to primary coin dealers. Many coins are available for purchase including Liberty Head, Indian Head and the $20 St. Gaudens coins.
In related news, the Justice Department announced that it is not legal to buy or sell with a "Liberty Dollar" coin noting that the US Mint is the only domestic institution allowed to create a currency. A US mint spokesperson suggested that such transactions have been on the rise and the government is concerned that businesses and consumers might be confused by such coins. According to the article, the Indiana based NORFED or National Organization for the Repeal of the Federal Reserve Act had been minting the Liberty Dollar coins for eight years with $20 million in circulation. The medallions are produced by a private mint in Coeur d'Alene, Idaho and appear like US coins because of the inscriptions: "Liberty," "Dollars," "Trust in God" and "USA"
In gold equities news, shares of metals and mining companies weakened into Friday's close. In last weeks report I wrote: The daily and weekly candlesticks are very bearish, I expect selling early next week as traders digest the false break-out. The did indeed pull back. HERE'S THE BOTTOM LINE ON GOLD STOCKS: The daily candlestick is somewhat bullish and we are near gap support. The XAU is approaching a small unfilled gap near 122. I would not be surprised to see some strength on Monday followed by one more attempt to fill the gap at the 122 level.
Moving on to the precious metals charts: As forecast in last weeks report, gold and silver sold off. Looking forward, in the weekly chart, both gold and silver found temporary support on Friday at the 50 period moving averages. THIS WEEKS BOTTOM LINE ON PRECIOUS METALS: I expect gold to work its way to the $550 area or lower in the weeks ahead and silver to test ten dollars. For longer term investors, I believe any price near $550 gold and 10.50 silver is a bargain.
In equities news, the markets exploded higher with the Dow Jones Industrials and the S&P 500 Indexes merely a stones throw away from record highs. My previous report suggested a strong start to the markets this week. Once again, the markets were cooperative. The Dow closed at 11,560 down 168 points. Meanwhile, the S&P finished at 1,319 up 20, and the Nasdaq at 2,235 up by almost 70. THIS WEEKS BOTTOM LINE FOR STOCKS: The major indexes are most likely overbought here. I expect the markets to consolidate into the Fed meeting followed by typical FOMC related volatility.

Sep. 16th Goldseek Radio Highlights:

*Peter Grandich & Jonathan Honig*
In the first hour this week, I lead off with a recap of the top market headlines. Bob Chapman and I listen to excerpts from Benjamin Graham's classic, The Intelligent Investor. Next, Fox TV's Jonathan Honig joins Gary Kaltbaum and I in a Goldseek Market Panel discussion. Gary is short oil stocks and mid caps and likes the technology and retail sectors. He thinks gold will find a bottom near $550. Jonathan Honig thinks its possible for gold to climb as high as 2,000, but he's not bullish on the market at this point. Jon believes the falling dollar remains an ignored trend that will remain intact for some time to come. He shares three stocks on his radar screen. Plus, Jack Chan tells us that the crude oil market is in a free-fall and why he expects the market to fall to $60 per barrel. Jack remains bullish on precious metals for the long term.
In the second hour, legendary commentator and forecaster, Peter Grandich examines the profound correlation between gold demand and the jewelry industry. In fact, 70% of all gold supply is consumed by the jewelry market. Peter, expects the recent pullback in precious metals to find a strong floor as jewelry fabricators absorb the discounted yellow metal. As a result, he thinks gold prices will soar in the 4th quarter due to jewelry demand alone. Like most our guests, he thinks the dollar is doomed and that the inverse relationship with gold approaches 85%. Peter likes silver and believes the metal will move even faster than gold. You won't want to miss his ultimate key to investing, it might save your portfolio as well as your peace of mind. Peter expects gold to rise first to a thousand dollars per ounce and then double from that level. And congratulations to our listener Carlton P. Carlton won this weeks contest hands down with his gold price forecast of $593. He will receive my autographed copy of Joe Granville's latest book. Remember to bookmark for your daily source of leading precious metals news and commentary.
To This Weeks Guests and the Trading Wizards Gold & Silver Forecasts, Please Go To:

Thanks for reading.
Chris Waltzek
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