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Trading THOUGHTS - Gold and Silver Trend is Up, Buy on Corrections

Commodities / Gold & Silver Jun 04, 2007 - 01:09 PM GMT

By: Ned_W_Schmidt

Commodities

Well, the U.S. reported this past week data on economic performance in the first quarter of 2007. Real growth was 0.6% and the GDP deflator, or inflation, was 3.6%. Speculative fund managers took this as good news, somehow. Inflation during the first quarter was running six times that of inflation. In short, most of what is going on in the U.S. economy has been inflation. Then on Friday came the report on employment in the U.S. Someday the truth will be told on the employment report, but not this week. About 1/3 of the workers added in May were jobs at bars, restaurants, and hotels. Is that economic growth, or laid off construction and factory workers taking any job they can find? 

Basic Trend: $Gold Up. Investors should focus on Buy signals. Strategy: Positive, per Investment Policy of Oct 2004. 

Investment Policy: Act on buy signals. Hold long-term core position.


$Gold had become extremely over sold, and stayed in that condition for several weeks. Now, the U.S. dollar, which had been extremely over bought, does seem to be rolling over. Only real strength in U.S. dollar has been against the Japanese yen and Swiss franc due to carry trade loans. 

The catalyst for the improvement in prices was two news announcements by European central banks on Gold sales. In short, these sales have been less than expected and will be less than expected. That news was appreciated by the market, and improved the attitude of traders. Concerns over European central banks selling Gold have always been too extreme. If they sell Gold, two choices exist. They can spend the money or buy depreciating dollar assets. Neither is an attractive alternative to European leadership.

The intermediate indicator remains generally over sold. That condition suggests that some carry through of rising price into next week. The $690 level will now become the focus of traders.

Basic Trend: $Silver: Up Investors should focus on Buy signals. Strategy: Positive, Per Investment Policy of October 2004 

Investment Policy: Emphasize Buys

Pessimism on Silver had reached an extreme, and stayed high for several weeks. Conditions were put in place, as they were in Gold, for Silver to move higher. Now Silver is at down trend line as drawn in bottom chart. Given that the intermediate indicator remains generally over sold, Silver would still seem to have the fuel for moving above $14.

Big question on both Gold and Silver markets is whether speculative funds have moved enough of their activity out of metals to cease being a problem. Given recent over sold conditions that persisted for some time, a reasonable assumption would be that majority of the negative impact of the speculative funds has been removed. We include a little hope and prayer in that statement.

Recommendations: Hold existing Gold and Silver positions for higher prices, and further profits! Add to positions on buy signals.

CN$Gold: CN$710.2 + 2.2 

Canadian dollar continues on an amazing run, working toward US$0.95 on Friday. What is perhaps most amazing is that a satisfactory reason can not be found for this move. Talk of a rate increase in Canada, but not enough to justify this move. Commodities continue to be strong. Perhaps, that is it. Whatever, Canadian investors should be using this unbelievable high price for Canadian dollar to buy Gold.

Recommendation: Use strength in CN$ and buy signals to add to holdings. CN$ long-term sell.

EU€Gold: €497.7 + 2.2 

EU€Gold has also moved higher from an over sold condition. The intermediate oscillator continues generally over sold so a good chance of moving through €510 does exist. €Gold has put in place two bottoms now in the €490 area so that may encourage further buying.

EU€Gold Recommendation: EU€ investors can hold Gold for long-term. EU€ likely to appreciate against US$. 

GBP £GOLD: £337.9 + 1.6 

GB£ gave a rare intermediate buy signal two weeks ago. That buy is likely to continue to have been timely. GB£Gold has now been stopped twice from falling further at the GB£330 level. A move to GB£350 would seem likely. That action would probably attract further buying. GB£ investors should continue to use all buy signals to move into Gold out of over valued British pounds.

Recommendation: GB£ now in long -term bear market. Add to Gold positions.

GDM: 1034.00, +55.81 or +5.4%:

GDM, the Gold stock index from the Amex, made an abrupt turn on Thursday. The Gold stocks had been over sold for the second time in as many months. The late action last week moved the index through a down trend line as drawn in the graph. Such action is likely to attract further buying. Hold your Gold stocks as we may finally get that move up and through the 1150 resistance level.

PAPER ASSET MARKETS:

Any serious attempt at analyzing the paper asset markets is probably futile at this time. Paper asset markets are being driven by speculative funds using borrowed money to chase stocks. These markets are nothing more than giant speculative margin accounts at this time. The yen is again being crushed by the raising of funds. What will be the catalyst to cause a margin call? Good question, but it will come. 

FOOD PRICES:

Food prices continue to show strong uptrend, having advanced by 8% in the past four months. As the chart to right shows, food prices are stronger than even the U.S. equity markets. Demand from China continues strong. Many U.S.-based economists continue to ignore rising food and energy prices, but all of the world may not be so ignorant. Graph is from Agri-Food Value View, June issue of which will be out next week. Drop me a note if you would like to see a copy.

TRADING THOUGHTS is about what the name in implies, is to promote timely and profitable trading of precious metals. We do not believe every turn in the market can be called. Our goal is that our recommendations should be profitable. These goals are not the same. Profits are the goals. Trades are not the goals. Do not expect all recommendations to be profitable. No system can achieve that lofty goal. TRADING THOUGHTS is not intended to be a lengthy news letter filled with witty comments. The goal is simply to state whether conditions in the precious metal's market are favorable or not. Traders are advised that unless they have exceptional experience not to trade against the basic trend. Trading against a market trend is not wise.

Your eternal optimist,

By Ned W Schimdt CFA, CEBS
Editor of THE VALUE VIEW GOLD REPORT

Copyright © 2007 Ned W. Schmidt - All Rights Reserved

TRADING THOUGHTS is published 45 times per year and distributed by e-mail. An e-mail subscription is $225 per year. Email subscribers to THE VALUE VIEW GOLD REPORT can receive TRADING THOUGHTS as part of a $99 e-mail package subscription to THE VALUE VIEW GOLD REPORT . Fax subscriptions are available for $325 per year.

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To subscribe to these publications go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html This month was the inaugural issue of The Agri-Food Value View , an exploration of how the rise of the Asian economy will benefit agriculture and food investments. To receive a trial subscription, write agrifoodvalueview@earthlink.net


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