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What is Truth?
1st December 2010, 05:55
Are Precious Metals About to Collapse?

http://www.kitco.com/ind/Summers/nov292010.html

By Graham Summers
Nov 29 2010 1:57PM

www.gainspainscapital.com



From mid-August to early November the markets have operated based on the “Bernanke put”: the idea that our esteemed Fed Chairman will do everything in his power to keep stock levels up.

Indeed, with QE lite going in full force and QE2 on the horizon, the markets became dominated by the “inflation trade” in which the US Dollar fell and every other asset (specifically stocks and commodities) rallied on a near tick-for-tick basis.



However, once the Fed finally DID announced QE 2 in early November stocks began to sell off. Part of this was “selling the fact,” but most of it had to do with a seismic shift occurring in the geo-political/ financial arena.

With several major countries now raising interest rates (Australia and China) or planning to halt their own QE/ Bailout efforts in the near future (the UK and EU), the Fed’s QE 2 program signaled that going forward, the Fed would be on its own regarding its re-flation efforts.

This, combined with increasing political pressure hitting the Fed at home and abroad (China has made it clear it will not tolerate US Dollar debasement), has resulted in a seismic shift taking place in the markets. It’s almost as though investors finally figured out that the Fed’s “free lunch” liquidity schemes will eventually come at a cost, whether it be a US Dollar collapse, trade wars with China, or more.

As a result of this, stocks began a sell off almost to the day that QE 2 was announced. They’ve since begun to trade in a wide range between 1,200 and 1,180 on the S&P 500.



As I write this, the market hasn’t been able to break below support at 1,180 convincingly, largely due to the fact that the Fed is juicing the market almost every day via QE lite and QE 2. On top of this, the majority of traders remain convinced that the Fed can prop this thing up no matter what.

By the same token, stocks can’t seem to break above 1,200 on the S&P 500 because the whole world knows that QE 2 is the equivalent of a “Hail Mary” pass and that the odds are high it will be end very badly (inflation, trade war with China, US Dollar collapse, etc). Consequently, traders are not able to rally enough enthusiasm to push the market higher even during the extremely light volume of Thanksgiving week.

One thing that COULD potentially override the “Bernanke Put” would be a major US Dollar rally. On that note I want to alert you to the fact the US Dollar looks to have broken out of its 6-month downward trading channel.



This move is of HUGE import as it could very easily kick the “inflation trade” off a cliff. As I’ve noted in previously essays, the US Dollar has been the carry trade of choice for many traders since the June ’10 top. And with US Dollar bearishness at record highs, ANY upward momentum in the greenback could accelerate rapidly as the shorts are forced to cover.

Can a US Dollar rally overcome the Bernanke put? We’ll find out this week. We have a total of six POMOs this week (two today and one every other day). So the Fed will literally be juicing the market by $6-9 billion EVERY day this week. If stocks can’t remain afloat in the environment and the US Dollar strength continues, then the markets are heading into some VERY DARK times in the near future.

The BIG question for those of us forecasting inflation in the near future is: how will this move affect the precious metals sector?

To be clear, I am extremely bullish on precious metals in the long-term. However, in the short-term, both Silver and Gold have been on an absolute tear in the last three months, rallying 48% and 13% respectively.

Now, no investment ever goes straight up or straight down. With that in mind I want to point out that Silver looks to have just put in a potential double top:



As you can see, the precious metal has met up against major resistance at $27.50 twice in the last month. Silver needs to make a quick turn around and break above this level soon, otherwise a correction to $25.50 is highly probable.

However, far more worrisome for the Silver bulls is the fact that it’s coming up against its multi-month trend-line.



As you can see, Silver has obeyed this line for most of this recent leg up. A break below this line here would signal a sizable correction, most likely to the $24-25 area.

But what about Gold?



Gold looks to be forming a clear Head and Shoulders pattern. In order for this pattern to be confirmed, we need to see the precious metal break below its neckline at $1325 per ounce. A breakdown there would forecast a correction to $1250 per ounce. This would fit in well with Gold’s current bull market as $1250 represents its most recent peak prior to this latest rally.



Does any of this indicate that the bull markets in Silver or Gold are over? Absolutely not. However, both precious metals have been on a tear and need to cool/ consolidate. No investment goes straight up or straight down. And right now, both Gold and Silver are primed for a pull-back.

If you enjoyed this article, swing by http://www.gainspainscapital.com/ for more of my insights and commentary.

Good Investing!

Graham Summerstheo

Gene Daniels
1st December 2010, 06:54
Yes, I sense a collapse too, especially when I got up this morning and saw silver up close to $29. Man if that is the meaning of "collapse" then bring it on!!!

argentos
1st December 2010, 09:27
Are Precious Metals About to Collapse?



Don't fink so!

wdwexe
1st December 2010, 09:34
You guys had me going. Just looked in the safe, nope still stacked, it didn't collaps. Thank God. Stacking take alot of effort.

sharehard
1st December 2010, 12:40
If the dollar is going up while gold and silver are also going up then in reality the dollar is going DOWN. It is only increasing in relation to other declining currencies as compared with real money.

valerb
1st December 2010, 15:33
If the dollar is going up while gold and silver are also going up then in reality the dollar is going DOWN. It is only increasing in relation to other declining currencies as compared with real money.

Looking at it from another perspective, Gold and Silver are cheaper to purchase than with other currencies, when they are falling against a rising dollar. When the dollar is rising against other currencies, it buys more in other countries. The dollar is cash, you don't spend Gold and Silver. You buy both with cash and you sell both to obtain cash to buy other things. Worthless paper in many minds, but the world runs on actual cash. Gold and Silver are investments in this modern world, not something you can spend, without converting it into worthless cash! Of course you can always barter with Gold and Silver as you can with apples and oranges, but who wants to turn the hands of time back a 100 years.

What is Truth?
1st December 2010, 15:39
Of course you can always barter with Gold and Silver as you can with apples and oranges, but who wants to turn the hands of time back a 100 years.

Around here, I would wager that a lot of people would. :)

Aggie
1st December 2010, 16:31
Sinclair's not worried. And he's most likely a heckuva lot smarter than this cat. Plus richer because of it to prove it too.

ag

http://jsmineset.com/

Matthew Shelley
1st December 2010, 17:00
Collapse and explode are both words that a professional trader would equally avoid. They signify a lack of experience.

Matt

valerb
1st December 2010, 17:22
Around here, I would wager that a lot of people would. :)

The nuts that want the world turned upside down, but who wants to hide in their shelter guarding their stash.

Piffin
1st December 2010, 17:23
Correct?
Possibly
Consolidate?
Probably
Collapse?
Not for a long long time yet

valerb
1st December 2010, 17:33
Just wait until we get a major depression and industrial demand will plunge and so might silver prices. Fifteen anyone ?

Now that makes more sense. I'll agree that if we get hit with something far worse than the last financial fiasco. PM could take a real beating, at least in the beginning.

Silvature
1st December 2010, 17:39
Identical cowardice position practiced by lack of two spoken words; YES and NO by politicians.

Strange how "professional" and "correct" are not synonyms.

I know many "correct" forecasters of 2008 crash. Many, many more "professionals" who did not.



Collapse and explode are both words that a professional trader would equally avoid. They signify a lack of experience.

Matt

Silvature
1st December 2010, 17:41
Most certainly the banks would be disgruntled.



Looking at it from another perspective, Gold and Silver are cheaper to purchase than with other currencies, when they are falling against a rising dollar. When the dollar is rising against other currencies, it buys more in other countries. The dollar is cash, you don't spend Gold and Silver. You buy both with cash and you sell both to obtain cash to buy other things. Worthless paper in many minds, but the world runs on actual cash. Gold and Silver are investments in this modern world, not something you can spend, without converting it into worthless cash! Of course you can always barter with Gold and Silver as you can with apples and oranges, but who wants to turn the hands of time back a 100 years.

wdwexe
1st December 2010, 17:42
That make no sense. Major depression with plunging Silver prices? Are they going to confiscate all our FRNs too? YOUR DUMB, YOU ARE REALLY DUMB. go stupid, go stupid, go dumb dumb stupid. Oh by the way **** YOU RODGER !

wdwexe
1st December 2010, 17:45
Hey Chriss. He didi it, that wdwexe used his foul language again. No slurs, but he is foul. look, look what he just said. The rodge just taunts everyone, that dwexe guy is plain nasty. BANN HIM.