Monday, September 8: Week in Review

Oil and precious metals continued their lock-step minuet, possibly a new trading quirk until bolder commitments are made. Summarily, gold closed at $802.80 an ounce last week, down $32.40, or 4%, for the week. Look for resistance at $809 and support at $794. Silver closed at $12.33, down $1.38, or a whopping 10% for the week. Expect resistance at $12.48 and support at $12.09. Platinum closed at $1,367.80, down $122, or 8% for the week. Upside resistance is at $1,385 and support at $1,365.     

Stock markets were hammered, worldwide. More on this later, but first, here are two timely quotes, the first about silver, the second about investment strategies. From David Morgan, editor of The Morgan Report, September issue

For the record, I will state that there will be another, more frenzied scramble that will carry silver prices to highs that will repair all the excess paper money creation, price suppression, supply deficit, and bearish sentiment over the past two decades.  This will become known as the Great Silver Crisis.

And from Louis James, Managing Editor of International Speculator, September issue,:

If you do not have strong confidence in the gold trend we are speculating on, then you shouldn't be in this game.  You'll end up buying when it looks safe to get in the water - which is when everyone else will be thinking the same thing, and prices will be high.  Then the market will fluctuate, as it always does, and you'll sell along with everyone else who panics, when prices are low.  The emotions that drive these decisions are so strong, even people who should know better end up 'buying high and selling low' - exactly the opposite of what they intend.

Here are the statistics:

The 4% to 10% declines in precious metals last week is consistent with losses on the international stock markets, ironically. China’s stock market lost another 8% last week, a level not seen since 2006. Next support level: 1800, or 20% lower.

All three USA stock markets were down last week, closing below Second Quarter levels. The news last week that unemployment has now increased for 8 straight months, regardless of what the wizards on financial television tell us, this announces “Recession City” in our book, and evidently other investors.

Our weekly reports of declining stock market values are unlikely to change until early next year, after the next President is inaugurated. Until then, IF the definition of a bear market is a decline of 20%, then a Dow of 10612 (another 600 points to the downside) or a NASDAQ of 2122 (another 130 points down) would represent a possible end to the bear market in stocks. These forecasted numbers are based upon the year end 2007 closing index values, illustrated in the above table, less 20%.

Returning to that Frenzied Scramble referred to earlier, at the moment, the world could not be any further from the Peace Dividend era that began in 1991, the year the Soviet Union ceased to exist…and with it, the risk of world war. From 1991 until, bizarrely, May 1, 2003, the day President Bush declared “Mission Accomplished”, the price of gold barely moved, from $362.11 to $363.38 ($4.06 to $4.85 for silver). The prices of both precious metals began moving up in June 2003. Here are the links, for silver and for gold.

What conventional financial media left out last week was the turmoil in the Russian stock market---the explanation of which will convince you that the world is financially linked. The Russian market lost 8% of its value at one point last week, equivalent to 1,000 points on the USA’s Dow.

In the Russian political economy, oil prices exert the exact opposite effect as in the USA. Russia produces 9.7 million barrels of oil a day and consumes 3.1 million barrels (www.eia.doe.gov ). That’s a surplus of 6.6 million barrels a day. With prices off $40 a barrel, that’s $264 million less, per day, coming into the treasury.

Coming at a time when it looked like Russia was going to war, the ripples of Russia’s military adventurism last week can be seen in all markets…paper or metals. If there is to be a frenzied moment in the next few months, it will involve the overseas equivalent of a Fannie Mae, without the use of a US Treasury to bail it out.

Don’t worry about finding the bottom…average out your accumulations of precious metals.  If you are uncertain what to do at the moment, here is a list of the three highest yielding rates, and the savings banks paying them, from the current issue of Barrons …

Top 3 Savings Deposit Yields:

• Corus Bank, Chicago, IL 800-555-5710: 4.00%
• Zions Bank, Salt Lake City, UT 866-761-8349: 3.56%
• Everbank, Jacksonville, FL 888-882-3837: 3.51%

Comments

[MoDon:]

I sold gold around $800 and silver around $45-50 in 1979/1980. Today we have gold around $800, silver around $12.50. Adjusted for inflation gold should be what, $2000-3000? Please tell me how these PM are a good store of value. Thanks MoDon

2008 Sep 08 10:19 AM

[vespuce:]

If you go back bit further in time you'll see. Try 1900, 1800 etc. Getting in on at an extreme panic spike high to over-vauled levels at the end of decade long boom is unlikely to yield good returns over the next few decades. However, if like me you are incredibly gifted (aka lucky) and can time the market, the returns looks far better. I bought a ridiculous amount of gold in 2001, and was quite late to the silver party with my first large physical position taken in 2005. That wealth is not just protected, it appears to be growing at about 25% pa.

Best advice, as above, it to accumulate over time, especially after the big corrections.

2008 Sep 08 10:51 AM

[MoDon:]

Thanks vespuce, I was gifted(aka lucky) too back then, bought in the 250"s sold $800's , silver at $5 sold at $45, your point is well taken, but not as a "store of value" , a trading vehicle, I bought more in 2003, looks pretty good right now, so here I am trying to decide to sell or buy more. Do you think we have had that "big" correction?

2008 Sep 08 11:13 AM

[vespuce:]

This is the mother-of-all corrections....and who knows when it will end. Technically silver looks very weak, I wouldn't be surprised if it goes lower to sideways for a few months. Market sentiment is shattered and a lot of people are heavily underwater - but that's all just short term trading noise. As a long term store of value, I don't think anything is safer than gold and silver.

2008 Sep 08 12:03 PM

[Kelly Liebe...:]

Vespuce, Ditto.
And as Cavuoto says,"Don't worry about finding the bottom, ..average out your accumulations."

2008 Sep 08 12:39 PM

[Lionheart:]

Paul and dork....you don't need to copy and paste your shorting riches.....

MoDon - Gold and Silver are a store of value if you believe that no fiat currency in the history of man has ever lasted 50 years. This is year 37 from when Prez Nixon pulled us off in 1971. If you would rather have paper, please sell me your gold and silver and I will give you paper for it.

2008 Sep 08 08:43 PM

[traderstraffic:]

Real gold and silver, worthless. It is so 1900s. Shortage not a problem. Mining stocks have tanked, worthless. Get with the program. Internet. You can buy the paper in seconds and sell in seconds. Who cares what they can pull out of a mine. We have paper now. Real gold and silver, how long does it take to sell it at ebay, coin shop, the market moves to fast for that. Use the internet, in seconds you can make a fortune. Use the paper for real wealth.

2008 Sep 09 12:05 PM