My Home     About Me

0920 EDT Thursday May 10, 2006

Good Morning: Gold prices closed higher again Wednesday May 10, after briefly pulling back in the June 2006 contract at 705.7, in what may be a developing upward running selfcorrecting pattern that tends to have very bullish implications and invariably the resolution is to the upside and often hallmarked by a considerable upward surge or blowoff. It is also interesting to note, that following our comments on the expanding premium of Platinum and Copper over Gold during the past few days, tends to strengthen the case for a continuing bull trend and renewed strength as these developments actually signal that the overall advance is actually getting stronger, the higher we trade, most in particular, as evidenced by Gold's largest advance in 26 years and in a near limit move. When we predicted to the day and almost to the hour the first Silver limit up move in over a decade, when it broke out over $11, we explained the monumentally positive implications of this, in terms of how traders on the floor of the Comex might have been in diapers the last time this happened. In other words, not only was it a rare event of decades in the making, what it was really issuing was the biggest "Buy Signal" on Silver in a generation and Silver proceeded to accommodate our aspirations soaring almost unabated from that point in one of the most spectacular upmoves since 1980 & 1982 - '83.

What is intriguing right now is how Silver is juxtapositioned in relation to Gold. Initially Silver led the way higher and Gold was subdued and then once Silver peaked at $14.74 and in spite of its convincingly sharp correction, Gold took over the metals leadership along with Copper and to a lesser extent Platinum and Palladium. The good news for the bulls is, the leadership is not only rotating and in doing so it is quite remarkably, actually strengthening the entire metals sector advance. The fact that the initial leader to make new all time record highs being Platinum, having resumed its leadership in a truly dramatic surge to extremely sharply higher new all time records as high as $1,280 in recent days is fascinating in of itself and tends to bode extremely bullish for the entire metals sector. It's not unlike how our favorite US market index, the S&P 400 MidCap has been leading and soaring to all time record highs since '03. On top of all this, Palladium is now knocking on heaven's door at $400 per ounce and appears poised for a powerful breakout through there, that could put it on a path to $500.

All we need now to throw some more Gasoline on this inflationary fire, would be for Silver to break out to new Century highs and we will be off to the races again, as this would be like the five horsemen of the Metal's Cavalry in a race against time to beat one another to the next new highs, that as we mentioned yesterday, could put Silver heading for $18 ~ $25 and possibly even higher, especially in light of BHP's recent comments that there is expected to be a severe Global shortage of Copper until the year 2008. Then, since Silver is quite often a bi-product of Copper production, it stands to reason why Ian Telfer, Chairman of Goldcorp GG, predicted that Silver could spike as high as $18 and soon and another well known analyst added fuel to the Gold fire yesterday calling for Gold to soar to $1,000 plus within 8 months.

That is one of the reasons why we ourselves have been raising our numbers, more in line with where we see the ratio of Gold to Crude Oil at a more 'normalized multiple' of around 15 times the price of a Barrel of Oil, that could easily, temporarily overshoot to beyond 20, seeing that it came from an extreme low of 6.5 to a current level of 9.5, would place Gold towards $1,125 per ounce, at current price levels and Oil at $85 would place Gold up near $1,275. Should this in fact occur over the next year to 18 months, it would strengthen our bullish scenario for Gold to reach 1,785 by 2010 and 3,700 by 2019. And just yesterday, Gold in the December 2010 Contract, as we predicted months ago, would soon soar to new all time record highs, yesterday recorded the highest closing Gold price in World history at $892.5 per ounce.

Should this scenario unfold, where we essentially could run to as high as $1,275, then we might have to adjust our longer term thinking to reflect a possibility that Gold's days as a sub-$1,000 per ounce commodity might be numbered. While we could get a correction back below 1,000, just as happened $200 dollars ago at $500 that scared a lot of players, but not us, out of Gold at $480 back in the then spot month that incidentally and most curiously, happened to correspond with an exact low-point of $504.2 in the current 'spot' June Contract, something similar might happen above $1,000 where future months might never see this level again for the rest of time, just as $500 Gold is already becoming a distant memory and if that's not enough consider how the premium of Dec 2010 over spot has almost reached $200.

Remember, the World is running out of Gold and the last major World class discoveries of Gold identified in 1994 are now only just about to get on line and begin to work up to full production towards the end of this decade... Meanwhile other reliable mines that have been there for the Gold market for Centuries are simply running out of Gold at an alarming rate and the news that China intends to increase its Gold reserves from 600 Tons to 2,400 Tons, just blew away the market psyche yesterday, as the realization that this takes another year out of the supply side equation, dropping remaining supplies down to 11 years, is gripping Gold traders around the World and sending shorts into a panic that is causing windows on Wall street to be sealed tight, to prevent accidental over-reactions by traders who are too-heavily short.

In conclusion, if China is considering boosting its Gold reserves by 400% or more, who else is thinking along the same lines? For sure the thousands of Saudi Royalty must be stockpiling Gold inside the big underground vault, inside that Swiss mountain way under the alps, in anticipation of their day of reckoning, should it ever come sooner or later and the Russians have held no secrets expounding on their desire to create The Kremlin's version of Fort Knox and to be sure the Indians must be also considering these options. As we predicted eons ago, that heads would roll at the Bank of England for selling out the British Treasury of their most precious Gold reserves built up over decades, and costing the country at last count going on $4 Billion dollars: Not only did head's roll, like hasn't been seen since the Guillotine days of Old London Town: The Guilty are the subject of ridicule in the tabloids for their incredible ineptitude and misdeeds against the Kingdom.

Trade Well
From the Desk of Savant

Basic Materials sector   Technical chart patterns   support/resistance levels   ETFs (exchange traded funds)   Deron Wagner   iShares Hong Kong (EWH)   S&P 500 chart pattern   emini's S&P 500   earnings   economic data   Biotech HOLDR (BBH)   Emini's Nas 100   Short selling ETFs   exchange traded funds   sector rotation   etfs   corn futures   selling options   commodities   mcio