Silver Price Break Out Leads Gold Price

This is a time to buy gold and silver. "The risk/reward ratio based on the fundamentals and technicals is superb. Historic gold investment opportunities of a lifetime don’t come around very often." said Bill Murphey of Lemetropolcafe.com today.

Bill Murphey says, "While gold closed in new low ground for the move and has broken down technically from a chart standpoint, the case builds for gold to move a great deal higher, not lower. Today’s low of $412.70 ought to be it."

The silver price which often leads gold price has already broken out and the gold price won't be too far behind.



30 day silver price, (More silver price history charts at silverprice.org)

The silver price didn't follow the gold price down on Monday. Silver broke out of its very positive bullish wedge/triangle formation and hit $7.50, before some profit taking. That is a rise of over 4% in one day!

If the silver price moves like this when the gold price is going down and the dollar is going up, What will it do when the dollar collapses and the gold price explodes?

Gulf Cooperative Council Considers Accepting Gold for Oil

A lecture titled:

Oil for gold or oil for paper? Financial stability, gold, and the
ongoing rise in commodity prices.

was organised by the Gulf Cooperative Council and held in Saudi Arabia, it was attended by prominent members of the banking and finance industry.

The Gulf Cooperation Council heard that it should should peg its proposed currency to gold rather than the US dollar or Euro in a lecture presented by Dr. Ferdinand Lips an expert in currency and gold and author of the book Gold Wars.

"Being in the midst of a global currency devaluation scenario, it is worth noting that while oil is the king of commodities, gold is the king of money," Lips said.

Lips pointed out that "oil is underpriced and that oil producers are not getting real value by pegging it to the dollar."

Lips said "currencies, investments, and every crucial economic factor in the GCC countries are dependent on the US dollar, which shows increasing signs of structural weakness. The Gulf Countries could escape potential financial disaster by looking at certain other investment alternatives."

Reasons to be Bullish on Gold

Bill Murphey from lemetropolecafe.com.com says "Could the set up for gold get any more bullish, at the same time when everyone is so bearish?"

Bill gives the following reasons to be bullish on gold:

1. The gold/silver stocks are on a tear, ending an 18-month bear market.

2. The Silver Price has broken out decisively.

3. Commodity prices are on the move again with crude oil price is closer to staring at $60 per barrel rather than at a $40 oil price predicted by many on Wall Street. It finished today at $51.85, up 84 cents per barrel.

4. The US dollar reversed course, falling against all the major currencies. It closed at 86.41, down .61. The euro rose to 125.79, up .61. It would seem a "NO" French vote has been fully factored into the euro.

5. Most gold pundits are bearish and out of the bullion and share market. Most of the rest of the investment world doesn’t even have gold on its radar screen.

For more reasons to be bullish on gold subscribe to lemetropolecafe.com.com

$900 Billion US Deficit Predicted for 2006 by OECD Report

Jim Sinclair of jsminset.com points out that the OECD has made a startling prediction that runs totally against market expectations that are based on comments from the Federal Reserve.

Jim says "First the Fed Chairman announced the dollar bottom and the bond trading major international investment houses followed his lead in the dollar.

Next the Administration made a major speech predicting a lower US Federal Budget deficit in fiscal year 2005 - without any doubts or reservations. Adding to this major economic statement was the definitive comment that the US Federal Deficit would be cut in half by 2009."

Then came this statement by the OECD which indicated that the final deficit, as Jim says the bottom line, the speedometer of money leaving the US, the measurement of dollars entering into international market, the USA’s Current Account deficit will in calendar 2006 reach the historic level of $900 billion. That would represent 6.7% of the predicted GDP at that time.

Jim says "If the GDP does not make its predicted level in 2006, then what a black hole of Calcutta the dollar will find."

OECD chief economist Jean-Philippe Cotis told the Financial Times: “We are not saying there will be a doomsday tomorrow morning ... but because the adjustments [to global imbalances] are relatively slow, we are running the risk that an accident will happen. [..] Time is running out – the numbers are getting big, big, big.”

Government Intervention Against the Gold Price

The Gold Anti-Trust Action Committee (GATA) reported today "Government intervention against the gold price has risen sharply since the middle of last year."

GATA said, the increase in intervention in the gold price was disclosed last week in the Bank for International Settlements' (BIS) semi-annual report on the issuance of derivatives by major banks and dealers in G-10 countries.

The report was studied by GATA's consultants, James Turk, founder of GoldMoney and editor of the Freemarket Gold & Money Report; Michael Bolser, editor of the Interventional Analysis newsletter; and Reginald H. Howe, gold market analyst and principal of Golden Sextant Advisers.

James Turk described the new derivatives numbers from the BIS as "stunning" in regard to gold. Turk said "In major banks and dealers in the G-10 countries, the total notional value of gold derivatives rose from $318 billion at mid-year 2004 to $369 billion at year-end. "That $51 billion increase (32-percent annual rate of growth) occurred while gold miners were reducing their gold hedge positions. The reduction in hedge positions by mining companies should have resulted in a decrease in the aggregate position in the BIS report. That it didn't happen suggests that the international economist Frank Veneroso is right."

Here's what Frank Veneroso had to say in the March issue of Gold Newsletter:

There is only one possible explanation for why purchases of thousands of tonnes of gold in the futures and forwards markets do not blow the price of gold sky-high: The official sector must step in on gold price rallies as an offsetting forward seller.

How much more gold can governments dishoard to throw at the gold market to keep the price down? "The answer," Turk says, "is of course unknowable, both to us as well as to the governments intervening in the gold market. At some point the banks executing the government positions are going to reach the tipping point, when the free-market demand for gold overwhelms government gold price capping. I think that moment is near for one important reason.

"Price capping in gold can be prolonged only by continually supplying the market with physical metal. Right now the demand for physical metal is strong. So governments can sell all the paper derivatives they want, but it isn't going to stop people from buying metal. In fact, the low price of gold resulting from government price capping is causing the demand for physical gold to increase."

GATA's findings on the latest BIS gold derivatives report can be found here:

BIS Gold Derivitives Report

GATA Chairman Bill Murphy said this new evidence of government intervention against the gold price should compel mining companies to be represented at GATA's Gold Rush 21 conference in Dawson City, Yukon, Canada, on August 8 and 9. "Gold Rush 21 will hear presentations from gold and silver market experts from around the world," Murphy said, "and will develop a plan of action to restore free markets to the precious metals."

Information on Gold Rush 21 can be found here:

Gold Rush 21 Conference

Reasons for Gold Price to Increase

Alex Wallenwein of a1-guide-to-gold-investments says that the main stream press is suddenly reporting on the reasons why the gold price will increase, despite gold analyists reporting these reasons for over 2 years without any mention in the mainstream news.

Alex says the reasons being stated for the gold prices to increase are:

1. An under supply of newly-mined gold.

2. Gordon Brown striking out on his IMF gold sales proposal, with the US opposing it.

3. The Washington Agreement supporting gold by being generally against excessive Central Bank gold sales.

4. The real possibility of Asian countries buying whatever gold the European Central Banks dish up.

5. The never-ending story of the US trade deficit.

6. Gold is a "de facto currency" and therefore not subject to demand deficiencies caused by world wide economic slowdowns.

7. Gold is an inflation fighter and they can see stagflation approaching.

8. It's a natural hedge against the US dollar.

9. It traded predominantly between $420 and $435 this year, thus setting a new price floor, which is considered a "strong buy signal."

U.S. Employment payrolls - Net Birth / Death Model

Todays gold price was down $6 apparently on the news that U.S. employment rolls increased to 274,000 last month, which was much higher than the average estimates from Wall Street.

Minutes after the news came out, Retuers said: "Gold futures in New York fell sharply in early trading Friday as a surprisingly strong U.S. April nonfarm payrolls report boosted the dollar and dulled the allure of bullion for investors."

The article came out so fast its almost like they new in advance!

The dollar rallied in response we are led to believe. Which apparently undercut futures prices for gold.

"In the case of gold, prices moved precipitously close to its 200-day moving average" said Dale Doelling, chief market technician of Trends In Commodities, marketwatch.com reported.

"A close below this critical support level ... could tip the balance in favor of the bears for some time to come," he said. "The mid-April lows are the only thing between here and the logical downside target of $400, and this level could be reached quickly if we see some serious long liquidation in the event the market does break key support."

The Philadelphia Gold/Silver Index (XAU) was down 1.3%, the CBOE Gold Index (GOX) was down by 1.4% at 74.53 and the Amex Gold Bugs Index (HUI) dropped 1.6% to 182.07

Bob from Bob's Gold Price Column said "it's almost as if the G7 central banks were ready to buy the dollar as soon as the report came out. To conserve gold and silver they may be goosing the dollar instead, spending their foreign "currency" reserves instead."

"By tonight or tomorrow we'll have reports with the magic (hedonic
adjustments and all those type things) subtracted from this employment number so
that we'll have the real number. It could even be a negative number.

Just make sure you're taking the red pill. The spin out there is really
something." Bob says.

This is from the U.S. Department of Labour Bureau of Labour Statistics website, which produced these employment figures based on their Current Employment Statistics Net Birth/Death Model:

" The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend. BLS will continue researching alternative model-based techniques for the net birth/death component; it is likely to remain as the most problematic part of the estimation process."

There is a little table on the U.S. Department of Labour website that says they estimated 257,000 of the 274,000 jobs in April using CES Net Birth/Death Model. That means that only 17,000 real jobs were actually created, the rest of the jobs were hypothetical jobs created with a statistical model.

And the reason the gold price was down $6 was???

Read Bob's latest article Gold and Silver Market Bottom

UPDATE: The gold price closed down only $4 for the day after bouncing back up from the long term uptrend and the bottom of a large wedge / triangle formation that has been developing which is very bullish for gold.

Gold Bugs Index HUI / Gold Ratio

There are two major gold indices, the Philadelphia Stock Exchange’s XAU and the AMEX’s Gold BUGS Index (HUI). The major difference between the two is that the HUI index is made up exclusively of mining stocks that do not hedge gold more than a year and a half into the future.

BUGS is an acronym for Basket of Unhedged Gold Stocks. The HUI index was introduced on March 15, 1996 with a starting value of 200.

Eric Hommelberg of golddrivers.com has written a report on the ratio between the HUI and gold. He says that the Gold/HUI ratio has proven to be a reliable indicator for picking HUI bottoms.

Eric says that the current gold/HUI ratio points to extreme undervaluation of Gold shares compared to the gold price and that extreme undervaluation such as we have now never persists for a long period of time. He says that undervaluation will morph itself into overvaluation over time.

Eric says that if the gold/HUI ratio predicts a bottom in gold stocks (which he says it is doing now) and the price of gold is in an uptrend, then a powerful rally could emerge in gold stocks. On previous occasions when the gold/HUI ratio has predicted a bottom in gold stocks and the price of gold has been heading north it has led to HUI rallies of at least 50% in only a few months.

Eric says that this gold stock rali is supported by the gold price being in a classic triangle pattern which has to break out soon and if its to the up side of its current triangle pattern, it could lead to a powerful gold price rally with a price projection of $470 - $480.

Symmetrical Triangle Formation

Clive Maund describes a symmetrical triangle formation in gold and silver.

Symmetrical triangle formations can break either way. However, Clive says other factors normally provide clues as to the probable direction of breakout. Clive says the fact that this triangle formation is above and within a zone of important support strongly suggests that an upside breakout is about to occur.

He says there are several factors pointing to an eventual upside breakout in the gold price and the silver price:



1. General long-term trend, which is definitely up.

2. On a 2 year gold price chart the lower line of the triangle formation, when extended back, is also the long-term uptrend line.

3. The gold price has rallied no less than 5 times from the long term uptrend line.

4. The importance of the gold price uptrend line is reinforced by the proximity of the 200-day moving average, near which we would expect reactions from intermediate overbought levels to terminate.

5. Given the clear validity of this long-term uptrend line, and the continuing upward march of the moving averages there is no reason to suppose that the breakout is going to be anything other than an upside breakout.

Currently, the moving averages are in positive alignment, meaning that a breakout could happen soon.

Clive says "This uptrend channel is very important - gold is an automatic buy whenever the gold price approaches the lower boundary of this channel"