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Saturday, June 11, 2005

Gold, Euro, the US Dollar and Silver

During this bull market in gold and silver the highest high gold made in Euros was back at the beginning of 2003 at about 351.5, until Friday of this week where it broke through that high after all this time, to a little over 352. "Price action makes market commentary.". Europeans are waking up to gold. The Japanese, traditionally and still are big savers, still are not hot on gold. Not to worry. Just more demand waiting in the wings.

Gold and silver usually move inversely to the USD on daily charts. However, in a small way, a few times, that did not hold true in the last month or so. This Friday the unusual happened again but in a substantially bigger way. The USD went up about .75 while gold went up over 3. Highly irregular. Gold would have normally gone down 2 or 3. To me, what happened today was smart buying of what was gold weakness since the USD went up substantially. It is just that the buying of gold weakness was so much, panicky even, that gold went up substantially. That was smart buying of weakness but a lot of it. The timing makes sense when you look at the long term charts. The big buyer in New York was JP Morgan (usually smart money or represents smart money). It doesn't matter much whether it was for their own account or their clients' accounts. It was smart buying.

Unusually, open interest for gold is low which historically is bullish while the opposite is true for silver. In silver the commercials have big short positions while the spec funds have big long positions which is normally historically bearish for silver. One of these days the commercials are going to panick and start to get out of their short positions while the spec funds hang on to their big long positions and there is a big take off in the price of silver. By the end of next week we'll have a better idea if this is about to happen.

US 30 and 10 year Treasuries were down on Friday. "Money" coming out of US Treasury debt. Where is it going to? Did it go to gold Friday? Those big outside reversal days in the 30 and 10 year US Treasury debt are still holding.
The 30 year bond
The 10 year note

Maybe some are waking up to the crazyness of hanging on to that junk at these high prices. Particularly since there is a tsunami wave of higher prices heading for the US. Higher prices mean higher interest rates which mean lower prices for 10 year notes and 30 year bonds. This is a good time to be selling or getting out of government or corporate debt since their prices are sooooo high right now. Increasing interest rates go hand in hand with bull markets in gold and silver. Interest rates are historically really low right now. It looks like there is a lot left to the gold and silver bull markets both in time and price.

One more thing. The USD looks like it is doing good if you look at the USD Index or look at the USD vs. the Euro. It is, but there are other important fiat tokens out there. Compared to the Canadian dollar and the Japanese Yen the USD is *not* doing that well. Neither is it doing well against raw materials.

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