Listen to the Markets, Not to Them

Last week we suggested a post-full moon downtrend in the precious metals markets and it’s now in full swing.  The market downturn coincided with the following events:
- Banks such as Credit Suisse reported further losses
- Last week’s major decline in Shanghai
- Record high oil prices (gold and oil often trade inversely, many US companies suffer from high fuel costs);

Gold’s unpopular little cousin, Silver, got some negative attention from a Forbes writer who doesn’t think silver’s fundamentals look good (Forbes Article).  According to the writer, since silver’s industrial demand is slowing, there’s reason to expect a long period of decline.  Such an outlook fails to realize the reason for the decline.   Using silver is simply too expensive for companies.  There’s simply not enough of it for industrial use and market forces are showing us that silver is money and not abundant scrap metal.

Hidden in the article is an even more important reason why silver is such a good investment.  Its production in relation to gold is 1:8.  Silver’s actual price ratio to gold is 50:1. Market forces will correct that gap.  Besides, there’s still demand for silver from the ETFs, smart investors, and according to Forbes, “rising incomes from emerging markets such as India and China.”

The article also mentioned the Goldman Sach’s 2008 prediction that silver would be $15.50/oz. and gold $835.  Well if you listened to their prediction last year, you would’ve sold your silver and gold positions at $13 and $ 780 respectively (silver and gold currently trade near $17 and $900).  Listen to them if you’d like, and you will be left behind.

As aforementioned, the recent downtrend in precious metals and mining stocks have brought prices to support levels.  If support tests are confirmed today, then expect a small uptrend between Thursday and the new moon.  Today and tomorrow should provide great buying opportunities, especially for our mineral stock plays ANO and RBY.

Trend in Review

April 18, 2008

Today concludes the recent uptrend that we had forecast for the markets. As we approach a full moon on Sunday, expect a small downtrend by Tuesday (April 22) at the latest.

The commodities markets and commodities stocks saw tremendous gains over the past few weeks. The funny thing is that commodities, namely gold, encountered a hoard of negative news during this past 2-week period. Just take a look at the following items:

- The IMF announced its planned gold sales

- The Fed announced uncertainty about more large interest rate cuts (http://www.washingtonpost.com/wp-dyn/content/article/2008/04/08/AR2008040802911.html)

- Gold and Silver futures contract prices rose to $10,000 (from $1,500 just 5 years ago), making futures trading less desirable

- G7 meeting voices concern over sliding dollar (http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aymt1m00u8OQ)

-Gold’s volatility and high prices may hurt demand (http://www.ibtimes.com/articles/20070215/gold-demand.htm)

In spite of the bad news, mining stocks and commodities prices surged ahead proving the power of all market forces combined. Although some profit taking is likely over the next few days, the future looks great.

If you took our suggestions and bought after this month’s new moon, then you would have seen tremendous gains, especially amongst our recommended metals mining stocks (see 2008 Investment Guide).

For example, take a look at the major advances that have occurred over past few weeks:

RBY +30%
Rubicon Minerals (one of our premium penny stock picks) told investors to expect higher amounts of gold at its Ontario, Canada mining site. If you’re thinking about owning the stock for 2008, then wait until it corrects to between 1.30 and 1.40 before buying.

ANO +25%
Anooraq Resources (ANO, another recommended penny stock), released further details of its successful acquisition of Lebowa Platinum’s mining sites in the Bushveld, South Africa facilities. Moreover it reported an increase of 7,7% in discovered minerals at the site. Wait until the stock corrects to the 3.40’s before buying in.

AGT + 15%
This week, Apollo Gold (another premium penny stock) announced the completion of its Black Fox pre-feasibility study and is valuing the project at over $300M.

Finding new mineral deposits is the most reassuring thing in the metals mining sector. Such news confirms that the companies’ futures are bright and their stocks are safe for investment.

As stocks continue to climb, some are asking, “Is the sub-prime mess really over?” Think again! Just when things seem to be improving, more awful sub-prime news surfaces. This time it’s yet another detrimental loss for Merrill Lynch and Citigroup. The former posted a $6.5B loss and 3,000 planned lay-offs and the latter posted a $5.1B loss and 9,000 job cuts. Do people actually trust these “money-managers” with their money?

The interesting thing about the scenario was that in spite of the news, the markets surged ahead. The DJIA was up by over 230 points today. Usually when the banks are posting huge losses and huge job cuts, market sentiment turns sour. Today, there was purely an upward trend–also unusual for a Friday.

The market is sending us a clear message: everything will be alright–at least if you have the right investments like we do. No, the sub-prime/banking disaster isn’t over, but there are still great investment opportunities. So, wait for the next correction (after next week) before jumping in.

New Market Trend

Tuesday, April 8, 2008

Technical Analysis Charts are important indicators about future actions, but they aren’t perfect. Whenever unsure about what the market’s technical analysis indicates, exercise extreme caution. Uncertainties can also be addressed by looking at current market news and analyzing the time of a present market trend. A University of Michigan study (http://www.freerepublic.com/focus/f-news/1748325/posts) has shown that most market trends are positive during the period between a new moon and a full moon (waxing period) and most losses are seen thereafter (waning period).

Sunday’s New Moon commenced a new trading trend for the markets on Monday. We all witnessed precious metals/commodities approach the MACD crossover (some mining stocks have already done so) and send bullish reversal signals. Yesterday was unsurprisingly bullish and commodities like oil, hit a record high around $109. Today, the story was different.

Coincidentally, the IMF released news this morning (before the markets opened), of its plan to sell 400 tonnes of gold over several years in order to raise money for its endowment (http://www.miningmx.com/gold_silver/640731.htm). As a result, the markets and commodities experienced profit-taking across the board. Despite the IMF’s actions, gold and silver decreased by less than 0.5% and began to rebound by today’s close.

The news was meant to tame the present upwards thrust in commodities prices. The news shows that the banks will do whatever it takes to scare you out of deciding to own precious metals and to convince you that inflation is not as bad as it seems.

If precious metals owners are weary about the IMF’s actions, just recall the brief history of central bank gold sales. In the 1990s European central banks began massive gold selling as a requirement of the newly formed European Central Bank. What’s most ironic is that these central banks sold most of their gold at a period low. Had they waited until after 2001, they would have been able to sell their gold at much higher prices.

Gold selling helped to keep metals prices low, but did not cause the decline. Technical analysis pointed to a downward trend beforehand; the gold selling only helped to keep prices artificially lower than what they should have been. The proof is that gold sales continue today, but the price of gold is up over 300% since 2001. Furthermore, gold is worth a lot more than its price currently dictates.

About 500 tonnes of gold are already sold annually under the Central Bank Agreement. As you can see from the chart (on the following link: http://news.goldseek.com/GoldForecaster/1178295571.php), most of the central banks that had been selling gold are running out! Belgium, Spain, Switzerland, the UK and the US no longer have gold to sell.

To reiterate, the IMF will be selling a small amount over a large period of time–not nearly enough to cause a major dent in the market. So just consider the IMF the new central bank gold seller, in lieu of all the other central banks that have run out of gold to sell.

Gold is not just a measure of inflation, it’s also a luxury item so it’s important to analyze its increase in demand. New affluent classes in China, India, Russia, and Brazil will boost gold’s demand in the foreseeable future. India, the world’s largest consumer of gold is a little different because even the average Indian thinks very, very highly of gold and will seek to acquire more as they get wealthier. Contrast the average Indian with the average American who actually thinks negatively about gold. Next, you have to factor in all the central banks of the world that aren’t selling, but buying–namely, China, Russia, the United Arab Emirates, and Japan. Finally, you have to consider that less and less gold is being mined each year. Now, China is considered to have the last known major gold deposits left (of course there are other smaller ones scattered about).

In conclusion, don’t worry about the IMF news because technical analysis points to higher gold prices in both the immediate term and long term. Bad news can only influence a trend, but all market forces combined will determine its outcome. If buying gold at this time still makes you feel uncomfortable, then silver is certainly a better option. The IMF and most central banks can’t sell silver because they don’t own any! Right now, the largest amount is held in the precious metals exchanges and the Silver ETF fund. In fact, most investors are clueless about just how little silver there really is.

Unlike gold, silver is widely used as an industrial metal. Such industrial consumption has taken most silver out of the market and has made it rarer than ever. Like gold, silver’s price has been able to remain artificially lower than it should be because manufacturers want to keep the metal at an affordable price. In fact, silver is so undervalued that it’s price ratio to gold is 50:1 instead of the 10:1 natural ratio that has existed throughout human history. Proof that silver is the better investment lies in the fact that its price ratio to gold was 100:1 just a decade ago and that silver has outperformed gold on a yearly basis since then. So consider this a silver investment opportunity.

Dollar Woes

Originally posted on Good Friday, 2008 at argmaur.blogspot.com

The markets are closed in the US and we wanted to analyze this turbulent and confusing week of events. In October 2007, we warned our readers that the financial house of cards was falling (http://33sis.blogspot.com/2007/10/timberrrr.html). What we didn’t expect was such a long, drawn out process! Just when it seems like it can’t get any worse, another negative report surfaces. Expect this to continue as Credit-Suisse today just reported huge losses.

The important lesson out of the whole fiasco is that the Fed can influence the situation. This is a no-brainer for us who already know that central banks constantly interfere in this supposed “free economy.” So how did the Fed interfere in the situation? It printed more money to cover for bank/investment firm losses and lowered the funds interest rates to spur borrowing.

The first major consequence to printing excessive money is a sure bet that the dollar stays low. Countries like China, Japan, United Arab Emirates, and Saudi Arabia will soon find NO reason at all to keep their dollar reserves, especially when there are other currencies and commodities that are rising exponentially against the US dollar. Each of these countries has already stated their desire to decrease their USD reserves. If they speed this up, the dollar will go down even more quickly. (Perhaps that’s why the Fed stopped publishing M3 money supply figures–see: www.inflationdata.com/inflation/Inflation_Articles/M3_Money_supply.asp ).

The other consequence of the Fed’s actions is just as harmful to the value of your dollar. Within the next 3-12 months, you’ll start hearing economic pundits and news anchors using the term “Dollar Carry Trade” as bank investors from all over the world will start borrowing US dollars (2.25% interest rate) and perhaps investing them in Icelandic Krone or South African Rand, which offer an astounding 13% interest rate. The real problem with creating a carry-trade is that the value of the dollar goes down. One need only look at Japanese Yen, which, during the height of its carry trade saw a low against other major currencies.

So why is the Fed lending so much more, during a “credit crisis” ? Wasn’t all the lending the problem in the first place? Well now we’re talking about loans to bank and investment firms instead of working class and middle class families.

Whenever you hear about a Fed decision, always remember that it doesn’t have you in mind. They could care less that your dollar buys less and less each day. A weak dollar means a boost in US exports and an increasing gap between the rich and poor. Moreover, the Fed wants to restore the world’s confidence in its financial system by demonstrating that it will bail out the banks in time of crisis.

So, what could we expect in the next few days, weeks, and months? More money circulating means the value of the US dollar will tank faster than we’ve seen in decades. Since the markets haven’t been this volatile in over 50 years, many will see that owning commodities, specifically precious metals are the only true and guaranteed store of wealth. 2008 will begin an enormous commodities buying spree, so don’t be left behind. Stay posted for 2008’s upcoming buying opportunity.

Beware the Ides of March

Originally posted on March 21, 2008 at argmaur.blogspot.com

The soothsayer told Caesar the same thing I tell fellow investors: “Beware the Ides of March!” It’s actually a good time for me, because I know that it’s when commodities prices correct from a previous new high. It also signals that an excellent buying opportunity is imminent.

This year’s Ides of March was a Saturday, but commodities and most of the market took a huge tumble on March 13th and 14th. This week, the markets jumped back up in some of the largest single-day increases in decades.

Today also marks a full moon, which affects market sentiment. Coincidentally, gains are highest prior to a full moon.

You have to realize that the Cosmos impact investing cycles (technical analysis charts show you these trends). Today begins the Spring Equinox as we have a new position in relation to the sun, signifying rebirth and renewal. Mars, also a symbol of birth and fertility can be seen relatively close to our full moon. These changes in cosmic activity at one time undoubtedly affect everything on earth at a subatomic level. The investors and the markets are no different.

Commodities did not see big gains before the full moon. But, as coincidence would have it, this year commodities corrected before Good Friday (the death) and will rebound after Easter Sunday (the rebirth). News of the commodities bust was plastered on all the major news sources. But in the next few weeks, you’ll see commodities prices rise steadily. Inflation just got a boost from the Fed this week and commodities can only go higher.

If you compared each year’s gold price since 2001, you’d see that buying after mid-March is the safest time to buy (http://66.38.218.33/scripts/hist_charts/yearly_graphs.plx). It’s safe because January – March is always a volatile time and it’s tough to predict a top and bottom. One thing is certain, in a commodities bull market, appreciation comes soon after the Ides of March and as soon as commodities prices start to trend upwards, prepare for an entry strategy.