Gold & Silver - This time it IS different!

Peter Degraaf
Sep 21, 2007

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness..." Charles Dickens 1867 (A tale of two cities).

Gold and silver bulls finally have something to be REALLY excited about, - for the first time since 2005, when gold broke out at 450.00.

Charts courtesy www.stockcharts.com

The breakout in September 2005 resulted in a rise of 275.00, from 450 to 725.00. A similar target for this move is 975.00!

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Featured is the SLV, silver ETF. As of this morning (09/20), the SLV (as well as silver bullion), is breaking out above the 8 month old down-sloping resistance line (blue arrow). The RSI and MACD are confirming the move, in fact these two indicators predicted it a day or so ago. The green arrows are our targets for this move. The last COT report was very bullish for silver. We can assume that silver 'shorts' are running for cover at this turning point!

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Featured is the HUI index of unhedged gold an silver stocks. Normally we would conclude that this is a good time to sell. Price as well as RSI and MACD are all at resistance levels. But what if THIS TIME IT IS DIFFERENT? If the HUI closes for two days above 400, we'll know that this time it really is different. Then, once the breakout is tested, we can expect the area between 380 and 400 to offer support.

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Featured is the US dollar index. The dollar is trading below a multi-year support level.

There is some technical support at 78.50 but even if the dollar turns there, it will have a difficult time rising back up through the 80.00 level, as 'support on the way down becomes resistance on the way up".

For the dollar this is in the words of Charles Dickens: "The worst of times".

The Canadian dollar is trading at par to the US dollar today, (for the first time in about 40 years if my memory serves me right).

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Featured is the S&P 500 index. The cut in interest rates this week was 'the best of times' for the main stream stock indexes. But now all the good news is 'in the market'. Overhead looms long term resistance. The fundamentals represented by the slumping housing market and unsolved credit market problems are a strong negative. Mr. Bernanke has already shot his best arrow. There only so many arrows in his quiver! While it is always difficult to pick the exact top in any market, this chart is a serious candidate. The most likely target is the green arrow at the rising support level.

Summary:

Sometimes we allow ourselves to get too 'close to the trees to see the forest'.

Here are some thoughts to keep in mind, when your resource stocks suffer a temporary setback, listed in no particular order:

• The Federal Reserve is more interested in saving the economy, (especially the banking system), than in saving the US dollar.
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• The annual supply of gold increases by 1.6% (and this rate is declining), thus whenever money supply rises by more this 1.6%, we have a built-in multiplier.
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• US M3 money supply is currently rising at over 12%/yr (www.shadowstats.com).
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• Increasing world population translates into increased need for liquid fuel, hence higher oil and gas prices.
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• Militant Islam is committed to a multi-year war against the West. The USA and or Israel will most likely bomb Iranian nuclear targets, later this year, or early next year.
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• This time the French are co-operating. A French carrier force has been exercising with the 3 US carrier forces led by the Enterprise, Nimitz and Stennis.
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• No nation in history has ever paid its debts once monetary inflation became part of the equation. (Please read that again)! We can't blame the politicians for this, for we keep voting them back in!
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• Once the 2008 Olympics are over, China will likely make a move to annex Taiwan.
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• At some point worldwide currency increase will go exponential. I wrote an article on exponential trends. To read it visit www.pdegraaf.com (under archived articles).
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• If you are within 10 years of drawing a government pension, you will likely never see it.
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• The price of gold and the Dow will likely meet at the same price level. (It happened at least twice before).
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• On the home page of my website is an article I wrote a few weeks ago on the subject of money. I invite you to share that article with your friends and relatives, who may still have their heads in the sand.

Peter Degraaf
email: itiswell@cogeco.ca

Peter Degraaf is an on-line stock trader with over 50 years of investing experience. He sends a weekly Email alert to his subscribers. For a 60 day free trial, contact him at ITISWELL@COGECO.CA

Disclaimer: Please do your own due diligence. I am NOT responsible for your trading decisions.

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