Sep 05 Trading Thoughts from The Value View Gold Report Ned W. Schmidt 321gold

Trading Thoughts
from The Value View Gold Report

Ned W. Schmidt, CFA, CEBS
Sep 05, 2005

TRADING THOUGHTS is about what the name in implies. The purpose of this publication is to promote timely and profitable trading of precious metals. We do not believe every turn in the market can be called. Our goal is that our recommendations should be profitable. These goals are not the same. Profits are the goal. Trades are not the goal. DO NOT EXPECT ALL RECOMMENDATIONS TO BE PROFITABLE. No system can achieve that lofty goal. TRADING THOUGHTS is not intended to be a lengthy news letter filled with witty comments. The goal is simply to state whether conditions in the precious metal's market are favorable or not. Traders are advised that unless they have exceptional experience not to trade against the basic trend. Trades against market trend not expected to be as productive as those with trend.

Basic Trend: Gold: Up Investors should focus on Buy signals.

Strategy: Positive, per Investment Policy of Oct 2004.

Investment Policy: Looking for buy signals, and holding long-term core position.

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Buy signal had been expected, but instead higher prices developed. For the week, Gold was up $6. Given choice between a buy signal and higher prices, most of us would opt for the latter.

The sell off on Monday/Tuesday was interesting. Apparently the funds were short oil and long Gold, a reasonable combination given the circumstances. The oil short was clearly going against them and Gold was not helping. They decided to lift the hedges by buying oil and selling Gold. That action pushed oil up and took Gold down. That action was close to a short-term, only, selling climax. Gold went up the rest of the week as reality replaced Street fantasies.

Little doubt exists that the hurricane's effect will be lower economic activity in the short-term, and certainly higher worry. That thinking leads to what the FOMC will do about interest rates when they meet on 20 September. Higher rates had been expected. The thinking is now that the FOMC will do nothing, and that view is reasonable. This Fed Res loves any reason for easy money. The thinking will be that the politically correct action is no rate increase, and possibility of a cut exists.

Weak economy and expectations of U.S. interest rates not rising sent the dollar down and Gold up. Short-term, Gold is over bought. Expect moderation next week. That said, a new high for $Gold is likely during September.

Basic Trend: Silver: Up Investors should focus on Buy signals.

Strategy: Positive, Per Investment Policy of October 2004

Investment Policy: Emphasize Buys

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Gold is leading at the moment, given the background circumstances. Silver is going to follow. Both measures for Silver are coming off over sold conditions. That action suggests higher prices are likely.

Traders will also be looking around for other action after the Gold market's move last week. Silver should have an up week, and $7.25 is likely by end of week, and $7.50 a possibility. Prospects for Silver's price is extremely positive in the environment of the next few weeks.

Recommendation:
Hold your existing Gold and Silver positions for higher prices, and further profits!

SOME OTHER THOUGHTS:

Periodically some graphs that we have used in either the monthly letter or in a posted article may be of continued interest. We will run them on this page. The comments will be brief as the graph is the real message. Will appear when something interesting, and time permits.

Selecting an item for this page was not easy this week. Most everything seems unimportant relative to the aftermath of the hurricane. Sorting out the repercussion will take some time, and those that have appeared thus on the cable media thus far have been more superficial than normal.

A common thread of near idiocy is that the hurricane is good for the economy. Such nonsense was dismissed as reasonable long ago. Either Hayek or Von Mises, memory not sure which, noted that if this concept had merit a simple solution to economic growth had been discovered. Roving gangs would be hired to continuously break all the windows each week in all the stores. The continuous replacement of the destroyed windows would make the economy grow. Utter nonsense!

The hurricane will make one item grow, the trade deficit. Higher oil prices for higher oil imports will certainly follow. Higher level of imports of goods will too, due to lost production and replacement of lost goods. The dollar's slump this week in part reflects that reality.

The dollar, as shown in the graph, has been losing popularity without the problems of the hurricane. In the graph is plotted the amount of U.S. currency in circulation in the world. While the absolute amount is growing, the rate of growth has slowed. The solid line is the year-to-year change in U.S. currency in circulation. The seasonal bounce did not arrive. In short, around the world the U.S. dollar is being used less for whatever reason. Further weakness in dollar's value is secular trend, not a trade.

For the latest in economic news and evaluation, click on this link: http://www.gillespieresearch.com

Your Eternal Optimist;

Ned W. Schmidt
Ned W. Schmidt, CFA,CEBS is publisher of THE VALUE VIEW GOLD REPORT. That report nowincludes a weekly message, TRADING THOUGHTS, to help investorsidentify timely points for buying Gold and Silver.

You can join him for the Gold Super Cycle here.

His monumental report, "$1,265 GOLD," with 255pages and 98 graphs, is now widely known, and is available atwww.amazon.com or from the author. This work has nowbeen read by investors in over twelve countries.

Ned welcomes your comments and questions. His mission in lifeis to rescue investors from the abyss of financial assets andthe coming collapse of the U.S. dollar. He can be contacted atnwschmidt@earthlink.net.

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