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It is time to be more cautious...

Morris Hubbartt
Weekly Market Update Excerpt
posted Apr 8, 2011

Gold and Precious Metals

SIVR (silver bullion proxy) Chart

Chart Analysis

• It is time to be more cautious in the silver market. My latest profit-taking alert was at $37.32 for SIVR.

• We may be entering a dangerous phase where price could shoot $4 or $5 higher very easily, then fall very hard and fast, causing great harm to investors! $50 remains my technical 12 month target for silver, but now is a time to be careful. Some of the smartest money I know is growing more and more cautious about the short term trading situation for silver.

• Until further notice, unless you are a wild gambler, I would suggest you allocate 50-80% less capital than normal to SIVR trades. Trading smaller keeps you in the game, as well as safe if there is a big fall. Unlike gold, the corrections in silver can be terrifying if you have too big a position. The key right now is not to sell out, but to trade in much smaller size.

• In the biggest picture, owning the physical product is an absolute necessity. I am holding large core physical positions in silver, and those are untouchable, in every sense of the word.

SGOL (gold bullion proxy) 6 Mth Chart

SGOL 6 Month Chart Analysis

• This week saw gold achieve a significant breakout above $1440. Gold has been lagging silver in the short term and I would urge you to focus your trading on gold for now, rather than silver. Congratulations to all of you who have held your gold market positions tightly through 6 months of disappointment. It’s not easy to go against market psychology, but rewards are big when you do!

• I said a week ago, “This huge precious metal bull market is now greeted with heavy skepticism….There are too many doubters, and that spells higher prices.” This move is the canary in the US dollar coal mine. The US dollar, technically, could be about to shock us all and go into free-fall. The stock market just underwent a fast 15% correction. That caused no visible damage to the global economy. A 15% correction in the dollar, which I am fairly certain is the minimum decline coming, may not be so kind to the world’s major economies.

• Backwardation. What gold backwardation mean for the dollar? The known amount of gold in the world is approximately $13-14 trillion, and possibly quite a bit less. That is miniscule in comparison to worldwide debt. The gold market is showing signs of coiling like a cobra, preparing to strike higher! It boils down to this mantra: get the physical metal, not just a paper contract!

SGOL 14 Mth Chart

• My trading system remains on a buy for gold. Note on the SGOL 14 month chart my “Reinforcement Volume Indicator”, which is suggesting that my $1500 gold target is about to be reached. The volume here on the breakout is suggesting higher prices. I will set new year-end targets if $1500 is reached.

Gold Juniors GDXJ Chart

GDXJ Chart Analysis:

• The key 12 month target for GDXJ is $75, based upon my gold to gold stock ratio. Price has broken out and is climbing a strong wall of worry and doubt. Investors may be shocked at the power and speed of movement of the gold stocks. Get ready for the ride!

• The foundation of the gold stock bull market is worldwide debt and currency debasement. With gold sitting at $1460 now it is hard for people to believe that the premier asset is undervalued after the already enormous multi-year run, but it is!

• At this time gold and gold stocks don’t show any of the signs of an imminent blow off top that I have seen in other sectors of the economy in the past. Price looks to be headed onward and upward!

GDX 6 Mth Chart

GDX Chart Analysis:

• I just issued a signal to book profits on GDX on Wed, Apr. 6th. GDX is already closing in on the 12 month target! As bullish as I am on the entire sector, you must take trading profits when price gets elevated. Technical signals can be erratic when gold’s price becomes volatile, which is why I have raised the core position level to 65%.

• Enlarging your core in this metals bull market. The SFS Gold Stock Ratio shows a $72 price target for GDX in 12 months, which is realistic.

TLT (US BOND Proxy) Chart

• I want to focus your attention on the bond market this week rather than the dollar. Both the dollar and the bond market are painting a troubling picture. I have a sell signal on the bond market. Note the death candle on the chart; a hangman’s noose accompanied by a SFS sell signal.

• The problem is debt. The US bond market faces junk bond type problems with very little yield. That is going to change. Why own a government bond with this enormous looming debt? Yield goes higher and price goes lower!

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