Gold Nov 30th + Peter Shiff

Gold received a nice $34.10 boost today for 1.98% after new of the central banks and the federal reserve mentioned that they will boost liquidity to the banks if needed.  Hmm, an increase in digital dollars again?

The financial markets liked it with huge gains to the upside.  Money that was sitting on the sidelines was put to use today with European debt uncertainty in the background for now.  But it is a temporary 'fix' as the debt issue will inevitably rise again, it's just a matter of time.

Chart of the World Gold Index from mid June 2011 with a fibonacci retracement from the low of the summer to the high in late August / September.  Today's rally sent Gold up to the 61.8 retracement level and closing just above the 20 day moving average.

Should the US Dollar continue to decline in the short term, Gold may be able to break above the upper trend line and make an attempt at a new high or a triple top.

The Gold and Silver miners had a good day as well, following the appreciation with the metals.  Money may start migrating into this sector as more solid earnings are released.  Watch the HUI index for a potential breakout in December.

Here is a message from Peter Shiff regarding an entry point into Gold:

Silver was up .85 today for 2.64%.  Return year to date is 6.03%.     Gold's return year to date is 22.64%.  

Gold, US Dollar, SF Hard Assets Conference

Gold was up $25.80 today after the Thanksgiving holiday week.  It has formed a wedge pattern which typically ends with a move up or a move down breaking one of the trend lines.  Based on the US Dollar declining this week (more on that below), Gold should be on the move up at least for the short term.

If Gold should break to the upside, it should not be long before it tries to break through to a new all time high. It's now above the 50dma and the stochastics may now start an upwards trend from an overbought state.

The US Dollar Index looks like it is continuing to produce lower highs (see the post the other week regarding this).  Here is a 2 year chart of the US Dollar Index and it did get close to taking out the last rally high of 80.43, but it could only get up to 79.88 which continues the lower high trend.  It may be on a short term decline with should rally the US financial markets and Gold / Silver.

I was at the SF Hard Assets conference on Sunday and listened to Rick Rule.  He mentioned that there will an increase in volatility within the markets and the people that are prepared to trade it will be rewarded. (Buy low, sell high............he did mention that it is easier said than done).  He mentioned all of the things we already know like European debt, US Debt and if the 30 year mortgage rises from 4% to 6.5%, housing may drop another 25%.

He likes Gold and Silver as a store of wealth and select miners.

Sprott to purchase 1.5 billion worth of Silver for PSLV

From Commodityonline:

Canadian billionaire Eric Sprott has filed for the purchase of $1.5billion in Silver bullion for covering an expected demand in his Sprott Asset Management's silver ETF- PSLV. A $1.5 billion in purchase will require about 45 million oz of silver.

Such a large purchase has normally Lead to higher prices. Sprott's $580 million silver purchase in 2010 was accompanied by an almost 175% gain in COMEX Silver when prices surged from $18 to $49! The current purchase of $1.5 billion is almost 3 times the 2010 purchase and as such prices could easily double or even triple.

Barclay's iShares Silver Trust issue also witnessed rapid price acceleration. COMEX silver had doubled from $7.50 to $15 within 6 months till the launch of the ETF.

Based on the info above, Silver _may_ start moving to the upside in the coming weeks as more physical Silver is removed from the market.  I say _may_ because the CME, CFTC and the bullion banks may have other plans for the remainder of the year...   Mr. Sprott can be seen as the Hunt Brothers of the 2010/2011 and going forward.

UDS Index Nov

Here is a 2 year daily chart of the US Dollar Index which has a long term downward trend, but short term upside momentum.


Even though it is moving up (and Gold/Silver going down), it should only be temporary as investors are parking their money into the US Dollar due to volatility in the financial markets.  The Index is still producing lower highs over the last two years:
$88.71
$83.52
$81.44
$81.31
$80.43 (Last peak)
Current rally ?

The last peak of 80.43 was very close to taking out the last high peak of 81.31 in January of this year which would have broken the downward trend of lower highs. Keep an eye on the current upside rally, if the downward trend continues, the current rally (78.44 and rising) should not take out $80.43. 

When the European debt issue is in the news, investors will flock to the dollar.  If it does not make headlines, the dollar will drop again...  risk on, risk off...

Long term Silver trend

Long term Silver trend is up for now...

Miner snapshot - Richmont Mines

Daily chart of Richmont Mines (RIC) from Sept 2010 to Nov 2011.

Richmont broke out to the upside in Feb 2011 and even though it has been through a rather bumpy ride since then, the medium term trend is up. The trading range between the upper and lower trend lines remains intact.....for now.

Some fundamental information from their website:

Quick Facts

• The stock is traded on the TSX and NYSE Amex under the ticker symbol "RIC".
• Fiscal year-end: December 31
• Head-office: Rouyn-Noranda, Quebec, Canada
• Shares Outstanding as of December 31, 2010: 31.2 million
• Number of employees as of December 31, 2010: 407
• Operating mines: 2
• Mine currently being developed: 1
• Number of wholly-owned mills: 2
• 2010 sales: 68,123 ounces of gold
• 2009 sales: 59,733 ounces of gold
• 2008 sales: 70,945 ounces of gold
• 2007 sales: 46,193 ounces of gold 

Richmont Mines has been successfully producing gold for over 20 years.

Our vision is to become an intermediate North American gold producer through a combination of organic growth, strategic acquisitions and partnerships.

We are…

• A profitable gold producer, operating in a safe political environment;
• Well-positioned to initiate partnerships and/or acquisitions.

We have...

• Operational expertise in underground, narrow vein gold mines;
• A portfolio of exploration properties in Quebec, Ontario and Newfoundland;
• A strong, flexible management team;
• A healthy balance sheet and underlying asset value.

We DO NOT have...

• Any long-term debt;
• Any hedging contracts. 

Our Mission: Building the Next Generation of Gold

Over 2010-2012, our focus will be on making the following key objectives and priorities a reality:

• To operate 4 to 5 mines;
• To increase our annual production to 200,000 ounces of gold;
• To build reserves of 1,000,000 ounces of gold;
• To reduce operating costs;
• To initiate strategic partnerships and/or acquisitions;
• To sustain a comprehensive Investor Relations marketing campaign;
• To achieve valuation parity with our peer group of Canadian junior gold producers.

Richmont Mines has one mine in development and 10 exploration properties. This company may be one to keep an eye on going forward.  Their website:  Richmont Mines


Disclosure: At the time of this writing, GSR does not hold any positions in the company.

Gold - Trading range / consolidation

Not much going on with Gold lately. It is in a consolidation period after the run up in August.

Here is a daily chart of the World Gold Index over the past 2 years.  White boxes indicate the consolidation periods after a run-up.

It's a stepping stone pattern that has been repeated over the past 10 years. Everyone that has been dollar cost averaging into Gold has done quite well.  Both physical and the ETF's. (Investors of the precious metals ETF's should know that they will need to exit the trade should there be a divergence with the ETF and the physical price)

You can see that the current box has the tallest range over the past 2 years.  Gold dropped $52.30 today for 2.95%.  Get used to these numbers as volatility is here to stay and will most likely increase. I heard one interview where investor Bert Dohman mentioned that Gold will go up more than $100 a day in the future. The way things are going, I think that statement is pretty much a fact.

Amex Gold Bugs Index - HUI

The Amex Gold Bugs Index (HUI) has been in a trading range for just over a year and will eventually break out to the upside. Why to the upside? Barring any stock market crash or downturn that takes everything down, the Gold and Silver miners are producing excellent earning as they have been selling Gold over $1500 an ounce and Silver over $35 an ounce.

Here is a weekly chart of the HUI index going back to 2002 with the current consolidation period indicated with the rectangle blue box.

The HUI is in an uptrend and is trading between the upper and lower major trend lines with the exception of the 2008 financial market crash.  It is trading near the lower trend line, but a breakout above the 600 area should send shares of solid Gold and Silver miners upwards.

Here is a daily chart of the HUI with the consolidation period indicated with the blue rectangle box.

I've heard that many mutual funds and institutional investors do not know how to evaluate mining shares, so they just stay away from them and invest in a 'regular' company that they understand.

Some may say that the miners have lagged because certain people believe that Gold is in a bubble and it will crash down any day. If that should happen, the miners will have a huge sell off...

With enormous debt in just about every major country, Central banks and the Federal Reserve only know how to deal with the problem with one solution. Increase the money supply or 'print' more fiat. It's really just digital money and $100 bills are not being printed. Image looking at your bank account online and you see $11,543.10.  You can easily put a 0 at the end of it and you'll have $115,430.10, it's that easy for the Federal Reserve.

Back to the HUI, if your holding Gold or Silver stocks, look for them to get a bid within the next 6 months (before May 2012).

Fortuna Silver Mines (FSM)

Fortuna Silver Mines is a junior Silver and Gold producer that is moving up towards Mid tier status. Their flagship mine is in Peru and have just went into commercial production on their San Jose mine in Mexico. See their website for details.


Here is a weekly chart of FSM with consolidation periods marked with the blue boxes.

If the spot price of Silver continues to appreciate from here, most solid junior and mid tier Silver miners should follow the uptrend. This may send miners like FSM to new yearly highs. The RSI on the daily and weekly charts are on the rise and may attain the 70+ overbought zone in a few weeks (?)  The stock has been in a trading range for the 2011 year and may be poised to breakout with the San Jose mine in production.

Excerpt from their 3rd quarter earnings report: 

VANCOUVER, Nov. 10, 2011 Fortuna Silver Mines Inc. is pleased to announce that it has filed its financial statements and MD&A for the three months ended September 30, 2011. The documents are available on SEDAR and have also been posted on the Company's website at www.fortunasilver.com 

Third quarter 2011 financial highlights:

Record net income of US$10.31 million, compared to a loss of US$0.77 million in Q3 2010

Revenue of US$32.08 million, compared to US$17.88 million in Q3 2010

Cash flow from operations before changes in non-cash working capital of US$18.21 million, compared to US$7.73 million in Q3 2010

Operating income of US$14.89 million, compared to US$1.03 million in Q3 2010

Cash position (including short term investments) and working capital as at September 30, 2011 were US$62.73 million and US$70.22 million respectively

Silver production of 660,749 ounces up from 474,489 ounces in 2010; silver accounted for 70% of revenue

Cash cost per silver ounce, net of by product credits, of US$1.45

See that last sentence in red above, they are getting Silver for US $1.45 and ounce!  (I'd like to trade some of my US fiat in at that price!)

This stock can be invested in for all three time frames, short, mid and long term depending upon one's investment philosophy. If you believe that the price of Silver will continue to appreciate going forward, this is one company to look into.  We cannot give buy or sell recommendations because we are not certified financial planners (CFP).  See full disclosure at the bottom of this page.
Position disclosure: At the time of this post (Nov 12th, 2011), long shares of FSM.

Silver - Sideways

Gold is on an uptrend, but Silver is going sideways.  The speculators in the Silver market over the past year should be skeptical because of the sell-off / manipulation in May and September.  Why should someone invest in Silver when it is tied to industrial demand and the worldwide economy is barely holding on. Add the bullion bank manipulation to cover short positions and you do not know what is going to happen day to day.

OK, so with all of the negatives out of the way, Silver is still being scooped up by investors worldwide. The physical market is shrinking as more people wake up to what governments and central banks are doing.  It's going to be one rollercoaster of a ride for the next few years in Silver so hold onto the reins.

Daily chart of Silver from late July 2011 (Thinkorswim platform).  A fib is drawn from the low in late 2010 to the peak in April 2011. Silver is at the 38.2% fib retracement / resistance level.  Add the 50 day moving average and we have sideways action. If (when) it rises above ~35.29, the next potential target level is $38.11 or a 50% retracement of the massive run-up last fall/spring.

Pivot points + Fibonacci retracement

If you look at most stocks or commodity's, you'll see that they trade to pivot points within the day. (Google pivot points or look them up on your favorite stock charting website).  I noticed that today's Silver trading was between pivot points which is slightly unusual.  But when you place a fibonacci retracement on the chart at specific high and low points, you'll see that the price stopped at the 38.2 fibonacci level which provided some resistance.

Here is a daily chart of Silver with a Fibonacci drawn from the low point early in 2011 to the high point in late April of $49.82.

 You can see the fibonacci levels on the left side at 23.6, 38.2, 50*, 61.8, 78.6 and the price levels on the right.

 Here is a 5 minute day chart with pivot points, the yellow is the center, then you have 3 levels of resistance points in red and 3 levels of support lines in green. The price action of Silver is trading in between the center pivot point and the upper resistance pivot point R1.  (Price action will typically move up to a pivot point)  If you did not have a fibonacci drawn, you would not see the 38.2 level based on the high a low points.  This level provided resistance to the upside as seen on the chart.

Lesson:  If your swing trading, use pivot points with fibonacci retracement which may help you find hidden support and resistance levels.

Gold on a rally

 3 month daily chart of the World Gold Index.

 Gold has been on a rally since late October and is riding along the upper Bollinger band.  It is trading above all of the moving averages, 20, 50, 100 and 200 but the 20 day is still under the 50.  The 20 is trending up and may crossover the 50 by next week.... ?    The 20 day crossed over the 100 day 5 trading days ago.

The Stocastics are going to 'embed' with both the K and D lines over the 80 level for 3 consecutive days. Technically, Gold should continue to rally this week. 

Gold is up 26% year to date.  If it continues to rally for the month of November, look for profit taking in December by hedge funds, banks, Goldman Sachs, JPM, etc...  They will want to lock in their profits for the 2011 year to show their high end clients.  For the traders out there, keep your eye on the charts.

Long term Gold holders have nothing to worry about, just sit tight for a few more years....

Silvers Parabolic Years

Since the bull market started in precious metals, the Silver market has had 4 'parabolic' years in which the price appreciated sharply followed by sharp declines. 2004, 2006, 2008 and 2011.  The pattern for 2004 and 2006 are very similar and 2011 looks like it is following this pattern.

US Dollar Index still heading down

The US Dollar Index rallied last month which produced a high of ~80.43 which is just lower than the 81.31 on 1/10/11.

The US Dollar Index has produced lower highs since 6/7/10 which retains the downtrend as defined by Dow Theory of lower highs and lower lows.  A break below 72.70 should send solid bids for both Gold and Silver. Although this may not happen within the next few months, it may be inevitable with the debt problem that the US has.

I know many people continue to accumulate both Gold and Silver which is one of the best way to retain your capital at this time. I heard David Morgan mention that he expects a top in the PM markets around 2015-2016.  That gives the long term holder another 4-5 years to accumulate before the massive parabolic move when the public buys at just about any price.  When they can't purchase physical Gold or Silver, they may speculate and purchase the Gold and Silver miners pushing them much higher. In a parabolic market, it's best to sell portions of your position as no one can pick the top.  Selling in an 'up' market also guarantees a buyer on the other side.

For those that trade Silver ETF's and miners should watch the end of this month closely. 2 of the last 3 parabolic moves in Silver ended the year on a downtrend.  See the post a few weeks ago with the Kitco 1 year charts of 2004, 2006, 2008 and 2011.