I’ve been watching the price of Gold over the last 3 weeks or so and one thing has become perfectly clear.  The outlook for Gold (and Silver) is clear as mud!  Stocks have oved sharply higher since the the March lows, the Dollar has tumbled along with Bond prices, and Gold has plodded along trying hard to not attract any attention.  In the process, the price of Gold has retraced nearly 75% of the break from the JUNE highs to the JULY lows.  To be more precise, the market is now testing the 76.4% Fibonacci retracement level at 971.70.  Let’s examine all of the components that are driving these markets and see if things are really as murky as they seem.

First, let’s take a look at the correlation between the Dollar and Stocks.  I’ve been telling everyone that will listen to me that the Stock markets will move higher as long as the Dollar continues to move lower.  On what do I base my statement?  Allow me to present my case.  The current Stock market rally (bear market rally, I might add) began on March 6th when the low was set.  The Dollar, depending on which currency you compare it to, peaked somewhere between March 4th and March 9th.  Since that time the Dollar has been in decline and stocks have been rallying sharply.  Bond yields have been rising (with prices declining) and Commodities have been on a tear.  Folks, this ain’t rocket surgery here!  These are very simple market correlations.  But these correlations don’t last forever.  John Murphy wrote a wonderful book on Intra-Market Technical Analysis, one of my all-time favorites.  It looks at the same correlations that I have mentioned here and how well those correlations hold up over long periods of time.  Our time frame for now is the last 4 months.  The correlations are quite clear.  Now the question is – where do we go from here?  Unfortunately, this is where things get a little murky.  Here’s my take on where we stand today.  I think that the legislation regarding economic “stimulus” that has come out of Washington has been a joke.  The Commercial and Residential Real Estate markets remain mired in depression as massive foreclosures continue to weigh on prices as more and more people lose their jobs.  There are some signs that a bottom has been made but I’m not one of those who believe that theory.  Band-Aid measures like “Cash for Clunkers”, bailing out the Auto companies and the Financial companies and saddling the taxpayer with more and more debt will not get the job done.  Until something happens with the housing market this economy is going NOWHERE!!  If our representatives in Washington had a clue they would raise the credit for home purchases to $15K immediately for 2 full years.  This would light the much-needed fire under the market and clear out the inventory in that 2 year period to a normal, healthy level.  Once that’s accomplished we’ll see confidence come back to the consumer and the rest will be history.

I don’t know where Precious metals prices are going.  I’ve said that before and I’m saying it again.  But I do know that the economy is still sick and this stock market rally, though it may make us feel good temporarily, will eventually fail.  It will end when there are more people that will be hurt by stocks going down.  That’s the way markets work.  When the last holdout has just gotten off the phone with their broker the market will then head lower.  If that scenario doesn’t make you pick up the phone (1-800-605-1792) and buy some Gold and Silver (or Platinum and Palladium) then you are either sitting on a large stash already or you’re not serious about preserving your own wealth.  Believe me because I’ve seen it a thousand times.  We can lead you to the watering hole but only you can decide whether you want to drink.  If you haven’t started your Precious metals accumulation plan then TODAY is the best time to start.  Call our professionals advisers at 800-605-1792 for a free quote.  It could be the most important call you make this year.

Dale F. Doelling, Chief Market Analyst

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