Big Moves Ahead for Gold and Silver!

By Peter Degraaf   Feb 15 2010 3:23PM www.pdegraaf.com

Featured is the Adjusted Monetary Base chart courtesy Federal Reserve Bank of St. Louis. The chart is updated to Feb. 10th. The Monetary Base continues to rise exponentially. Once the money is out there it is almost impossible to reign it back in. It will be like putting toothpaste back into the tube. Monetary inflation always begets price inflation. There is a lag, but it always happens just that way. Price inflation fuels an increase in the price of gold and silver along with the necessities of life. As long as this chart shows an upward trend, inflation reigns and the deflationists are spinning their wheels.

Featured is the Federal Reserve Bank of St. Louis chart that shows the current deficit of the Federal Government. We are looking at the largest deficit in more than 100 years. (Actually the largest deficit ever!). Back in the late 1970’s I can remember gold rising primarily because of the deficits during the Ford and Carter administrations that rose to the then worrisome levels of several hundred bullion dollars. If a deficit of 100 to 200 billion dollars could cause gold to rise from 135.00 in 1976 to 850.00 in 1980, (an increase of over 500%), imagine what will happen to the gold price with a deficit of 1400 billion dollars!  A deficit that has not even bottomed as yet due to the fact that the current White House is making revenue assumptions that are provided by administration members wearing rose colored glasses!

Featured is the weekly gold chart courtesy Stockcharts.com

The blue arrows point to bottoms in the 7 – 8 week gold cycle. The last arrow points to the bottom in a pullback that covered 2 of the 7 – 8 week gold cycles and lasted 44 days (from Dec 3rd to Feb 5th).

It was the 9th pullback in gold of 10% or more since the current bull market began, and before this last one, the longest of these pullbacks lasted 46 days. Thus at day #44 ‘time was up’.

According to market expert W. D. Gann: ‘when time is up – price will turn.’

The fact that the commercial gold traders have just reduced their ‘net short’ position from 282,000 four weeks ago to the current 213,000 positions lends credence to the expectation that price bottomed during week # 6 of the latest cycle. (Bottoms sometimes arrive a week early, and sometimes a week late). 

It remains now for gold to rise above the green arrow. Once that is accomplished, the next bullish cycle will be underway and price will then be able to challenge the December top.

Featured is the COT Chart with silver data including Tuesday February 9th.  (Chart courtesy SoftwareNorthLLC). The arrows point to similar ‘net short’ situations in the number of contracts held by commercial silver traders. The arrow at the right side of the chart points to the purple bar which indicates that the commercials hold 38,000 ‘net short’ positions in silver. This is a drop of 24,000 contracts in just 3 weeks. A drop of 63%!  It is the largest percentage drop that I can remember in all of the years I have plotted COT data. This is very bullish!  It means that the commercials are ready to concede that they expect silver to rise. The arrow in the middle of the chart points to the last time the ‘net short’ position was at this level. It was just before Labor Day. The day after Labor Day silver began a rally that took price from 14.00 to 19.00.

Featured is the daily silver chart courtesy Stockcharts.com. The green arrow points to the action that took place after Labor Day. The green oval points to the fact that the 50DMA is in positive alignment to the 200DMA (a bullish sign). As soon as price breaks out above the blue arrow the next bullish cycle will be underway. The RSI is ready to turn up from ‘30’, a similar pattern as during July.

Happy trading!

Peter Degraaf

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Peter Degraaf is an online stock trader with over 50 years of investing experience.  He publishes a weekend report for his many subscribers. For a sample copy send him an  E-mail at itiswell@cogeco.net or visit his website www.pdegraaf.com and check out the ‘Stock Pick of the Week’.

DISCLAIMER: Please do your own due diligence. Investing involves taking chances. I am NOT responsible for your investment decisions.