Thoughts on Markets

Friday, June 20, 2008

Precious Metals Attempted Another Run for the Moon

From The Daily Pfennig today,
"Here's story I doubt you saw on your news station yesterday... China said it will raise domestic gasoline and diesel prices by 17%-18%, as it responds to near-record crude-oil futures and criticism of its fuel subsidies. The surprise move is the largest increase in over four years, although local prices will still be below the international market. In case you weren't aware... The Chinese Gov't subsidizes fuel prices for their people... You see a country that has over $1 Trillion in currency reserves can afford to do that! However, with the price of Oil continuing to rise, even the Chinese had to say "no mas!""

The gold price lost about eight bucks (silver was down about 20 cents)from the open in Sydney on Thursday morning until about fifteen minutes before the Comex opened in New York yesterday morning. A rally commenced which quickly turned into a vertical line that looked like it was heading for the outer edges of the known universe. Ditto for silver. Then, around 9:15 a.m. NY time..and as expected, the bullion banks showed up and hammered both rallies as flat as a pancake. Silver actually closed down on the day, and down 42 cents from it's high peak of $17.74. Gold was driven back below $900...down more than $10 from it's peak...which was $908.60.

Backing the above clamp on gold prices is the following is from Casey's Daily Resource Plus. It is in reference to the capping of strong upward moves in the price of precious metals, particularly affecting gold and silver.

"You have to be brain dead not to see what's happening here. This is the third time this week that vertical price spikes in both metals were clobbered shortly after the Comex open. As I've said in the profit-maximizing seller ever sells like this...ever! Only those trying to control the price do this sort of thing. And, as always, the CFTC, SEC and your mining company's executives are nowhere to be found."

Thus, it is obvious that the War on Gold is still in full swing.Governments fear gold as a monetary unit, because it gives the citizens too much freedom.Both governments and banks want to maintain their monopoly on "counterfeit" FIAT paper currencies.

There will come a time when the coiled spring under the prices of precious metals is released and that will spike prices much higher. After all, gold based upon the last high of 1980 based on the depreciated value of the dollar should be in the $2,500 range now.

Gold is not at 902.30 and silver at 17.40. It would positive for precious metals were gold to continue above 900 and silver above 17.

I have included the gold miners EFT, above. This is to show what appears to be a double bottom about the 1st. of May and the middle of June for the EFT. If this holds true to form, it is a strong bullish indication. Of course, the GDX will have to continue above 45 and break through both the 50 and 200 day moving averages for this to be completely affirmed. The GDX is up 0.20 to 44.25 today and most of the mining stocks are up. I am interested in adding to my DROOY holding at a price < 6.35. By the way, I plan to start some limited trading in this particular stock. That is, I will buy near lows and sell some as the price moves upward.

The South African miners are still limited in production by the lack of electrical power. As the price of gold rises, they will remain profitable. The bolstering of the electrical infrastructure will take months and years before it is completely completed. However, I believe the miners there are still viable.

Let's look at more of the Christian fundamentals of family finances.

Pr. 31 gives us a look at the attributes of the excellent wife, about whom in verses 28 & 29, we read, "Her children rise up and bless her; her husband also, and he praises her, saying: 'Many daughters have done nobly, but you excel them all.'" What a wonderful thing it is to have children and husband so praise the excellent wife so grandly!

In verses 13 & 14, we find that "She looks for flax and wool, and works with her hand in delight. She is like the merchant ships; she bring food from afar. "Further, in verse 16, "She considers a field and buys it; from her earnings she plants a vineyard." From these verses, it is important to see that she uses wisdom in shopping.

Pr. 20:14 - "'Bad, bad,' says the buyer; but when he goes his way, then he boasts." This speaks of negotiation between a seller and a prospective buyer. God wants His people to be good negotiators, but pouring all of Scripture through such transactions, it seems that buyers and sellers should be free to complete the transaction or refuse to do so. Of course, the buyer may point out defects while the seller points out benefits. In the free market, when a transaction is completed, the buyer values the purchased item more than what he paid for it and the sellers values the price received more highly that the item sold. Both leave the transaction satisfied. Neither should take an unfair advantage of the other, and there should be no misrepresentation by either party. Misrepresentation is a form of fraud and should be punished by a sound government interested in protecting the life, liberty, and property of its citizens.

Using wisdom in shopping is simply being a good steward of what God has entrusted to us of the property He owns. In the case of "money" or any other medium for exchange, we should make the best use of it possible. There are necessary consumable items which must take a high priority in our spending. It is wise to study the newspaper ads to find the least expensive items we consume week to week.

Many times, we are offered coupons for items we buy. These can be a substantial savings if we use the items for which the coupons are offered. However, it is wise to shop for equivalent items and compare prices. Many times the coupons are for similar, but more expensive items even when the coupon discount is considered. So, we should use wisdom and discernment in choice of coupons for use. Don't automatically buy, because you have a coupon!

For major purchases, I believe it is wise to get the family together and make a list of proposed purchases in order of priority. The list should be reviewed at least once a month. An item should never be purchased unless it has been top priority to two months in succession. When a family uses this, particularly in the case of discretionary major purchases, they will be surprised how priorities will change month to month.

Comparison shopping can be done easily and efficiently on the internet. With the higher prices of gasoline and diesel fuel it behooves us to consolidate shopping trips. When shopping for food, it is best not to shop when hungry. It is also wise to have a well thought out shopping list. Shopping for targets of opportunity are OK if they are real bargains, but stick the list.

This is all what we consider as common sense, but how often do we get carried away and violate these guidelines. After Adam's sin in the Garden of Eden, the curse of God upon the ground amplified the concept of scarcity. One aspect of scarcity, which I will speak about in the next posting, is that once a dollar is spent, it is no longer available for use again. Thus, we must be good stewards of the dollars the Lord has given us and use each one very wisely.

Best to each, Doug


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