Thoughts on Markets

Monday, August 11, 2008

Metals Down - Dollar Up - We Muddle Through!

Both silver and gold are following the recent pattern revealing the intervention which continues. I do not expect any change from these summer doldrums until the fall gets in full swing. Also, it seems that there will be no major panic movement by the general population into the precious metals until the public becomes aware of the metals.

The average European and Asian has a much greater appreciation for the long term value of gold and silver than most Americans. We have yet to experience the security and value as they have many times in the past. We, older Americans have seen the 1979-1980 hyperinflation and the resulting vast increase in the price of these metals since August 15, 1971 when all ties to the metals were removed from our currency under President Nixon.

We are in the midst of a stagnant economy reeling under the aftermath of the bursting housing market with the mortgage failures and escalating foreclosures. We remain in John Mauldin's "Muddle Through" economy. Price inflation is rampant in the economy and is abated to some extent by the current lull in the price of gasoline at our pumps. I was able to buy regular unleaded at $3.599 on Saturday. That's a break? Yes, given today's environment. Meanwhile, hours of work and pay have not kept up with the inflation and unemployment continues to increase.

The heating up of the Russian retaliation against Georgia, a nation we have supported, will have an impact upon people wanting precious metals. Fear and unrest drives folks to seek safer was to preserve wealth. Let's look at the dollar.

The dollar has been on an upsurge since early last week. The fundamentals supporting this unbacked paper currency have not changed. As James Turk of commentary shows, there has been significant intervention (buying of the dollar) by central banks of the world in an effort to prop it up. This action by central banks has given a temporary boost to the purchasing power of the dollar.

However, as we examine the graph, above, the relative value of the dollar has broken through the resistance of the 50 Day Moving Average . This is very positive for the dollar. But the detractor is that the 50 Day Moving Average is well below the 200 Day Moving Average. Were this to be a change in the downward trend of the dollar, the 50 Day should be well above the 200 Day. Clearly, that is not, yet, the case.

The dollar continues to trade above most of the major currencies of the world today as reported by Kitco on their website. Check it out from time to time for yourself.

The prices of the mining stocks remain in an inviting buying range. We may not see these prices again for many weeks and months. I am strongly considering trading in mining stocks again and plan to go into the fall with a full load of mining stocks which I have on hand and will acquire as prices remain low. While I prefer physical metals to other types of investments in precious metals, I do believe that we should prepare for trading in the mining stocks. That is, buying low and selling some as prices rise to lock in profit whenever possible. I still say, "Buy with caution and in smaller increments."

Though we are early in the trading day, the DJI has been down and is still down about 20 in the 11700 range. The general market is still being ambiguous and is not revealing whether the direction is up or down. It continues to bounce around and confuse the issue. I would call it a stealth operation designed to keep us guessing.

Silver is now at 15.34 on an up tick and gold at 853.70 on a down tick.

Though we are left guessing, albeit, using educated guesses. I am thankful for the Sovereign God who is exercising absolute control over everyone and everything. It is such a joy to rest in His wisdom, love and care. He continually pours out blessings upon His people. Of course, we do not always miss the trouble that a nation suffers, but we have a peace during suffering. It is a joy to suffer in the name of King Jesus, but it is not a joy to suffer for our sin. As we sin, we should expect the discipline of our loving heavenly Father. In fact, if we do not suffer His discipline, we are not His children. Thus, even His discipline is a reason for rejoicing. Let us continually focus upon our Lord and Savior Jesus Christ amidst every storm of life.

Best to each, Doug


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