GOLDReport

April 12, 2007

Observations

Regular readers of this report know that I took off writing a report last week due to the holiday week. It appears I didn't miss much as gold is within $2 of last Thursday's close. However, silver and copper prices have moved up nicely with silver gaining nearly 10-cents and copper 20-cents over the same time period. Industrial metals are acting stronger than precious metals at this moment in time.

The bullish technical picture is getting stronger in silver and copper as prices rise. Without doubt China is a major part of the reason for the rally in industrial metals. There economy is a powerhouse and is consuming a tremendous amount of raw resources. This morning I heard a report that over 200,000 new investors are opening stock accounts weekly in China. This can only mean that there is a lot of liquidity around in their economy.

Let me be very clear on this. Gold at this moment in time is overbought. In studying the metal charts, it looks like gold is being "dragged" higher by the uptrend in silver and copper. Copper has rallied in nearly 60-cents since March 28th and is without doubt overbought, leaving silver with the best looking chart picture.

The Iranian issue has not gone away. In fact, Iran is making statements that it is much further along with their uranium enrichment program than many had thought. I expect the press to soon pick up on this. Expect to soon see new headlines in the press, as there isn't a lot of new world news to make a headline other than President Bush's ongoing rivalry with Congress and the Iraqi War. Old news at this point in time.

More sanctions against Iran are likely. The goal is to bring Iran around, as was the case with North Korea, to a point where the world feels safer. My own take on this is that Iran hasn't yet felt enough financial pain, nor have they gotten far enough along in the nuclear program to begin negotiations with the West.

June Gold

The chart pattern in this contract is one that I think calls for a small downward price correction.

I am not bullish this chart because the technical study that measures technical strength, Stochastics, is overbought. Don't get wrong, I am not bearish. Rather, a small price correct in now due. Prices in June Gold could get down to $672 or simply work sideways to develop a better base to work upwards from.

If prices fall back to chart support, which I've labeled on the chart below at $672, I would expect the Stochastic Study to lose its overbought status. Look at the chart below:

I've circled where the 18 and 45-Day Moving Average of Closes converge. If prices were to break, this is where I would expect support to be strong. I am simply not sure the market can get back down that far if silver prices start moving up.

Conclusion and Recommendation

Like a broken record, I continue to say that due to the overbought condition of this market, nothing new is recommended just yet. However, the setup is now in place for this to change quickly.

If prices were to close over $686.8, the high made on April 10th, it possible that the Stochastic Study would change from being overbought to becoming "embedded". Once embedded, markets tend to move strongly in one direction and that direction would be up.

What I think more probable is that prices will try to work a bit lower, possibly down to the $672 level. Alleviating along the way this market's overbought condition.

Given the strength of world economies, strength in energy prices and the falling US Dollar, from a fundamental point of view the only question is where to get long this market.

 

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Silver

The story here is better and the chart picture much more bullish than that of gold. Copper prices have soared nearly 60-cents in by a week or so. In the process, silver was provided support as it too is an industrial metal.

Right now silver is benefiting from Iran, energy prices, a falling US Dollar and a strong US economy. Without doubt, housing is in the doldrums. However, housing is but one aspect of our economy. Other aspects are very strong, as witnessed by a strong stock market.

Add to this the effect of Europe and Asia’s growing economies and my bet is that sharply higher silver prices will soon be seen.

What Now?

Let's look at the Daily Chart of May Silver below.

One of the "keys" to this chart picture is the likelihood of a "crossover" of moving averages. The 18-Day Moving Average of Closes, shown in red, is currently under the 45-Day Moving Average of Closes shown in aqua. Typically, once the shorter term crosses over the longer term one, a trend sets in as long as prices are over both. I think this is about to occur.

Next, one of the most powerful technical tools I like to use is "Embedded Stochastics". That tool is now in play. If prices get over $14.07 in May Silver, I expect a run up to at least the $15.00 level. As you can see, I am very bullish.

Recommendation

If $13.98 is taken out, this market is a buy. The near term objective is $14.32 and the stop would be $13.69. This is a large risk trade and not for all. I will use the daily charts to attempt to narrow in the risk and will present what I see on my twice daily updates and in my Nightly Audio/Video Recordings.

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Disclaimer: This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is taken from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. Futures trading involve risk. In no event should the content of this market letter be construed as an express or implied promise, guarantee or implication by or from Ira Epstein & Company or Alaron Trading Corp. that you will profit or that losses can or will be limited in any manner whatsoever. No such promises, guarantees or implications are given. Past results are no indication of future performance.