GOLDReport

May 10, 2007

Observations

Last week due to time constraints I only commented on gold. This week I will comment on both gold and silver.

What I said last week was that no matter what occurred there was no condition to get long from. I did say that if prices closed over $685.8 I would get bullish. However I also said that the risk in getting bullish on a close over $685.8 was down to $670, as risk factor much too large to take on.

Today prices in gold are down $14. Today's break broke through the $670 level, turning the trend back down. However, similar to last week, I would not get bearish because the risk in getting short is a move back over the most recent high of $693.3, a risk of over $2000 per contract.

What is going on is that the both gold and silver are currently establishing a large trading range with a bias to the downside. Do not get bullish. Rather, I would wait for hard bounces to get short from.

Reasons to be bearish are:

• A rising US Dollar
• Stable US Interest Rates
• A seasonal tendency in both silver and gold to fall during the summer months

June Gold

This market zig-zagged this past week, catching many that played the bull side of this market, In the past 4-days prices have fallen from a high of $693.3 to a low of $665.9, nearly a $20 move from high to low.

On the daily chart the next support is the 100-Day Moving Average of Closes which is currently at $664.5. I would expect prices to work around that area and bounce up from it, once and if hit. However, a bounce is not a trend change. It is but a bounce.

Even with today's large break, the market is not oversold. To me this means that more downside price activity could occur.

Am I super bearish? No. However, the daily charts are bearish and very soon Seasonal Downtrends kick in. Those that trade shorter term trades, such as I recommend doing, should only trade from the short side at this time.

As you can see from the above chart, the market today began a new pattern of making lower lows. I do not expect to see a vertical move back up that immediately takes out the most recent high at $693.3. Rather, resistance on rallies will most likely develop back at the 18-Day Moving Average of Closes, $685.5. From there a short position may be warranted.

The longer term chart, the Weekly Gold Chart remains bullish. Stochastics however are in the process of correcting down, which means downside momentum is present in both the daily and weekly charts. The weekly chart has support at $662.5, which coincides with the daily chart's 100-Day Moving Average of Closes of $664.5. So, there is a confluence of support in the low $660's.

Conclusion and Recommendation

Simply put, today's break should find support within the next few dollars. However, there is no reason to get long. Even the long term weekly chart has its last low at $636.7, which implies that buying the support of $662.4 carries with it nearly a $28 dollar risk, which is way too much risk from my perspective.

As for going short, the daily chart has too much risk back to the most recent high and the weekly chart is still in a bullish, but loss of momentum mode.

It is time to simply sit still.

 

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Silver

This market has followed the path of gold down the golden road. Down!

On the daily chart, today's low in July Silver took out the most recent low of $13.13. Unlike gold, silver prices have not gotten back over the 18-Day Moving Average of Closes since April 25th and have remained in a bear chart pattern.

Silver unlike gold is already oversold. That doesn't mean that prices can't fall further. They can. However, oversold conditions typically produce price bounces. Not necessarily trend changes, but price bounces.

According to the Moore Research Institute, prices have broken in 13 of the past 15-years between May 9th and June 11th. The average price break has been over 50-cents. Today we say a 34-cents price break alone.

Given the oversold status of the chart below, I think a bounce in prices is in store.

Today's low of $13.09 took out the previous "Most recent low" of $13.13. Therefore the trend is still bearish. Only prices getting back over $13.705 would negate the current chart pattern.

The weekly chart picture is in a very precarious position. Take a look at the chart below.

If price get under $13.00 a new Downtrend begins on this chart. It would stay in place until this week's high of $13.56 was taken out.

Recommendation

There is nothing bullish about this silver picture. Other than bouts of short covering, I remain in the bear camp, as I have been for a few weeks now.

Do I see prices going down to the 100-Day Moving Average of Closes, is a good question. The answer is they could, but I doubt it since prices would bet extremely oversold in the process and the weekly chart does not have a tendency to embed the Stochastic reading. It can happen as it did in the October 2005 through May 2005 time frame. If that occurs, yes a challenge of $10.76 would be possible.

In any case, if prices break under $13.00 you have another reason not to be long and to be short. Until that occurs, this market is oversold and on the ropes. Expect lots of volatility.

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