GOLDReport

June 14, 2007

Observations

Other than the current 2-day rally that began off of yesterday's lows, not much new has taken place in the gold or silver markets.

Last week I made a list of items that I believe are the current influence on gold and silver prices. Let's review this week's influences:

• Interest Rates both inside and outside of the US are still moving higher
• The Chinese are coming under more pressure to let their currency float
• There does not appear to be a flow of "inflationary" related fund buying taking place right now
• Energy prices are continuing their price ascent
• Iran continues to refuse to stop uranium enrichment
• The US now claims to have "proof" that Iran is supplying terrorists in Afghanistan
• World wide food inflation is continuing

As you can see, not much is changing with one exception. Crude Oil prices are closing in on $68 a barrel and gold hasn't locked into it. The reason is the fear of a higher US. Dollar, which means the "mind-set", is not in place for inflationary buying. If it were, gold would be moving higher.

Silver on the other hand is simply under the influence of a bearish chart formation. My "guess" is that if copper gets over $3.50 a pound, silver will come to life.

August Gold

Since my last report, gold has broken to a new intra-day low of $647, the lowest low since the most recent high of $704.1 was made on April 23, 2007.

What this means is that my past several weeks of market commentary has been correct. The "Bear Market" in gold I mentioned has broken nearly $60 an ounce.

As readers of this letter know, I like to add seasonal studies to my technical analysis. Seasonally speaking, gold rarely leaves its overall bearish downside bias until mid-August.

The question now is; "Where is support?" The answer is...right here.

Look at the Daily August Gold Chart below.

I see support at the $650 area. It is too soon to tell how this support will hold up as the "trend" as shown by the purple lines is still sloping down.

Stochastics are into oversold territory with a reading of 23.55.

Conclusion and Recommendation

Last week I wrote that the "overall immediate downside target is $659.6 down to $656.1". Prices overshot that target and went to $647, but immediately rebounded. The key is that the downside was the right side to be trading from.

Downside targets often have a way when being blown through as becoming initial resistance. That is what I see now.

Given the oversold condition of the market, it is possible that gold makes an attempt to move back up to the 18-Day Moving Average of Closes, currently at $664.1. However, I do not expect a lot of upside follow through if prices do move higher. In fact, this is about the most I would expect.

Downward momentum seems to be waning, but there is little upside "hype". If prices can get over the most recent high of $659.4, shown as the "Red Arrow" that is pointing down on this above chart, should trigger some short covering. The key will be to get over this point and to have a closing settlement price over it.

In summation, I don’t see this as a good moment in time to enter gold in terms of a "trend trade" from either the long or short side. Swing trades will most likely sell against the 18-Day Moving Average of Closes and buy against the $649 area in the near term.

 

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Silver

Last week saw the end of the uptrend on both the Daily and Weekly Silver Charts.

All I see now is an attempt to correct an oversold market condition, given that the Stochastic reading is under 30, an oversold reading and given that since June 5th, just 9-day ago, silver was trading as high as $13.87. Yesterday's lows, Wednesday June 13th, was $12.845, which meant we just saw over a $1 break in but 9-days.

When markets break this fast and this severely they often need time to regroup.

I don't expect much from this chart's current price action. Current resistance is the 18-Day Moving Average of Closes at 13.288.

Let's assume the market gets over this and over the most recent high of 13.295, which I've circled on the chart below. Getting long would not be something I would immediately do since the most recent low of 12.845 is nearly 40-cents away, presenting a $2000 risk assuming you were willing to risk a new low being made, something I would not do.

However, if that high were taken out an immediate upside target is present. The 100-Day Moving Average of Closes, 13.62 as shown as the dashed line on the chart below.

It would take some sideways action to narrow in the risk for me to get long, but long in silver is definitely something on my "radar scope" now.

I circled where I think the market is going to attempt to make a stand. The 13.27 price level. To me the key will be to not take out $13.085. As long as that price is not broken, I view the current price break as an opportunity to get long.

Recommendation

I prefer to wait and see if July Silver can clear 13.30 and hold over that number. Aggressive traders will probably sell against the $13.285 level and use a stop over $13.295. While the stop is tight, there are solid reasons for it being where it is at.

A close over the area I’ve circled on the chart could very easily be the beginning of a move upward. Failing to do so means prices may simply wander sideways, given the oversold condition of the market today.

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