PERRINEVILLE, NJ (Grandich Publications) -- After 22+ years, it takes a lot to perk my ears up regarding potential market action but it appears we may see some substantial moves beginning in September. While I plan to write a much more in-depth newsletter next month, I will now get you briefly caught up with my latest thoughts.
Gold
All systems remain go! In fact, my technical work says we are setting ourselves up for a very large rally. I’m looking for an intermediate to long-term bottom in the next few days to couple of weeks. Personally, I would love to see a washout under $600 but markets rarely provide you the ultimate best scenario. Whether or not this occurs, the most important belief of mine is not only that are we going to take out the highs of earlier this year around $735, but it’s only a question of when, not if, we make new all-time highs in 2007.
I’m often asked what makes me so bullish (outside of the corrections I so far have been fortunate enough to envision beforehand). Some of the factors are:
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The basic supply versus demand scenario remains very constructive. Mine supply continues to fall short of most expectations while demand remains strong. Knowing that we will soon be entering the best seasonal period for gold is just another feather for the bullish argument. We also continue to see most producers avoid hedging despite strong prices. I hope that this group realized that cutting off your nose to spite your face is now a no-no.
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While there will be a lull at times, serious geopolitical concerns in the world should give gold a strong underpinning for the foreseeable future. It’s clear that the U.S. Dollar is no longer the sole go-to place for safe-haven investing.
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The U.S. dollar is terminally ill and it’s only a question of when, not if, the “Don’t Worry, Be Happy” crowd on Wall Street realizes they will need a black suit for the dollar’s funeral.
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Two of several bearish factors that should continue to lead to the U.S. dollar’s death are the horrendous fiscal shape the U.S. is in and how much Uncle Sam is now disliked around the world.
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While I don’t believe the gold market is influenced by “forces” almost on a daily basis as some like to suggest, I have no doubt in my mind that unnatural acts have impacted gold by parties who may still think they’re winning the battle but have not realized the war is over – and they lost! For those who dismiss manipulation, remind them how long some claimed there was a stock market plunge protection team, only to be laughed at for even suggesting such a group existed, then to hear FED Chairman Bernanke admit it in recent testimony.
GATA remains a critical part of my due diligence process for metals and mining shares.
Silver
While it doesn’t have the monetary angle like gold does, it nevertheless benefits from gold’s bullish factors and also appears to have a very strong supply versus demand argument.
Platinum and Palladium
Like watching paint dry most of the time but both appear to have limited downside risk and most companies that explore and mine for it are worthy of review.
Copper
It continues to trace out a topping pattern as no real further gains to the upside can be generated despite excessive bullishness everywhere you look. I’m also growing concerned that the great Chinese argument is going to suffer at least a hiccup, if not an outright cough, as we go into 2007. It’s one of the main reasons I’m personally very underweighted in base metal stocks versus precious metals and uranium. If I had to, I would own zinc and nickel before copper.
Uranium
I’m planning on writing an expanded view in the next Grandich Letter that will surpass the usual “I love it” comment but for now, “I still love it.”
U.S. Dollar Index
It’s only a question of time before the U.S. Dollar Index tests support around 83.60 and then ultimately its last line of defense – 80. There are numerous bearish factors for the U.S. Dollar, including:
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America is a nation of debt junkies who have been robbing Peter to pay Paul but Peter is now tapped out. The ability to borrow thanks to the real estate bubble only forestalled the inevitable debt meltdown. Personally, I have no doubt of its coming and have urged all loved ones and anyone who would listen to get out of debt ASAP.
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The U.S. dollar barely budged despite a plethora of geopolitical events that just a few years ago would have led to a big rally in the U.S. dollar. This is a clear sign it’s heading lower.
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Most Americans who don’t spend any real time out of the country have no idea how un-welcomed and un-liked Uncle Sam is in the world today. You used to be able to count on your hands the countries who didn’t like us. Now, we can count on our hands those countries who still welcome us with open arms.
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Key currencies like the euro and the yen are going to see their Central banks raising rates more than the U.S., which is only going to add to dollar weakness.
Oil
It’s been my contention that the $75 area is likely the top for oil prices in this economic cycle. Despite the occurrence of numerous factors (that, had they know in advance, most people would’ve bet the ranch would have take oil higher), oil has gone nowhere. While it’s still hard to go short in face of all this, I do believe oil’s next $15 move is down, not up.
Mining Shares
Rest up! I think there’s a real good chance that the often spoken about “big rally” is finally going to begin this fall. There are many technical factors suggesting a new intermediate up-move is near, only I think it’s likely not to begin until we get through Labor Day.
© Grandich Publications, LLC 2006
Peter Grandich is Editor of “The Grandich Letter,” published by Grandich Publications, LLC, which provides research, analysis, and investor relation services.
