163th Edition

Market Summary

*Gold & Silver Strength*

Gold and silver both strengthened but silver stole the show. Silver rocketed to fresh 22 year highs, to end the week up about .35 at $10.70. Gold gained about $6 to close near $560 and continues to trade within a narrow trading range. The XAU gold stocks index gained about 2 points. Traders noted that dollar weakness on Friday helped gold to shrug off its recent losing streak and gain 10 dollars on Friday. While silver was viewed as strong due to this weeks SEC ruling in favor of the new proposed silver ETF.

Moreover, the SEC announced this week that it believed the silver ETF would benefit investors without negatively impacting the industry. The announcement lead many analysts to comment that the silver ETF would almost certainly be approved within the next few months, following the current quiet period. Essentially, the SEC sided with the 100+ people who sent in letters insisting that the silver ETF be allowed. An SEC spokesman noted that only 7 letters were against the silver ETF. Investors and traders defeated the Silver User Association lobbyists:

Meanwhile, gold continued to consolidate this week. The market has been constrained within a narrow trading range for the past few months, despite higher silver prices. Clearly the market is winding up like a coiled spring for the next move. If silver continues to ramp up, expect gold to break-out and run to the $620-$650 level. Conversely, a break-down from the trading range seen in the chart below will lead to a re-test of the $500 level:

The XAU continued to put in what appears to be a bottom this week. The market registered another long tailed bullish candlestick. Gold stocks moved just above the neckline of the bearish head and shoulders pattern, a potentially bullish sign. Silver remains very strong as it climbs the wall of worry of a very steep but powerful uptrend. Gold closed on Friday near the upper resistance point of its trading range.

Stocks closed near the break even point on Friday as investors preferred to stay on the sidelines before the FOMC interest rate meeting next week. The Dow Jones Industrials Average closed near 11,270, the S&P near 1300 and the Nasdaq near 2310 – all three neither gaining or losing much ground for the week.

This week the Dow Jones and S&P treaded water above their break-out points as if they were waiting for the Nasdaq to finally break-out. Unfortunately, the Nasdaq failed to close above resistance and to confirm the former indexes new highs, but is stubbornly near the upper level of the consolidation. The bottom line is that the markets are waiting for the Fed. interest rate decision next week. A solid break above resistance in the Nasdaq should lead to ubiquitous market strength.

INTERVIEW:

*Bob Chapman – The International Forecaster*

On the Saturday March 25th program at www.radio.goldseek.com, The International Forecaster returned to share his thoughts on the , precious metals and the weakening dollar. Here are a few highlights from the show:

Bob Chapman says that less than 1% of the American public is interested in gold and silver related assets at this time. As compared with 8-10% during the late seventies. Bob expects the dollar correction to reach 30-50 percent over the next three years. That will lead to expensive imports and more competitive exports. He believes that interest rates have been intentionally increased to keep the dollar from falling to far too quickly. However, raising interest rates will not solve the problem of the incredible surplus of dollars flowing around the global economy.

Bob discounts the current stock market rally. He is concerned that most pensions are underfunded and that this could put considerable pressure on the market. He thinks that the Fed. is holding up the market at this point with the PPT or Plunge Protection program that was created in 1988 following the 1987 market crash.

Mr. Chapman noted that the true unemployment rate is close to 12 percent and that unemployment would reach 30% just like the great depression if the economy was allowed to follow its natural economic cycle. However, the Fed will continue to use the PPT as well as interest rate measures to support the markets and the economy. The result will be hyper-inflation which is already underway. Inflation is simply a tax by the government on the poor to make the economy appear more robust than it really is and to appease the masses with artificially created jobs. When it is over, most jobs will disappear as stagflation takes over – then the economy, stock market and dollar will implode.

He thinks that there is no longer any safe place to store wealth outside the US because the government has connections and contacts in all global nations and institutions.

Bob is concerned about what he views as a real estate bubble. He is concerned that areas with highly inflated home prices could lose 50 percent or more and even those areas that have not experienced excessive growth could depreciate by 30 to 50 percent. He thinks that the bubble was fomented by the Federal Reserve, resulting in the excess liquidity.

The latest silver ETF fund by Barclay’s bank, the biggest bank in London indicated that they will take possession of silver and that they will operate in the same way that the gold ETF: GLD. He thinks that if they take possession, silver will go up because of the shortage of silver. Bob noted that we are approaching hyper-inflation and that the situation could get out of hand if the silver fund takes possession. If that happens the government could attempt to halt the trading in those two ETF’s.

He thinks that as the bull market in precious metals continues, gold stocks will go berserk. His clients stocks behaved the same way in the seventies. He points out that there is incredible opportunity in precious metals stocks now because the bear market in the 80’s and 90’s forced many to close down and that there are few mines coming online now. Add to that the fact that central banks are done selling and you have an explosion in mining companies on the horizon.

You Won’t Want To Miss Bob’s Precious Metals Forecast!
To Hear BOB CHAPMAN’S Current Gold and Silver Forecast, Listen To The Free Online Show:Click here.

You won’t want to miss next weeks show with our guest Congressman Ron Paul!


Guru Predictions

*The Golden Guru Award*

Enrico Orlandini shared his gold forecast this week: “See that long, long consolidation around the 440.00 mark? And it led to a good rally, not great, just good. See what we are doing now? It’s called consolidation! Also, note how our “correction” stopped at 538.00! Here’s how I ended that February article: Take a good long look at any previous significant top put in since the Bull Market began in earnest in 2001, and none of them look like today’s. They all exhausted in an almost vertical move up and most ended in one-day reversals. Not the case here. There is, in my opinion, more to come. We will see another test of 569.75 (we have) and I suspect we may even manage to work our way above it (not yet). I could be wrong (it wouldn’t be the first time, or the last), but I suspect a test of $644.73 will be in order. Nothing is changed as far as I am concerned and I have no reason to doubt gold at this point in time. Oh, and for those of you who feel that rising interest rates will spell the end of the Bull Market in gold, I would like to say this: in 1980 gold hit $820.00/ounce while interest rates were at 17%!”

Merrill Lynch’s gold price projection: “Gold should outperform equities over the next few years. This is because the relative ratio of the Dow Jones industrial average to the price of gold is declining and likely will continue to do so…
A chart in a report by the analysts shows the ratio is currently just below 20:1, down from about 42:1 in the mid-1990s. “The long-term target for the relative ratio appears to be 13:1,” they said. “Based on the current DJIA level of roughly 11,000, this would translate into a long-term gold price target of $850 [U.S. an ounce], or the peak set in January, 1980.” They warn, however, that returns are “likely to be volatile.”


Bottom Line

The Golden Guru Award of The Week Award, goes to Merrill Lynch’s gold market analysts for their bold $850 gold price projection. The average of the intermediate-term pundit estimates for gold leads to a single price target of, $748 an increase of $8 from last weeks consensus of $740.

($850 + $645) / 2 = $748

I’ll be watching the XAU head and shoulders neckline and the gold trading range once again for signs of strength. My long term outlook for silver and gold remains very bullish. Silver closed at a record high as seen in the chart above.

Thanks for reading.


Chris Waltzek
[email protected]
Please visit my blog and web site for free daily market articles, audio broadcasts and analysis.
http://silverinvestor.blogspot.com or radio.goldseek.com