Worst over, blue sky ahead.

by John Lee

02/14/2005

Gold $420.4 Silver $7.17

The Dollar

The interest rate boost for the dollar didn't last more than a week. The dollar failed to break above the downtrend established since last March. The news of record 2004 trade gap last week apparently broke the dollar's back. It's however always dangerous to trade based on yesterday's news.

Swiss Francs:

We wrote last week:

"COT commercials have increased their net long position of SFrancs to over 10k contracts, indicating the downside of SFrancs from here is limited to 81 in our opinion."

SFrancs did rebound off 81. COT commercials have increased their SFrancs net long by another 12k to over 24k contracts, indicating the worst for SFrancs is most likely over the next few months.

US Bonds:

US long bonds have on 3 occasions in the past fell strongly off current levels. Coupled with rising short term rates, we wouldn't be surprised of a waterfall event in long bonds.

Gold

We wrote last week

"SFrancs however seems to be telling us the dry spell for gold could be over by February end. We will be very surprised if gold breaks beneath $400."

Gold probably shouldn't have fallen below the $430 support (which had been the 16-year resistance) last December, but it did. Once gold takes out $430, we don't envision $450 being a major resistance.

Silver

We wrote last week

"Silver has not stayed below 200 DMA for long since its bull started in August 03. A test to $6 is possible but unlikely in our opinion. "

Silver's 60-cent-gain last week was sparkling. If silver replays what happened in Jan 2004 then we can see $8 being taken out by April-May.

Palladium

There is very little congestion between $200-$300 for palladium. First it has to take out $200. Palladium at this juncture presents an extremely low risk and potentially very high reward trade.

Gold stocks

We wrote last week

"The chart does not speak well for gold. If XAU does not rebound strongly off 90 this week, the chart says further downside coupled with multi-month consolidation is the cards."

A strong rebound XAU managed! We see a quick ascent to 110.

Copper

Many analysts have been bearish of copper citing the need for a correction and China's cool down. Well the chart simply don't say so at this time. Once $1.45 is taken out, the rocket is launched again.

Shanghai Market

Still slumping. It goes to show how resilient copper has been.

US market

Chart looks positive. Analyzing US equity market is a waste of time in our opinion. Let's wait till it breaks beneath 1,100 to take action.

Nikkei

Nikkei should now benefit from a rising yen and the hot money that a strong yen brings.

Commodities rallied hard across the board right after Lunar (Chinese) New Year last week. To us it is no coincidence. The dollar has peaked for the next few months, which should give a boost particularly to grains. If copper manages take break to the upside, it will be a extremely bullish sign for commodities and a signal that the engineered China cool down period is over. We believe it is now safe to step in gold, silver, and mining stocks. Diversification is key to successful investing in mining equities. Subscribers can access this link for our stock update.