CRB breakout!

by John Lee

02/28/2005

Gold $436.4 Silver $7.32

The Dollar

The dollar continued the slide that started since the beginning of Feb. Some 4% drop in 3 weeks is no small adjustment. While we expect some traders to take profits from their dollar short position, there are a lot more dollar-long people looking for exit. We expect the dollar to consolidate in the low 80's.

Swiss Francs:

We wrote last week

"Sfrancs staged a fierce rebound last week. Sfrancs commercials net long 16k, down from 23k. This indicates Sfrancs might have trouble piercing 50 DMA of 85 this week."

COT commercials are now neutral of SFrancs, from net-long of 16k contracts, indicating commercials are beginning to get bearish of SFrancs.

US bonds:

 

US long bonds have entered into the consolidation range. We have no position in long bonds at present.


Gold:

We wrote last week

"Once $430 is decisively overcome, there is very little resistance to $450. "

We see gold to grind up to $450 in the next 2-3 weeks.

Silver

We wrote last week

"Silver continues to have strong showing. $7 now acts as strong support. If you don't have a position yet in silver we wouldn't wait. $8 level in our view will be taken out when gold takes out $430. We can see $10 level when gold gets to $450."

Silver declined a little. $7 acts as strong support.

Palladium

The following chart paints a bullish picture. We have a hard time believing palladium to break down amid a rising CRB.

Gold stocks:

We wrote last week

"XAU presents a good entry point for those who haven't a position. We don't see XAU breaching the February low."

XAU had another good run last week. 100 may present some resistance but we don't see XAU fall below 200 DMA of 90. XAU should easily take out 100 should gold continue to rise this week.

Copper

Copper corrected back to support.

CRB

CRB broke out emphatically. While it may come back to test 280 support, we believe this leg can take CRB to over 340.

Base Metals Stocks

The news this week had to be from South Korea central bank where it mentioned the possibility of diversifying its US $200 billion dollar reserve. The dollar slumped while oil and grains posted 5% gains in a day. Grains (which we have long recommended) such as soybean tracked 20% gain in Feb. The dollar is truly in a precarious position as there are easily over 1 dozen countries with the power to bring down the dollar for good. We don't see a strong dollar rebound in the near term.

PD broke out big time, along with other large base metal producers such as Inco and BHP. We believe the China cool-down period is over and the CRB breakout indicates the world economy is again on track for fierce growth. Since precious metals are associated with safety, we are not as bullish of precious metals as base metals, both fundamentally and technically at this juncture. For gold equity investors, we recommend companies with base metal content besides gold as a hedge. Subscribers can click this link (http://goldinsider.com/sub/2_28pick.htm) to find out the junior miners we like.