Now is the time!

by John Lee

06/15/2005

Dollar and Swiss Francs:

The dollar has gone up 7% in 2 months without taking much break at all. Sfrancs broke down definitively. Commercials are stubbornly long of Sfrancs near record, not bulging. I would neither long or short those currencies at this point.

Gold

Gold has held up remarkably well especially considering how closely gold and Sfrancs have paired up. Gold is again near the critical 350 euro area. Last Friday gold went up 7 euros. Who said gold and the dollar can’t rise together? History repeats and we are right at 1973 when dollar went up 20% and gold went up 200% at the same time. Allow me to post my favorite sheeps (first shown months ago) again because this is exactly what is happening with dollar yielding 1% more than euro.

Some analysts call for gold to come down to $400, with euro having minimal downside to go from here, I don’t see how gold will make a new low this year. The risk of entry is definitely higher now. Gold has spiked down in euro every time 350 mark is reached. I would establish a position if I don’t have one but I won’t add

CRB and metals.

CRB appears to have broken through the downtrend to the upside. Copper and oil continue to be exceptionally strong. I have commented in the last issue, regardless of fundamentals/categorizations/ classifications, history shows copper trends closely to gold with gold leading. Well copper has not let down yet but Aluminum is serving warnings. The adventurous might wish to short copper while long gold and silver (I am). Soy has kept strong while corn corrected. Soy is more favored to speculation and serves as a sign that money is shifting to grains.

Silver and XAU

Silver has been the most predictable (profitable for me) metal. Commercials have increased net short to 70k contracts from 50’s, signaling more risk to longs. Some have mentioned the increasing silver lease rate (currently at 3% up from 1.5%) as a prelude to an explosion in silver price. While we are bullish of silver, a glance at historical lease rates and silver prices indicate the causality relationship is not clear cut.

http://kitco.com/lease.chart.silv.html

My feeling is still that $8 will be taken out by summer. Silver has shown to be resistant to temporary dollar rebound, and if you are positive on general equities (as I mildly am), silver’s monetary and industry facets will only provide dual boosts.

XAU is still weak. We had advised traders to lighten position at 90 in the last update. We don’t see 80 being breached, making current prices very attractive from long term perspective.

S&P 500 and Bonds

Commercials remained neutral on equities, I wouldn’t begin to venture into shorting. Compared to outrageous real estate prices and near record low yields, equities are beginning to look attractive. Bonds is rising in defiance to short term rising rates. My gut feel is when France rolled out the 40-year-euro bond 4 months ago, it was the last straw for the euro. With dollar/euro rate having gone up over 10% since then, global retirement funds lost big with those euro bonds and have switched back to US treasury. I mean, bad as US treasuries are, where else can they put $trillions of capital to work, under your mattress?

Now is the time again to study history in the April issue of 2004 to understand what gold stocks are capable of.

http://goldinsider.com/sub/Apr_26_GI_final.pdf

Quote:

We have to give every rise of gold mining equities the benefit of the doubt, since each rise can turn into triple-digit percentage gainers in a vertical fashion.

Is this the gold blowoff we have been waiting for? With dollar hitting major resistance and gold resting on major support, chances are good! CRB looks to be on its last leg for this phase so XAU better rise and rise soon.