M I S Q S

Gold closed yesterday at $1494.70 and opened today above $1500 an ounce.  Meanwhile Silver surged again closing at $43.96 and opened today at $44.65.  I still think that we will have a small correction but at this point given the continued weakness in the US Dollar and rising Oil I think we will see continued upward bias to around $1600 (maybe even $1600+).  The move on Monday was mostly due to S&P saying they have a negative outlook for U.S. Debt and U.S. Economy even though the organization left the actual U.S. Rating alone. 

On top of this we still have Middle East and Libya turmoil, recovery from the Duo-Disasters in Japan which really is a Trio when you include the on-going saga at the Nuclear power plant, then there is still inflation in China and the PIIGS (Portugal, Italy, Ireland, Greece and Spain) with their debt burdens and needs for bailouts still mounting.  With everything that is happening right now I would not expect a near term pull-back even though both Gold and Silver have shot up pretty much in a straight line in the past 30 days.

For the year gold is up around 6% but Silver has finally blown past Gold and is up a whopping 41%+ since the beginning of this year.  Around a year ago Gold was trading at $1,180 so we have seen a price run of around 27% whereas Silver has run from $18.60 area to $44.60 for nearly a 240% run.  The Gold to Silver ratio has fallen from 63.44 to 33.63  o for those who converted Gold to Silver you have made a heck of an additional profit.  Conversion of Silver back to Gold should take place once the ratio drops to around 20.  The historical low ratio is around 16:1.

QE2 has been going on for around 9 months now.  This program basically is the Fed buying U.S. Treasuries to the tune of $7-8 billion a month.  This supports the Treasury by keeping interest rates (artificially) low.  Once QE2 stops, the largest buyer of Treasuries will be out of the market and interest rates will rise.  I think that Bernanke will continue QE in order to prevent Interest Rates from rising.  However, I also think that he might stop QE2 early or let it come to an end in June and wait for a little while before starting up QE3.  The reason for the pause will be for the markets to naturally let interest rates rise and all of the "DOOM & GLOOM" prophets come out of the woodwork and start screaming "THE SKY IS FALLING".  Then Bernanke can go before congress and say "SEE I TOLD YOU SO", "NOW QE3 WILL BEGIN ON XX/XX/XXXX AND CONTINUE FOR YY MONTHS WITH CASH INFUSIONS OF $ZZZ BILLION a MONTH". 

Which of course will continue to artificially deflate interest rates, causing more concerns about future inflation to become pent-up at which point we should be seeing GOLD run for $1750-2000 which in turn could lead to Silver at $50-60 ($66.66 if the Gold:Silver ratio were 30:1 @ $2000).

PULLBACK:  Gold and Silver have both had really good runs lately, but all based on the fundamentals of increased concerns for inflation, continued weakening of the US Dollar, disaster and tragedy, along with global concerns of additional Sovereign bailouts.  As long as these concerns continue to persist the likely hood of a pullback is greatly diminished, but not entirely out of the question.  I would expect no more than a 3-5% possibly a 10% pullback.  However, I think we really, really need to see a 30-40% pullback to have a good healthy Bull Market in these metals to continue long-term.

PREDICTIONS: 

For Gold I would be looking for a good solid close above $1500 then would watch for upside movement to $1616, $1667 and then $1710.  Resistance at any of these levels could signal a reversal of trend and see our 3-5% correction (if $1500 then back to $1425, if $1616 then back to $1525, if $1667 then $1583 etc).  If we can get a good close above $1500 and settle down and trade in a range of say $1500-$1525 I think we can build a really good base for the continued moves up.  If we do not see price action settle down then the run up or pullback would be inevitable.  Which is a matter of what BAD or GOOD news will drive the price.

For Silver I would be looking at a solid close above $45 for any movement further upwards. Personally I would expect Silver to settle down into a trading range, but the last time I said that we have rocketed upwards by $3-$4.  I really, really would like some sideways price action settle in so as to build up a good long-term stair step base before taking the next step upwards.  Silver at $50 is looking a lot more likely for this year (in the past I was thinking 2012 but now I am thinking this summer or early fall).  Again I would be watching and waiting for the BIG STORY of BAD or GOOD news to drive Silver up or down.  Unfortunately I think we will hear more BAD news before really GOOD news which means that yes I am biased to the upside still.

Anyway, those are my thoughts for now.  I hope you find these times to be as interesting as I do and are able to position yourself to take advantage of these once in a lifetime type markets.

Standard Disclaimer applies