From Strength to Strength

Since reaching their low price on January 5th, the precious metals have been on a tear. They have gone from strength to strength, with silver as expected leading the way.

There are clear breakouts on both the gold and silver charts. Therefore, we can draw a couple of important conclusions from this observation.

First, since reaching their multi-decade highs in May 2006, the precious metals have been in a correction, consolidating their gains of the previous year. Their consolidation patterns are now ending, which leads to the second observation. Both gold and silver are now closing in on their May 2006 high, which marks the next line of overhead resistance.

Because silver is the stronger chart, I assume that it will exceed its May high on the uptrend now underway. I think gold will too, but I want to again highlight the importance of overhead resistance at $715.

I first identified this $715 level as a formidable hurdle in my alert on April 16, 2006, when gold was still under $600. Gold subsequently soared, but three weeks later gold was stopped cold at that $715 level, which then put the metals into the consolidation pattern from which they are now emerging. Will $715 once again stop gold?

Because the future is unknowable and markets are therefore unpredictable, nobody knows, but I don't think gold will be stopped at $715. There is just too much buying power coming into the market to stop it. There are just too many reasons to buy gold, number one of which is the tremendous volume of new dollars being created by the Federal Reserve aimed at flooding the economy with "liquidity".

All this so-called liquidity does is add to the mountain of debt and debase the purchasing power of the dollar with inflation. It's therefore no wonder that the CRB Continuing Index made a new all-time record high this past Friday, closing at 412.90, which is a 17.5% gain from one year ago.

With the CRB at a new all-time record high, it seems to me that it won't be too long now before gold also reaches a new record high. So while gold may stop for a breather at $715, I expect this level to soon be exceeded.

Published by GoldMoney
Copyright © 2007. All rights reserved.
Edited by James Turk, alert@goldmoney.com

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