USD: A sinking feeling.

A picture is worth a million words. Do you believe it now? The US Dollar is being destroyed in front of our eyes. Following the head and shoulder pattern of the winter (with shoulders like lady gaga's on steroids to make it a double top as well), the US Dollar is dropping. If anything, the drop is accelerating.

The economic news is a horror show. First time unemployment is still near a half million every report and corporate profits are being squeezed as raw material prices are rising. Gasoline prices are nearing $4 nationwide and inflation is running at 10% and accelerating. Economic growth has fallen and heading to toward the double dipper we heard so much about. The housing market is still sliding and foreclosures are beginning to rise.

Keep your eye on the Dollar and the condition of America's finances. S&P has warned about the downgrade of US debt (and Treasuries) and Weiss Research rates America's bonds down there with Greece, Ireland and Portugal.

Oh, but The One has produced a birth certificate.

Addition to Plunge protection.

The last sentence discusses the the RSI of GPL. RSI, as you know, measures the state of sales from OVERSOLD to OVERBOUGHT. During the last correction of GPL, its RSI hit just over 30. It is at that point again.

Sean considers the breaching of the 50 DMA as very negative. This also happened during the last correction. As I write this, gold is trading at 1,509, just about $10 away from its peak. Silver is 45.8. Now is the time to buy some more GPL.

Plunge protection.

We know that the US govt has a "plunge protection" team. It is activated if the US dollar is threatened. How? By a large increase in precious metal prices - which is almost the same as saying a 'drop in the dollar.'

Take the crazy action lately. Silver almost hit $50 yesterday before it was sold off to 46.07 today. How can that be done? Silver is in "backwardation." That means that the price of silver now and future price is backward. Delivery of silver in the future requires storing it (so it would cost more to buy silver futures -contracts to buy silver 3-4 months in the future- ) than buying silver today. All that means is that silver supply is very limited. If you believe that silver plunged from 49+ to 46.07, try buying a silver dollar at that price. You can't because silver dollar's are not available.

So, how come silver prices went down if the current supply is very tight? Yup, the plunge protection team must have ordered some banks to short silver by selling "paper silver," silver options. So, what if they lose a few millions? The FED will make it up to them.

It is not only the price of silver that has plunged, but the price of silver miners. I have reproduced the graph of GPL (Great Panther). As in a previous post, the wedge pattern is very clear. A wedge implies a coming and sharp breakout. In this case the breakout occurred yesterday and on the downside. Silver miners have been dropping even in the face of increasing silver prices. KWN had warned us that the reason for this was shorting by by certain funds. In addition, a newsletter published by Sean Broderick asked his followers to sell a half of their silver miners (GPL is one of those).

Sean explained the drop in GPL as follows: 1. rising oil prices will reduce profit margins, 2. Fear of expropriation - all of which encourages traders to buy the metal.

I have critiqued pronouncements coming out of Weiss Research (first by Larry Edelson) and told you that Edelson's expectation of a drop in gold to and below 1,250 was simply wrong. By now, Larry admitted it. This time I am telling you that Sean is wrong. First, gasoline prices are not hitting Mexico as hard as the US, so operating costs of GPL will not increase as much as gasoline prices in the US. Second, exploitation fears are justified in Bolivia, but GPL and IPT.V are in Mexico, while FVITF is in Peru, yet all three stocks took a hit also.

When you look at the technicals without wondering about the fundamentals, you see that GPL rose from ).75 to3.00 so its Fibonacchi number was near 0.7. The stock then corrected back to 1.75, between 2F and 1F. Then GPL went tp 5.00 with an F number of 1.1 A 1F correction took GPL back to 3.9 and we would expect another correction (about 1/2F) to produce a bottom of 3.25-, 3.35.Another day or two of falling prices will also bring GPL to 20, where the stock bottomed last time.

Happy investing.

Silver and silver miners.

Silver prices have been climbing, defying all expectations by silver bears. Since, last August, silver went from 17.5 to over 47. Earlier this year, silver corrected like gold, though the timing and size were different some. After the correction, silver resumed its rise and has been on a tear since.

Silver miner stocks did something else. Beginning in March, silver miners began a wedge formation. I have provided the graph of three of my favorites: FVITF, IPT.V and GPL. I did not draw in the wedge for FVITF, but did for the other two. The resemblance in the graphs suggests a common cause. Profit taking is probably one. All of these stocks have at least doubled since last September and GPL has increased 5-fold. Some experts claim that PM miners are being shorted by the hedge funds and predict that when the rally in these stocks resumes, their rise will be spectacular because of the short covering.

Gold miners do not show the same pattern, but some have dropped or have gone sideways while gold broke through the1,440 resistance.

We can see silver moving faster, because of the disparity between gold and silver prices. The latter is more attractive to the small investor.

Could it be that the miners give us a non-confirmation to the PM rally? IMO, that is doubtful. The FED continues to increase the money supply, inflation is showing and threatens to accelerate, the rising oil prices are dampening the barely existent economic recovery and the sovereign debt crisis of Europe has driven Greek bonds past a 20% yield. Greece can not survive with such an interest rate. In addition, US debt ceiling may be breached next week, meaning a crisis in raising it. Granted, that Republicans are afraid of the Media and are expected to cave when the Dems turn on their demagoguery machine, but even the dim wits will start seeing that something is radically wrong. None of these factors is conducive to stabilize PM prices.

Possible wild cards.

1. The FED. One spokesman at the FED was hinting that the FED may finish QEII before it bought all the Treasuries it intended to buy. This would be anti-inflationary if true, but it would also act to dampen the economy. The statement could be just a bash to try to reduce precious metals and keep bond yields from rising. 2. The serious wild card. The Dems have been angling for a government shutdown. The final excuse was that Republicans demanded a withholding of federal funds from Planned Parenthood and its abortion mills. But, this "shut down" is not what you think. The shut down effects those agencies that cause maximum inconvenience to the public. The worst is the stopping of pay to the military. Is the Obama regime trying to provoke a revolt by the military? That would be a huge wild card with unpredictable results. The composition of the military is tilted more toward blacks and Hispanics.

What about PM miners?

As gold broke out 3 days ago, Precious Metal (PM) miners went into a temporary slump. Great Panther (GPL) is an example. You might ask how come? And, will the non-conforming change in PM miners mean that the current gold breakout is temporary? Here are my thoughts (based on research) on these subjects. 1. Many of the PM miners have undergone a large increase and people are taking a profit. 2. In the case of GPL, the stock moved 160%, while silver moved 16%. So, GPL has incorporated in it several other factors besides just the change in silver prices. Among these factors: GPL has a gold resource and it is issuing financing to prepare its gold field for mining. The graph shows that GPL was correcting (digesting its gains) even before the breakout in gold prices. Today, GPL is up, so it, too, is breaking out.

Gold breaks out during worsening news.

The Obama regime began with a torrent of lies. The economy was allegedly bad and the new regime had its prescriptions: increase govt spending in an unprecedented way by passing a stimulus bill of nearly 800B. Such a massive spending bulge by the govt was supposed to have brought unemployment down to what it was when Bush left office.

Then the cat got out of the sack. Unemployment went up even higher than projected without the Porkulus bill. That's because most of the money was spent to bail out teachers' unions and finance "green" scams. In fact, the stimulus made matters worse.

Employment meanwhile barely rose, while the rolls of govt employees grew much fatter. The Obama regime's pland, therefore are an unqualified failure.

Socialists are in trouble in Europe as well. Europe's questionable debts have risen past $2T and that may be hiding even more toxic debt. Meanwhile, the FED continues with QEII and may extend the money printing by shortening the maturity of some T-bills.

Did you believe the propaganda that gold was in a bubble? And that silver should be shorted? Even Larry at Weiss Reserch slipped up on that.

The last graph shows gold breaking out from the 1,440 resistance. As of now, gold is quoted at $1,469 and silver at $40.2/oz. and the US Dollar is just above the magic 75.0 support.

What of the coming months? There are two scenarios: 1. with re-election of Obama and 2. an Obama loss in 2012.

Gold and silver will continue to rise and the Dollar will lose maybe 1/2 of its current value. We can only go by the precedent of the Jimmy Carter disaster. In the third year of his Presidency, gold skyrocketed to over 800/oz. In current dollars, that would be 2,300. With inflated Dollars, it may get up to $5,000/oz. As the re-election of Jimmy Carter looked more questionable, gold began to lose its luster and it declined during the Reagan years.

Are we on the same or parallell path as during the Carter year? Yes, Obam is even worse than Jimmy Carter. We have economic stagnation, gathering inflation, rising gasoline prices and we even have the signature military disaster. Not in Iran this time, but in Lybia. I believe that gold may soon go hyperbolic. I'll let you know.