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Gold is forming a base. It is starting to break out of rounding bottom and has its sights set on the 50-day Moving Average, which stands at $1682.

I returned to our home in Wayzata, Minnesota on Saturday. I spent a week here, two months ago, and on Saturday, when I opened my Word files on my IMac, there in front of me was the daily that I wrote on February 23, just before returning to Miami. Until I took a close look at the closing numbers that day, and compared them to the close last Friday, I wasn’t aware just how poorly gold and silver have fared in the last 60-days. I have included both sets of numbers, above. Let’s see if we can make any sense out of them.

In the last two months, the dollar and the euro are virtually unchanged. There are no apparent huge money flows into or out of either currency.

Gold is down 5.96%, Silver is down 11.84%, Platinum is down 7.98% and Palladium is down 3.55%. In general, money has flowed out of the precious metals and commodities. More on this later.

The HUI and XAU, the mining share indexes, are each down over 16%. This is interesting, because the stock market is up18.9% over the same time frame. You can see just how poorly the mining shares have been performing recently, because they are tumbling versus both the stock market and gold and silver.

What is this telling us? It’s telling us that the “big money” is not worried about an eminent collapse of the economy, or inflation. The “Safe Haven Trade” is now out of favor – but I expect that to change soon. If the Fed indicates that they will re-introduce QE (3) later this spring, these numbers should change dramatically. The “Inflation Trade” and “Safe Haven Trade” will return. A torrent of money will leave the dollar and euro and move back into commodities, especially precious metals.

Let’s face it. Europe is on the edge of an economic cliff. Spain is “Greece on Steroids!” The EU must continue to buy PIIGS bonds to hold back the rising interest rates that threaten the economies of all of Southern Europe. Here in American, the economy is fragile or worse and the election is just a little over six months away. The Fed is “political,” and they will have to pour as much money into the economy as it takes to prop it up before the election. They can’t wait until after the election or even until just prior to the election. It takes time for new money to work its way into the economy and the stock market. Look for QE3 by June or September at the latest.

When you examine the loss of the mining share indexes vs. the physicals, it is clear why Andy Hoffman has sold all of his mining shares and moved the proceeds into physicals. I have sold all of my mining shares except Tanzanian royalty Exploration (TRX) which I hold because Jim Sinclair is their Chairman and I trust Jim Sinclair. In the last 60-days, TRX is up around 16% even as most gold and silver companies are sporting double-digit losses.

Watch gold and the $1682 number. Once gold goes positive, above its 50-day MA, it should move quickly to $1700 where there will be another “even number” battle. That could happen soon.

 

 

Sincerely,

David Schectman

Miles Franklin