All That Glitters
Research for Online Investors

by John Dalt

3/02/10

We watch the precious metals market for clues on larger issues.  Stronger dollar, Greek deficit, China lending restrictions, there are a lot of moving parts to the market.  Trader’s sentiment in all these issues, eventually are reflected in the price of precious metals.

We think the precious metals market has bottomed and is ready to push higher.  The higher dollar has punished many commodity plays, and precious metals have been pushed lower.  Look at this chart, since early November, GLD has stayed above 106, except for the dip at the beginning of February (when everything sold off).

On the way up in the fall, GLD cleared 106 then climbed steadily to 119 before succumbing to the strong dollar in December.  Now let’s look at a chart of the SLV etf.

Similar, but we see silver has wilder and more dramatic swings.  When GLD goes up 1%, SLV generally goes up 2%, the same happens on the way down.  We can trace the same general outlines, but easily see that silver reacts to the heat of the market much more than gold.

One of the studies we watch on stocks for SwingTrader is the Moving Average Convergence/Divergence (MACD) indicating momentum. On both the charts the red and black line are under the 0.00 moving higher. The red line is below, or chasing, the black line higher indicating positive momentum.  SLV has just crossed the low from the end of December, and has more upside to ‘catch’ GLD.

One of the events that caused the sell off in equities in January was the Greek debt crisis.  This surprised us as junk currency should be manna for precious metals.  When one currency is bad, doesn’t it highlight the problems with all fiat currencies?  We believe so.  We attribute the sell off in December and January to a higher dollar, but also a consolidation period for precious metals.

In the future as currencies come under pressure, we expect gold and silver to pause, but not lose their luster. The U.S. continues to print money, the E.U. continues to print money, and England continues to print money. Gold miners continue to find gold, and now is a good time to make sure you own some, or even better, own silver. We like GLD, SLV and AGQ, the silver ultra etf.

You may also want to look at PPLT for platinum or PALL for palladium.  These metals, like silver, have industrial use which gives the investor exposure to a recovering economy plus a store of value.  These two ETFs are relatively new, and are not heavily traded, yet.

A couple of notes of interest to our subscribers.

I received a nice thank you note from the Hospital Albert Schweitzer (HAS) for our contribution shortly after the earthquake in Haiti.  Our subscribers gave a significant amount of money to the hospital.  They tell me they were undamaged by the earthquake and “able to respond to many victims who had suffered major trauma.”  I am humbled that we were able to help.  If you missed the chance and wanted to make a donation that will not be abused or wasted you can contribute here.  A contribution of any amount can make a difference.

C.H., our subscriber in Afghanistan has had his tour extended five days in theater, he says hi and thanks for the support.  He should be on a plane by April 11th.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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