Since the first trading session in May we have seen the stock market sell off. The old saying “sell in May and go away” was dead on again this year. Here we are 7 weeks later with the stock market continuing to lose ground. This extended sell off has everyone all worked up that this is the beginning of another market collapse.

Let’s take a quick look at the SP500 hourly chart covering the month of June.

As you can see, price is still falling but every couple of trading sessions we get some big money players nibbling on stocks accumulating shares and running the market higher. This type of price action is typically an early signal that the market is trying to bottom.

 

 There are two key ingredients for a higher stock market and both have been missing from the mix for a couple months. The two key sectors which have a significant weighting in terms of the broader market are the financial and technology stocks.

Let’s take a look at the financial sector:

As you can see on the bottom of this chart, financials started to lag the market in late January. Ever since then this sector has been in a strong downtrend pulling the broad market averages lower with it. The good news is that this sector has just reached a major support zone and is looking ripe for a bounce and possible rally.

 

 The other main ingredient to a higher stock market is the technology sector.

Looking at the technology sector:

Here we can see technology stocks have been pulling back for several weeks. Tech stocks are now trading down at a major support zone and they look oversold. A bounce from this level is very likely in the coming week.

 

Weekend Trading Conclusion:

In short, I continue to feel the market is trying to bottom here and we are at the tipping point when things get volatile and choppy just before we get a trend reversal in the S&P 500. Keep an eye on the short term charts of financials and technology sectors. Once they start making higher highs and higher lows on the 60 minute charts I believe it will be the start of a nice bounce and possible rally.

Get my free weekly technical analysis on sectors here: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

This is one of many videos that I shot on my trip to Utah to participate in the signing of HB 371 the Gold/Silver Act recently passed in the state. />   /> To the best of my knowledge –no one has gone through the chronology of the Zimbabwe disaster in quite this manner. />   /> Here it the link: http://www.youtube.com/watch?v=dcaa0KV2xVg />   /> Quite a lesson as I state at the end, />   /> Passing this along in hopes that you will find it of value />   /> Most Sincerely, />   /> David Morgan />  

Richard (Rick) Mills /> Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

A critical or strategic material is a commodity whose lack of availability during a national emergency would seriously affect the economic, industrial, and defensive capability of a country.

The report “Critical Raw Materials for the EU” listed 14 raw materials which they deemed critical to the European Union (EU): antimony, beryllium, cobalt, fluorspar, gallium, germanium, graphite, indium, magnesium, niobium, platinum group metals, rare earths, tantalum and tungsten.

The French Bureau de Recherches Géologiques et Minières rates high tech metals as critical, or not, based on three criteria:

• Possibility (or not) of substitution
• Irreplaceable functionality
• Potential supply risks

Demand is increasing for critical metals due to:

• Economic growth of developing countries
• Emergence of new technologies and products

Access to raw materials at competitive prices has become essential to the functioning of all industrialized economies. As we move forward developing and developed countries will, with their:

• Massive population booms
• Infrastructure build out and urbanization plans
• Modernization programs for existing, tired and worn out infrastructure

Continue to place extraordinary demands on our ability to access and distribute the planets natural resources.

Threats to access and distribution of these commodities could include:

• Political instability of supplier countries
• The manipulation of supplies
• The competition over supplies
• Attacks on supply infrastructure
• Accidents and natural disasters
• Climate change

Accessing a sustainable, and secure, supply of raw materials is going to become the number one priority for all countries. Increasingly we are going to see countries ensuring their own industries have first rights of access to internally produced commodities and they will look for such privileged access from other countries.

Numerous countries are taking steps to safeguard their own supply by:

• Stopping or slowing the export of natural resources
• Shutting down traditional supply markets
• Buying companies for their deposits
• Project finance tied to off take agreements

Many countries classify cobalt as a critical or a strategic metal.

The US is the world’s largest consumer of cobalt and the US also considers cobalt a strategic metal. The US has no domestic production – the United States is 100% dependent on imports for its supply of primary cobalt – currently about 15% of U.S. cobalt consumption is from recycled scrap, resulting in a net import reliance of 85%.

Although cobalt is one of the 30 most abundant elements within the earth’s crust it’s low concentration (.002%) means it’s usually produced as a by-product – cobalt is mainly obtained as a by-product of copper and nickel mining activities.

Today 40% of the cobalt consumed in the world originated as a by-product from copper production in the West African country of the Democratic Republic of Congo (DRC) – cobalt production in most other countries is a by-product of nickel mining.

The copper deposits in the Katanga Province of the Democratic Republic of the Congo are the top producers of cobalt and the political situation in the Congo influences the price of cobalt significantly. The politically unstable Democratic Republic of Congo contains half the world’s cobalt supply and represents the lion’s share of anticipated future cobalt supply – the DRC’s 2007 output was equal to the combined production of cobalt by Canada, Australia and Zambia.

In a nine billion dollar joint venture with the DRC China got the rights to the vast copper and cobalt resources of the North Kivu in exchange for providing $6 billion worth of road construction, two hydroelectric dams, hospitals, schools and railway links to southern Africa, to Katanga and to the Congo Atlantic port at Matadi. The other $3 billion is to be invested by China in development of new mining areas. Approximately half of  known global cobalt reserves are in the DRC, and close to 40%-50% of incremental cobalt production, over the next five years, is anticipated to emanate from the DRC.

At 19.7 percent of global supply Zambia is the world’s second largest producer of copper-cobalt. According to a recently released report by the Zambian Central Bank cobalt production rose to 2,236 tons in the first quarter of 2011 from 1,989 tons last year, exports increased to 2,279 from 1,977.

China is extremely short of cobalt concentrates and needs to import cobalt concentrates in large amounts every year. The leading global producers of refined cobalt are China (39%), Finland (15%) and Canada (8%). China is a leading supplier of cobalt imports to the United States.

The cobalt market is small in comparison with other base metals. Consumers purchase cobalt through negotiated agreements, bids, and open markets from producers, traders and to a lesser degree, government stockpiles and private inventories.

Uses

Cobalt is a strategic and critical metal used in many diverse industrial and military applications.

• Super alloys
• Renewable Energy Re-usable energy storage systems
• Wear resistant alloys
• Magnets
• Binder Material
• Thermal spray coatings
• Orthopedics
• Life Science
• Catalyst in de-sulfurizing crude oil and as a catalyst in hydrogenation, oxidation, reduction, and synthesis of hydrocarbons.
• Gas to liquid technology (GLT)
• Other Uses – Drying agents in paints, de-colorizers, dyes, pigments, and oxidizers. Promotes adherence of enamel to steel, and steel to rubber in steel belted radial tires

Conclusion

China seemingly has most of the DRC’s production of cobalt locked up, that’s up to 40% of global mined cobalt.

Cobalt is classified as a strategic/critical metal.

With the recent strong support for electric vehicles the use of cobalt in this sector alone has led to a formidable demand for the element and the US cannot continue to depend on its cobalt being supplied mostly from China.

There is no doubt in this author’s mind that cobalt’s profile will continue growing in the coming months and years.

Is cobalt on your radar screen?

If not maybe it should be.

Richard (Rick) Mills /> rick@aheadoftheherd.com /> www.aheadoftheherd.com

If you’re interested in learning more about the junior resource, bio-tech and technology sectors please come and visit us at www.aheadoftheherd.com

Site membership, and our AOTH newsletter, are free. No credit card or personal information is asked for.

***

Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

For site advertising rates contact: rick@aheadoftheherd.com

Richard Mills does not own shares of any companies mentioned in this report.

Utah Coin Act

Recently, I was interviewed on the Fox Business Channel regarding the Utah Legal Coin Act. Here is a little background and some interview questions.

For the first time since 1971, gold and silver are once again considered legal tender in at least one part of the United States. The State of Utah passed the “Utah Legal Tender Act,” which “recognizes gold and silver coins that are issued by the federal government as legal tender in the state and exempts the exchange of the coins from certain types of state tax liability.”

The law, signed by Governor Gary Herbert on March 25, is a voluntary system that provides an alternative to the fiat-based Federal Reserve notes that are created out of thin air in unprecedented proportions.

The most significant change from a practical perspective is that the Utah’s state tax code now considers gold and silver coins issued by the U.S. Mint as currency rather than an asset, which means since it is considered money it cannot be taxed. However, federal taxes still apply on these transactions.

1. What is this Utah Legal Coin Act about?

The Utah Legal Tender Act (HB 317) is designed to reinstate gold and silver coin as an optional medium of exchange in Utah intrastate commerce. The bill recognizes the inherent and inalienable right of citizens to voluntarily employ these time-tested, inflation-proof, complementary currencies to foster economic development throughout the state. The bill draws its authority from Article 1, Section 10 of the United States Constitution which provides that no state shall make anything but gold and silver coin a tender for payment of debts. Grounded in long-standing principles enshrined in the supreme law of the land, this statute addresses current, pressing monetary issues in modern American society—issues to which gold and silver coin solutions are uniquely suited.

2. Why do we want/need sound money?

Because the founders of our nation had experienced first-hand the ills attendant with unbacked fiat currency, they provided in Article 1, Section 10 of the United States Constitution that no state is to make anything but gold and silver coin tender for payment of debts. Unfortunately, we’ve departed from the wisdom they imparted, and embraced a medium of exchange that has no intrinsic value whatsoever. The value of today’s dollar is upheld by governmental edict, backed only by the indebtedness of our nation and its citizens. Because of sharp increases in our money supply, our national debt is on an upward trajectory, set shortly to eclipse our gross domestic product. Since there is no historical precedent for a totally fiat money system such as ours ever lasting more than a few decades, prudence dictates that alternative, sound means of exchange be put in place well in advance of any potential crises, such as those endured by the fiat-financed nations and empires of the recent and distant past.

Even absent the specter of catastrophic consequences, an alternative sound money system confers many benefits on citizens and state governments alike. Such a system serves as a refuge from the ills that fiat money produces, including the insidious “inflation tax” that our current monetary system imposes. Consider that the U.S. dollar has lost more than 95% of its purchasing power since decoupling from gold and silver backing. By contrast, sound money systems of the past continued virtually inflation-proof for centuries on end.

3. Are there other states that are looking at something similar?

Virginia House Joint Resolution 557 /> Georgia Constitutional Tender Act /> Ohio Honest Money Project /> Idaho Silver Gem Act, Bill No. 633 /> South Carolina House Bill No. 4501 /> Missouri House Bill No. 561 /> Washington House Joint Memorial 4010 /> Colorado Honest Money Act (HB09-1206) /> Indiana Senate Bill No. 453 /> Montana House Bill No. 639 /> New Hampshire Gold Money Bill 1.1.

4. Why are the states doing this and not the Federal Government?

Because of the co-dependent relationship between Congress and the Federal Reserve, the likelihood of any sound money reform coming out of Washington is remote indeed. Individual states, exercising their sovereign authority, are best equipped to restore sound money to its prior status as a trading currency. So look for a sound money comeback on a state-by-state basis. It makes sense to first support states that are well positioned to make sound money a reality today. Then as the movement gains momentum, reluctant jurisdictions will see the advantages of embracing sound monetary systems.

More information can be found at www.utahsoundmoney.org.

We have received feedback on this from many people so far and many are of the belief that Gresham’s Law will mean that no one will spend real money (gold or silver) into circulation. We will not argue with the concept but will make the case that the market will decide and perhaps there will be some who want to “spend” their profits into the community. For example, when silver was approaching the $50 level there could have been (in theory) people who wanted to take advantage of that price and spend some profits for some good or service.

Also, we think that some merchants favorable to sound money principals might offer a discount for real money being used in a transaction. We can envision two prices—a silver price and a fiat price. Again, the market will decide and it is our hope that real money circulates enough to encourage other states to adopt such measures.

We find it interesting that some of the opponents of the law come from the CPM Group:

Opponents of the law warn such a policy shift nationwide could increase the prospect of inflation and could destabilize international markets by removing the government’s flexibility to quickly adjust currency prices.

“We’d be going backward in financial development,” said Carlos Sanchez, director of Commodities Management for The CPM Group in New York. “What backs currency is confidence in a government’s ability to pay debt, its government system and its economy.”

Larry Hilton, a Utah attorney who helped draft the law, disagrees and says the gold standard would restore faith in American money at a time when spiraling debt is weakening confidence.

“We view this as a dollar-friendly measure,” Hilton said. “It will strengthen the dollar by refocusing policy matters in Washington on what led to the phrase, ‘the dollar is as good as gold.’”

We, of course, side on the principle of sound money and think the U.S. has not instilled confidence for a very long time. I am scheduled to fly to Utah and be with Governor Gary R. Herbert for a ceremonial signing of this law. We again are hopeful that other states will follow and the principle of fair weights and measures will once again be restored to the people.

Summary

We applaud Utah and are anxious to see if this is a moral victory, or actually becomes a trend. In our view a great deal depends upon how the implementation process proceeds. David Morgan interview the creator of the bill and this will be published in the July issue of The Morgan Report.

David Morgan

Become a member today: http://www.silver-investor.com/amember/signup.php

The Case Against the Fed – Murray Rothbard

In 1913 the United States Congress passed the Federal Reserve Act which created a central bank for America. With its charter came the ability to create money and credit for the country. And so it did. By the end of the 1920s the Fed had inflated the money supply so much that the government was forced to revoke the right of Americans to trade their Dollars for gold. With great irony the Congress later gave the Fed, as one of its mandates, the job of promoting price stability. So just how is the Fed supposed to fight inflation via its ability to create it? Even on the surface something is amiss with this relationship. In The Case Against the Fed, Murray Rothbard exposes the self serving fallacies of the Fed to arrive at the ultimate truth: If you really want to fight inflation, then you need to eliminate its primary cause, the Federal Reserve itself.

Making a case against the Fed begins by debunking the notion of an optimum supply of money. Throughout the history of central banking, the public has been conditioned to believe that expert management of the money supply is critical to economic growth. And in the case of the Federal Reserve, it is too important a task to risk politicization via oversight. The claim by central bankers is that they are responsible stewards of the public interest. They do not suffer the temptations of politicians to merely print money for their own self interests. They instead carry out the critical task of expanding the supply of money at a rate to match the needs of increased production or population growth or some other stated factor.

On the surface such explanations sound reasonable and have certainly been effective over the years at deflecting questions about the Fed’s purpose. But why must the money supply be expanded at all? Money itself is not wealth but simply a medium of exchange. Wealth is represented by the underlying goods and services that money may be exchanged for. When a bank creates new money or credit, the amount of real goods and services do not increase proportionately. Rather, the ultimate purchasing power of all money is reduced. But therein lays the catch. Those who receive the new money first are able to claim a greater share of real goods and services as they are able to secure them at the original prices. Those who receive the new money last suffer higher costs prior to experiencing any potential increase in wages. The end result is not a net increase in real wealth but rather a net transfer of existing wealth.

The key to understanding the importance of the Fed in supporting the power and profits of the banking system is to first understand what Rothbard calls the inherent fraud of our fractional reserve system of banking. The nature of the fraud lies in the fact that at any given time a bank has more obligations than reserves in which to meet them – a literal Ponzi scheme. It is at all times insolvent and its ability to continue in operation relies on the public’s general failure to grasp this concept.

In times past, a run on the bank meant its end as its insolvency was exposed. Depositors seeking their money found out the hard way that only a small portion of what they deposited remained available for withdrawal. The vast majority of it had been loaned out. This is the fundamental conflict of our banking system, the enticement to loan out money that is claimable on demand in order to simultaneously generate additional profit.

This practice is not just lucrative for banks but highly inflationary as well. Each dollar deposited is available to spend, while at the same time it has been lent out to be spent. As long as the majority of the dollars are simply transferred from account to account within the same bank this scheme continues unnoticed. It is only in times of crisis that a loss of confidence results in a run on the bank. Depositors fearing that not enough money exists, race to redeem their deposits before the limited supply of reserves is exhausted.

Beyond the loss of depositor confidence there is one other limitation on a bank’s ability to expand credit beyond its reserves. When money is transferred from an account at one bank to an account at another, the corresponding transfer of underlying reserves could expose the insolvency in the same manner as a bank run. To counter to this, banks could attempt to act as a cartel and simply accept each others notes in exchange for actual reserves. But in practice this is difficult to achieve as it requires all banks to expand at the same rate in order to evenly distribute the risk involved in holding such notes.

These two limitations have been the Achilles heel of the fractional reserve banking system since its inception. The real purpose of a central bank is to shore up the vulnerabilities in the banker’s profit mechanism. By serving as the lender of last resort to the banking system, coupled with the sole legal right to produce new currency, the Fed has the power to stop a bank run from threatening the system. They also serve as an effective cartelizing agent by requiring that all banks keep their reserves on deposit at the Fed. By maintaining these reserves in the form of Federal Reserve Notes, the Fed can assure that all banks inflate their credit evenly and do not lose reserves to one another.

In the end, Rothbard’s case against the Fed reduces to the fact that it is nothing more than a legalized counterfeiter that stands ready to bail out the inflation machine of fractional reserve banking. The notion that it is somehow required to manage economic growth or to fight inflation is patently false. It is merely the capstone on a system that exists to do nothing more than transfer wealth from the many to the few.

In an interview on the Today Show yesterday, President Obama again exhibited his woeful lack of economic understanding.

According to Obama, our economic woes are structural problems that have resulted from large increases in productivity – like installing ATM machines and getting rid of bank tellers. Yes, that’s probably it: machines cause unemployment.  Instead of using Caterpillar dozers to build roads, we should put 5,000 workers out there with shovels.

Let’s discuss one of the most basic economic fallacies that, apparently, even an Ivy League education can’t overcome: that of the scourge of machines. This one has been haunting public discussion since the dawn of civilization. This fallacy claims that machines, or productivity increases in general, are undesirable because they displace workers.

While it’s true that the immediate situation for the workers who lose their jobs will be negative, it’s not at all true for society as a whole.

Let’s carry this fallacy to its logical conclusion. If all machines and time savers are harmful to the economy, then clearly the ideal situation is one in which individuals spends their entire day rooting around for food, hopeful that they will find enough to survive, and repeat the process again the next day. No problems with employment here. But would happen to the standard of living?

If you haven’t read Henry Hazlitt’s Economics in One Lesson, then please do so (download pdf copy). As Mr. Hazlitt points out, the classic mistake of economists is to only consider effects on a small group in the short term, while ignoring the long term effects on society as a whole.

So what happens to our wanderer-gatherer society when someone discovers how to produce enough food for ten people each day? Ninety percent of the population is now out of work. But the cost of food (in terms of time and effort) has plummeted. So much so that the labor of the other ninety percent has been freed up to produce other desirable items such as wheels or houses or big screen TVs. Society as a whole is richer because of the increases in productivity.

The fact is economic growth, or a rising standard of living, is due to increased productivity. The more goods and services each individual is able to produce, the more that is available to society as a whole. Clearly machines and technology are great enablers of economic growth and not the other way around, as, sadly, our president believes.

For his latest piece over at Financial Times, Roger Altman fires up the economic fallacy machine and throws it into overdrive:  The economy needs more stimulus to recover; recessions must be avoided; we’ll solve our debt problem with more debt; and don’t worry, higher prices are temporary.

Let’s begin with this notion that a recession is a bad thing. Yes it’s certainly painful, like rehabilitation after an injury, but necessary in order to heal. A recession is a contraction in the economy due to the closing of failed businesses and the liquidation of bad investments. The process of clearing the market of these impediments is essential to growth. Critical capital tied up in these failed endeavors must be freed before it can be reinvested in more productive areas. It is these new investments that ultimately create new jobs and form the basis for future economic growth.

When government steps in to prevent this from happening, it only prevents the economy from repairing itself. The problems will continue to fester until they become so great that no amount of government interference can prevent the inevitable correction. When confronted with a looming recession, the cries should be not for the government to do something, but rather demands that it do nothing at all.

Stimulus spending is a political tool used to camouflage economic statistics in the short term. Temporary make-work programs do nothing to foster long term economic growth. Nor do they necessarily benefit individuals who have lost their jobs due to a failed business. The more troubling problem results from the fact that government has no wealth of its own. When government engages in artificial stimulus spending, it does so by plundering the private sector. Productive individuals are no longer able to employ the money that they have earned. The net result can only be positive if you believe that the government can allocate capital more efficiently than the free market. History and common sense tells us that this is not the case.

It makes no difference whether the source of this plunder is direct taxation, issuance of debt, or simply money printing. All is paid for in full by the private sector. The latter method is the most insidious as it steals the purchasing power from wages and savings. This is the source of the “temporary” higher gasoline prices Mr. Altman mentions. Does he believe that the 97% loss in the value of the dollar over the last one hundred years is also temporary?

In the end he leaves us in a conundrum where debt is threatening the future economy, yet still we must continue to rack up more, lest we threaten that same economy. In other words, the last stimulus failed to fix our problems, so let’s do it again.

Why on Earth do otherwise intelligent folks keep lobbying for failed policies? The answer is simple: Policies that are harmful to the economy as a whole are extremely beneficial to a select few. Fallacies are the means by which this select few convince the greater population to go against their own self interests.

I’ll leave it to the reader to decide for themselves whether Mr. Altman is one of the select few that benefits from the fallacies that he pushes.  Two good places to start would be the GM bailout and the Whitewater scandal.

Update: Further googling reveals that he is also a member of the Council on Foreign Relations and a regular attendee at Bilderberg.

Perhaps you’ve seen the stories this week about the $6.6 billion in one hundred dollar bills that the US Government managed to “lose” in Iraq back in 2003-2004. Apparently, as part of the Iraqi reconstruction effort, plane loads (C-130 Hercules to be exact) of palettes containing shrink wrapped 100 dollar bills were flown in. $22 billion in all. As the Pentagon is attempting to close the books on the operation this week, it was revealed that some $6.6 billion cannot be accounted for.

Let’s think about this for a minute. Under full military guard, physical cash is handed out, and all that has to be done is to collect a receipt. How difficult can this possibly be? That’s right, it’s not difficult at all. And the money that was lost was fully planned to be lost. This is what governments do, or more accurately, this is what human beings do when provided the opportunity. Give a group of folks the sole legal ability to print money (in this case literally) for their friends, and that is exactly what will happen. I don’t think anyone over the age of about four doesn’t understand this.

With this in mind, let’s examine one of those great pieces of American folklore: the US gold reserves. The fact of the matter is, a full independent audit of the US gold has never been performed. The closest thing to a real audit was last performed in 1953, but even that one had major problems. First, there were no independent outside parties involved, and second, only 5% of the gold was tested for purity.

For the nearly 60 years since then, the reserves have been held under tight control by a group of men closely connected to the Wall St. banks. Zero oversight by the American people or their elected representatives has been permitted. Just last week, as part of their coverage of Ron Paul’s inquiry into the gold reserves, CNBC was denied the opportunity to even film any of the gold in Fort Knox. They were told that it was a “closed facility”. One staff member even said that he was not aware of any member of congress having toured the facility since 1974.

According to a treasury document, a full audit of the gold would take 30 minutes per bar for a total of 350,000 man hours, or 400 men working for 6 months. Total cost would be $15 million. Sounds like a bargain to me. The government probably spent more than $15 million just to print and transport the $6.6 billion it lost.

Now I could go into gold swaps, cash settled leases, or even tungsten filled gold bars to make my point that 8100 tons of gold is probably not where the government claims it to be, but that isn’t really necessary. All I need to do is point to the Iraq situation above. Or any other of the millions of examples of graft that always occur in any government operation that isn’t conducted with complete transparency.

Am I wrong? No problem. This is easily settled. Let’s have our full, independent audit of the US gold reserves. Let’s see exactly how much unencumbered, assayed physical gold exists in our possession. This is easily accomplished, and really, could be a big boost for President Obama. He could finally demonstrate some of that promised transparency, and heck, he could even claim another 400 jobs created.

Ron Paul doesn’t have a lot of friends at the US Treasury, particularly now that he is the Chairman of the House Financial Services Subcommittee on Domestic Monetary Policy. His relatively high profile hearings regarding the US gold reserves – and insinuations that perhaps all is not as it seems – have made a lot of people wish the whole thing would just go away. That fact is, their desire is easily accomplished: simply provide transparent answers and information to back their claims regarding the gold. Let anyone who cares see for themselves that everything is accounted for, and whole issue evaporates instantly.

The two clips below are from the June 23 hearings with the US Treasury Inspector General Eric Thorson. The question being asked is painfully simple: where is the physical gold pledged by the US to the IMF and how is it accounted for on the balance sheet? If you can make it through all nine minutes you’ll witness Mr. Thorson pretend not to understand the question, answer a completely different question, and ramble off on items completely unrelated to the topic at hand. It’s about as non-transparent as it gets.

The whole thing reminds me of the infamous questioning of the Federal Reserve Inspector General by Alan Grayson. She too was unable to answer simple questions about the Fed’s balance sheet. In the time since, we’ve come to learn why; the Fed took it upon itself to bail out a whole slew of foreign banks and corporations at the US taxpayers expense.

Investors and traders alike were watching the action unfold across the pond earlier this week. It was seemingly a foregone conclusion that Greece would get the bailout they desired in order to prevent a potentially catastrophic default. The Greek default situation increased volatility in financial markets around the world. In addition to the Greek dilemma, the end of the 2^nd quarter and the customary window dressing by institutional money managers only heightened the volatile situation.

For the past week or so I have been sitting in cash, watching the price action and waiting for setups that have defined risk and solid rewards. With the heightened volatility I did not want to get involved because a trade in the wrong direction would wreak havoc with my portfolio. As this week evolved, the validity of those concerns was unquestionable.

Commodity investors have faced some tough price action recently as gold, silver, and oil have traded significantly lower quickly. Now that we have witnessed some heavy selling pressure set in particularly in the silver and oil markets investors want to know where price is heading in the short term.

U.S. Dollar Index

For the past several months I have been monitoring the U.S. Dollar Index futures in order to gauge the price action in commodities and the S&P 500. The Dollar is currently trading at a key support level and the price action in coming days will be telling. While I do not trade solely on analysis pertaining to the Dollar, I do look for setups where an underlying is dramatically impacted by its price movements.

When the planets align, I will take a trade with a directional bias that is supported by the price action in both the underlying that I’m trading and the U.S. Dollar’s price action as well. At this point in time, the U.S. Dollar Index is trading right at a key support level marked by the 20 & 50 period moving averages as well a recent low. The daily chart of the Powershares U.S. Dollar Index Bullish Fund $UUP is shown below:

UUP Daily Chart

 

Gold & Silver

The recent bounce higher in the U.S. Dollar has been a factor in pushing gold, silver, oil, & the S&P 500 lower. Silver and oil were impacted in the harshest manner, but all four asset classes were negatively impacted. Precious metals tend to weaken during the summer and then pick back up in the fall. However, the selloff in silver the past few months has been breathtaking. For precious metals bulls who entered silver late in the rally the only outcomes were dismal. Late comers to the silver bull market were either stopped out or are currently experiencing significant pain.

While I remain a longer term bull as it relates to precious metals, in the short term I expect lower prices to continue. A major factor in my analysis stems from a longer term standpoint; the U.S. Dollar has likely put in an intermediate to long term low. There are a variety of reasons as to why, but suffice it say that from a market cycle standpoint the Dollar has likely achieved a major low and a reflex rally is likely.

Issues in the Eurozone are far from over and as time passes I expect the impact of fiscal issues rising in countries like Ireland, Portugal, and Spain to have a major impact on U.S. Dollar prices. If the sovereign fiscal issues in Europe result in a default or even a more mild technical default, the impact will likely be bullish for the U.S. Dollar.

The daily chart of the SPDR Gold TR ETF $GLD and the Ishares Silver Trust $SLV shown below illustrate the key areas which may be tested before the bull market in precious metals continues:

GLD Daily Chart

 

SLV Daily Chart

I am of the opinion that if precious metals investors are patient an outstanding buying opportunity will present itself in both gold and silver in weeks ahead. Looking at the daily chart of the two shiny metals and identifying key levels that make sense to acquire positions is important in the trade planning process.

I like to have a trading plan in place should my expectations unfold because it removes emotion from my trading. Planning a trade and trading a plan are extremely helpful when investing in volatile markets like silver and gold. In the longer term, I continue to believe that gold and silver will shine, but in the short term more price weakness may be ahead.

Crude Oil

I am a long term gold and silver bull, but the single asset class that I am the most bullish about is energy. Oil prices in the long term have only one direction to go – HIGHER. I realize that a slowdown in the economy will put downward pressure on oil prices, but as the world’s demand for oil increases and the supply level plateaus or decreases oil prices will be forced higher. If the Dollar does rally as I expect, oil prices would likely be negatively impacted and a buying opportunity would be forged.

The daily chart of the United States Oil Fund ETF $USO is shown below with my future price expectations and current key price levels illustrated:

Oil Daily Chart

 

 S&P 500

The S&P 500 is in a very tricky spot for traders. Right now price action is testing the underbelly of a major descending trendline on the daily chart shown below:

SPX Daily Chart

 

However, if we take a look at a weekly chart note the massive head and shoulders formation that many traders have totally missed. A rally to the S&P 500 1,340 price level would complete the pattern. While head and shoulders patterns have failed several times in recent history, this is a major head and shoulders pattern on the weekly chart which holds more credence than shorter time frames such as the hourly or even the daily charts. The weekly chart of SPX illustrates the head and shoulders pattern. 

SPX Weekly Chart

 

In the short run I think the S&P 500 can work higher, but if I’m right about higher prices for the U.S. Dollar in the future I expect to see much lower prices in the S&P 500 in the intermediate term, particularly if the weekly head and shoulders pattern plays out. If the S&P 500 struggles to breakout above key resistance levels, I will be of the opinion that the bear may have stopped hibernating and an impending recession may be thrust upon us in short order. There are signs pointing in that direction, but right now it remains too early to call.

Conclusion

In closing, my analysis reveals that the U.S. Dollar is poised to push higher, particularly if current support holds. If the Dollar can push above key resistance levels overhead, I expect the resulting price action in gold, silver, oil, & the S&P 500 to be dismal for the bulls.

I will be watching the Dollar closely looking for clues about price action. If I’m wrong and the Dollar breaks to new lows I would expect a massive rally in precious metals, energy, and domestic equities. With the recent price action that we have seen in the U.S. Dollar, I find it much more likely that the U.S. Dollar extends higher in coming weeks. As usual, time will tell.

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JW Jones