Zeev's Turnips Patch-No Politics (ZEEV)

[basserdan]

*** Gold + Silver Review ***

For Wednesday March 26, 2003
Erik Gebhard

April Gold
Close = $329.2, -$1.1

We'd rather not continue to dwell on the relationship between the war in Iraq and the markets, but it just can't be avoided. The fact is, from one headline on Iraq to the next; the financial, currency, energy, stock markets, and gold too, are getting whipsawed. By nature markets are generally unpredictable, but the shroud of war has caused volatility to swell. After all, just look at the action in the US stock market and dollar last week and today. We won't summarize the latest headlines as you're certainly getting a heavy dose of war-related news as it is. Suffice it to say, the major influence on gold at the moment is the war, whether it be a direct or indirect influence.

As evidence of this "headline" trading, notice the crude market today. With an hour or so left until the close, crude was up over $1.00 per barrel. A headline broke that a Shiite uprising in Basra (anti-Saddam) was starting, and crude promptly dove almost $2.00! Also notice that equity markets rallied, with the Dow recovering from a feeble session in the red and heading over 100 points higher. Gold too absorbed this headline and from prices above $334, it sank as much as $6.

It's improbable that any of us can accurately predict the daily machinations of the war effort. To trade gold right now one must be quick on their feet and flexible, not hesitating to get in or out at a moments notice. For longer-term investors, these hourly gyrations should be of little consequence. In fact, with much of the war premium having been chased out of gold, there are many gold bugs chomping at the bit to buy at these levels.

Is gold near the mid $320's a great value? Whether or not a wave of buyers press prices higher is somewhat dependent on whether or not a vicious and protracted battle in Iraq takes shape. If so, it's safe to assume stocks and the dollar will slump, energies will find strength, and gold will make bulls wealthier.

With so much choppy action only highly speculative aggressive traders would want to consider unhedged futures positions. Many folks might look to futures options as a way to be on board in case of a dramatic move in either direction. What really matters is implementing a position with a favorable risk/reward ratio. We're below moving averages and a bearish engulfing line candlestick formed today. Technicals suggest lower to sloppy actionbut in this tedious environment traditional technical analysis may not be quite as valid. Be sure to watch TradeScope daily. Remember, with futures and options one can be short or long, feel free to contact me to discuss trading strategies.

Each contract/option = 100 ounces, a $1 move in a futures contract = $100.

May Silver
Close = 439.3, +2.5-cents

Technicals are quite a bit oversold right now, such as oscillators like stochastics. Bulls may want to hop back on the horse and give it another go, but as always, if prices don't rally be prepared to take a small lump. The next resistance area is now 451 or so. Certainly there is a load of room to rally but only on the shoulders of a willing gold market, but that's the keygold. Finally, take note of the bullish seasonal, where in 12 of the last 15 years May Silver has rallied from approximately March 18 to May 4 an average of about 11-cents. Of course, history isn't guaranteed to repeat itself.

Each contract/option = 5,000 ounces, a 1-cent move in a futures contract = $50.

Contact me anytime to discuss strategies to fit your needs.

-Erik Gebhard

http://www.321gold.com/editorials/gebhard/current.html

Dan