MARKET FORCE ANALYSIS UPDATE FOR KEY COMMODITIES OCTOBER 8, 2008

By Adrian Douglas

Things are changing very fast and it is important for investors to remain focused with their eye on the ball. The last full update was on September 22, 2008, but a Flash alert for gold was released October 3, 2008. Since then the key players in government and finance have all been on a drunken binge and have wandered into the Control Center of the world’s financial system and have started pulling levers and pushing buttons to see if they can find something that will stop the run away machine!

GOLD (Figure 1)

In the flash release of September 3 I called a bottom when gold was trading at $750 as the MFA approached, but had not yet hit, the lower support (point 1 on the chart). In the update of September 22 the MFA still hadn’t reached lower support but gold had rallied to $903 (point 2 on the chart). The MFA finally hit lower support on October 3 when gold closed at $834 and I issued a flash alert that gold was going to resume a powerful upleg. The MFA is still on the lower support and gold closed today at $903. The coming Bull Run is going to be truly phenomenal because the MFA has to traverse the entire channel to reach upper resistance before an interim top could possibly develop.

Gold and silver will respond appropriately to the new “policy tools” of guaranteeing every bank deposit in the world and bailing out every major failing institution in the world with money that has not been earned. Bernanke has said such actions are not inflationary! Oh really! So why not solve the naked shorting problem by printing up the missing share certificates and see if that bolsters stock prices?

FIGURE 1

COPPER (Figure 2)

In the last release I said “Copper has remained at the lower support level and is still, therefore, a low risk entry investment. Copper closed at $3.30/lb. Copper will continue to be a strong beneficiary of the upcoming and ongoing monetary debasement”

Despite MASSIVE money creation, bailouts paid with newly created money, the promise of 700B$ TARP money out of thin air and much, much more the distortions created by market interference and manipulation created a rise in the USDX! Fundamentally this is impossible but technically anything is possible in the short term. Panicked investors misinterpreted the rise in the dollar as being the onset of deflation (yes, in times of panic the human body cuts blood circulation to the brain to save energy!). So despite monetary spigots being opened everywhere and officials openly talking of providing lots and lots of “liquidity” all commodity investors could do was to sell commodities. Copper got caught in the cross-fire.

It can be seen that the MFA fell below lower support. This has not fallen out of the trend sufficiently far to declare a bear market trend but as can be seen the copper price plummeted in response. You can see that the gold MFA (figure 1) exited the channel to the downside in early 2007 but it did not exit sufficiently far to invalidate the bull trend. I expect that once the pure mechanical reasons for exchange rate distortions get flushed away the dollar will re-assert its nose dive and all commodities including copper will rise dramatically. Until that happens investors should wait.

Copper closed at $2.47/lb

FIGURE 2

CRUDE OIL (Figure 3)

Crude oil has also been caught up in the wacky dollar behavior. After a strong bounce off lower support, when oil first touched $90/Bbl, the MFA rise has been stopped dead in its tracks as investors are confused about the deflation/inflation argument. It is hard to believe that as the monetary flood waters rise above everyone’s head there are those that think the water is receding! With the crude MFA in mid channel the crude bull is in no jeopardy at all. The MFA will resume its rise when the fundamentals of the dollar reassert themselves on its relative fiat paper exchange value.

Crude closed just shy of $89/Bbl

FIGURE 3

SILVER (Figure 4)

The silver MFA made a slight down dip and the price has been volatile as a result. The start of Silver uplegs usually lag behind those of gold so I suspect the MFA will soon be heading up and silver will take off.

Silver closed at $11.7/oz.

FIGURE 4

US DOLLAR (Figure 5)

If there is any doubt that there are some unstable market conditions creating weird dollar movements this chart should put it to rest! The MFA has been gyrating around like someone left the defibrillator plugged in! Although the patient is jumping up off the bed in response the doctors haven’t noticed that this is just a synaptic response and the patient actually died days ago! The bizarre rocketing of the USDX in the face of the massive monetary profligacy that reaches a new height on almost a daily basis is due to odd quirks of forced dollar purchases to meet derivative or debt obligations and short coverings or some such anomalies but has nothing to do with deflation. You can not deflate a balloon by pumping it full of air!

The collapse of the MFA suggests the dollar is late for its appointment with the Grim Reaper!

FIGURE 5

Summary

The Monetary Alchemists at the Treasury and the FED have for years been experimenting with a mixture of nitroglycerine, rocket fuel, dynamite, and gasoline. They found that if the concoction was cooked carefully on a gas burner the controlled release of energy could make paper into wealth. Some one made a slip and the whole freakin’ laboratory just got blasted into the stratosphere!

The clowns from Treasury, the FED and Congress have all been on prime time TV with their faces covered in soot and looking completely dazed and have promised that with a bit more funding and some more experimentation they can come up with a way to fix the damage! Hey, let’s be charitable. Anyone can make an honest mistake and destroy the world. Surely, they deserve a second chance (maybe, but not on this planet!)

The precious metals don’t require any alchemy to make them valuable. All you have to do is hold them in your hands.

Don’t listen to the blubbering idiots that were close to the blast. They are incoherent.

Adrian Douglas

October 8, 2008

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