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KWN - Special Friday Gold & Silver ‘Chart Mania’

September 7, 2012

With the wild action in gold and silver this week, top Citi analyst Tom Fitzpatrick put together a ‘Gold & Silver Chartapalooza’ where he laid out the roadmap for gold and silver to hit new all-time highs. Below is his piece and the KWN Special Friday Gold & Silver ‘Chart Mania.’

But first, Fitzpatrick warned in his repoprt: “It seems that in this ‘brave new world’ the goalposts for failure/success have been sharply shifted. Failure is recession/depression, deflation, default, wealth destruction, social strife/conflict and possibly worse. Success now seems to revolve around a dynamic familiar to people who were around in the 1970’s…STAGFLATION looks set to be a our ‘new normal’ (If we are lucky) in the years ahead.”

Here is what top Citi analyst Fitzpatrick said in his latest report, along with powerful charts: “We are constantly told that ‘Gold is a useless yellow metal’ with no real monetary value yet history belies this. For over a decade it goes higher and higher and we hear the crescendo of cries that it is unsustainable and a bubble. (There was no such crescendo about the equity markets in 2000 and again in 2007-Nasdaq in particular, or the Nikkei in 1990).

When the Oil price went from $10 to $147 it was explained away by peak Oil theory. The housing market was ‘not a bubble’ and we had never had a national decline in prices (Never say never). All of the above ended up being bubbles that burst as people participated in those trends with leverage and sent most of these markets up in multiples far greater than we have seen with Gold.

History also shows that markets rarely ‘implode’ when everybody is looking for it. All the way up, every new $100 bounce raises the cries of ‘bubble’ again. We believe this move is far from over and still expect Gold to be an outperforming asset for some years to come.

Gold is on the cusp of breaking out against the currencies of the USD-Index (As it did in 2006-2007) (EUR;JPY;GBP;CAD;SEK and CHF). If you include Europe’s inevitable monetization then 86.7% of this index is made up of countries who are effectively printing money, as is the US. It is no wonder that Gold should therefore be breaking out against paper currencies overall (see chart below).

And (gold) looks to be breaking out again (see chart below).

Gold trying to break out against a buoyant Bond market (see chart below).

Looking like a very clear break of the triangle top (log chart) and 55 week moving average around $31.60 opening up for the test of the double bottom neckline at $37.50 (see chart below). A break above here suggests extended gains towards $49 again. A move to $2,060 on Gold and $49 on silver would suggest Silver outperformance in this leg and a Gold versus Silver ratio around 42.

Rising trend line support and the 55/200 day moving averages have given way after resistance around 58.50-60 held. Next interim support is met around 48.43 with the 61.8% pullback of the 2011-2012 bounce just above

that 42 level.

Fitzpatrick closes with this warning: “It seems that in this ‘brave new world’ the goalposts for failure/success have been sharply shifted. Failure is recession/depression, deflation, default, wealth destruction, social strife/conflict and possibly worse. Success now seems to revolve around a dynamic familiar to people who were around in the 1970’s…STAGFLATION looks set to be a our ‘new normal’ (If we are lucky) in the years ahead.”

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