Here is the latest update on the Market Force Analysis for the key commodities.

GOLD (Figure 1)

It has been a wild time since my last update of March 16 to put it mildly! In my last update of March 16 gold was trading at $998.7. On Friday it closed at $930.6 but touched $904 in trading during the week. There was no indication of weakness in the market before this happened as can be seen in Figure 1. I have provided a zoomed in chart in Figure 1A. The debacle was not created by market exhaustion and in fact the uptrend in the MFA is unbroken. What does this tell us? It tells us that this was without a doubt the Cartel who decided to do a hatchet job. This is equivalent to the golden beach ball being pushed under-water. It was NOT due to the water draining out of the swimming pool. The Cartel always hopes in these raids that they can panic the longs to persuade them to pull the plug from the pool and drain it for them. So far this has not happened and the MFA uptrend remains intact. If this remains the case gold will recover very quickly. There is always the possibility that the Cartel will try again in the coming week. In fact I would say it is very likely. The question is will they be successful? The MFA uptrend looks very strong so I would say that the dynamics favor the bulls. This is the type of set up where fortunes are made. However, it is also exactly the type of setup where the weakly capitalized lose a fortune as they are stopped out before the market rockets higher. The Cartel’s Achilles Heel is a lack of physical bullion. Anyone who tries to out-trump them in their strong suit of endless paper promises is asking to pay a high price in tuition fees!

As pointed out on many occasions when the MFA is near the top of the channel it is a high risk entry point. However, for those who are already long that does not mean “sell”, because the rise in this upleg could still be dramatic.

FIGURE 1

FIGURE 1A (ZOOM)

COPPER (Figure 2)

In my last update copper was trading at $3.86/lb and I said “This is close to its all time high. The MFA is still meandering along the bottom of the channel so its big move is STILL ahead”

Copper took a bit of a dip due to the across the board sell-off in commodities but has recovered quickly. The MFA uptrend has not been broken and it still remains at the low side of its channel, and a low-risk entry point. Copper is currently trading at $3.88/lb

FIGURE 2

CRUDE OIL (Figure 3)

In my last update Crude was trading at $111/Bbl. I said “The MFA is still only about three quarters the way toward the top of the channel so despite Crude being at $111/Bbl the rally still has legs (keep the Hummer in the garage and take your bicycle!)”

The sell-off in commodities hit crude oil and the MFA uptrend was broken to the downside. In percentage terms the price correction has not been dramatic but unless the MFA trend reverses to the upside further weakness may be seen. The bounce that was seen was due to the attack on the Basra oil pipeline. That will likely turn out to be a temporary impact.

FIGURE 3

SILVER (Figure 4)

In the last update silver was trading at $20.61. I said “The MFA remains at the top of the channel an interestingly enough it has turned to be parallel with the upper resistance. If the MFA continues to run parallel and remain elevated the rally could be prolonged and extremely impressive”.

Just as with gold the cartel instigated a vicious raid on silver. However, as can be seen in Figure 4 the uptrend in the MFA has not been broken. The price gyrations were painful for the under-capitalized, highly leveraged players. It is likely that the cartel will try again to break down the market. The indications are so far that the odds are not in their favor. There are wide spread reports of a shortage of physical silver in the market so this will severely frustrate the cartel’s efforts to make a prolonged correction. In fact they may well be digging their own grave in that the takedown has given an excellent opportunity for well capitalized longs to enter.

FIGURE 4

US DOLLAR (Figure 5)

In my last update the USDX was trading at 71.33. I said “This looks VERY serious. Anyone looking for an oversold bounce might join the Enron shareholders who are still waiting for a similar event!”

As can be seen from figure 5 the MFA is still indicating an astonishing breakdown of the dollar. The slight bounce this last week was very definitely of the dead cat variety. The MFA is indicating the sort of market dynamics that might very likely lead to panic selling. The chart in no way provides logic to the brutal silver and gold sell off last week, but on the contrary bolsters the conclusion that it was the usual suspects who triggered it.

The dollar traded on Friday at 71.72.

FIGURE 5

Summary

The dollar looks extremely sick. The FED is sailing uncharted waters with unconventional actions. It is pumping billions of dollars into the system via its discount window to try to prevent the credit system from locking up. The danger it faces is that if foreign holders decide en masse to sell dollars due to its dramatic depreciation the system will suddenly be awash with dollars and the dollar value will go into free fall. Real things, like precious metals and commodities, will be the beneficiaries.

The financial wizards have been brilliant at creating more and more innovative instruments to leverage returns. They are totally devoid of ideas of how to unwind them as the disastrous, world threatening consequences of their actions become apparent.

Adrian Douglas

March 30, 2008