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Weldon's Money Monitor

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We are out of our office later this week, from Wednesday thru to next Monday, as we travel to California to participate in the "Minyans in the Mountains II" retreat and investment conference. I am honored to be speaking as part of the keynote macro-panel, and, as a participant in their precious metals forum.

I am also happy to offer my BIG stretch from first base during the softball game, as a mountainous first baseman ... and my equally oversized golf handicap of 19, as a mountainous slicer/duffer.

In the meantime, on a serious note, for the benefit of our clients, we offer the chart package that will provide us a technical platform from which to offer our opinion, within the precious metals forum.

Our focus will be macro-secular based, with a premium placed on our long-standing 'Paper-Burning' theme, as specifically relates within the current environment where gold is appreciating against ALL paper currencies, many of which have fallen to new all-time lows against gold.

Beyond looking at the monetary angle via the currency markets, we also compare gold to stocks, energy, bonds, and commodities, to get a broader picture of where gold 'fits' within the investment universe.

In short, gold fits just perfectly, as both an undervalued asset (relative to crude and US equities in particular) ... and ... as a hedge against the ongoing, macro-secular debasement of paper money by global central banks, amid the approach of the macro-event horizon, and the likely-to-appear debt-density point known as 'singularity'.

GOLD:

Uptrend defined by the positively sloped, and upwardly accelerating, longterm 2-Year moving average (104-weeks) ... and ... the upside violation of the series of peaks set during the early nineties in the $400 area.

Note that volatility is 'falling', as gold attempts a fresh upside breakout above $450, implying a 'trending' move higher, and a target of $500.

A shorter-term picture of the same weekly chart reveals a well defined upside breakout pivot at $450 ... and ... our own famed 'Launching Pad Pattern', which strongly suggests an upside resolution.

Cutting to the chase, and the long-term secular trend, we use just the 24-month moving average of gold, monthly, since the USD-gold 'Standard' was abandoned by President Nixon.

Dare we suggest ... gold has been in a perpetual bull market, ever since ??

Dare we suggest ... an A-B-C correction over a number of years, from the 1980-81 peak, that fits perfectly with the 50% fibonacci retracement of the entire bull move from $38 ... ended, with the upside violation of the downtrend line in place since 1981 ????

Dare, we do.

SILVER:

Silver has been in a steep uptrend since 2003, nearly doubling in price over that time frame ...

... BUT ... like it did in 1998 ... Silver has hit a wall of overhead resistance at the $8 level.

Indeed, should Silver clear this all-important technical-psychological level, it has a ton of upside 'room-to-roam', as defined by the mega-macro longterm monthly chart on display below.

Indeed, this is one huge, multi-year, launching pad pattern.

Ironically, as we note paper currency debasement, we also note the concurrent dynamic defined by rampant flow of excess liquidity, which continues to cause the paper-metals to outperform, and lead.

Note the current, would-be-renewed upside leadership potential exhibited by our favorite pure-silver-play, Pan American Silver (PAAS), as seen in the longer term weekly overlay chart below, plotting PAAS against the price of spot Silver.

We observe downside leadership in Pan American as a prelude to the 2001 low, and subsequent upside reversal leadership in the paper silver-stock as a prelude to the huge dual-bull move during 2003-04, in which PanAm led, and then Silver played catch-up.

PLATINUM:

New highs in the long-term 24-month moving average, nearly reaching $800 ... indicating this is now the average price of platinum, over the last two years. Note that in the late seventies/early eighties bull market run to new all-time futures price highs above $1000 per ounce, the average price never rose much above $500.

Nuff said.

Moreover, and in a similar vein as our 'average' price examination ... we note the new all-time highs being set by platinum, relative to gold, with the spread between the two metals flirting with the $500 per ounce level ...

... as opposed to previous secular highs, set in the $300 range, in the
seventies, eighties, and nineties.

In short, the current situation, including that seen in copper and crude oil, is unprecedented... the seventies, eighties and nineties 'NOT-with-standing'.

GOLD versus ENERGY:

In one sense, gold has NEVER been CHEAPER, as defined in the long-term monthly ratio chart on display below, plotting gold against WTI crude oil.

GOLD versus US EQUITIES:

In another sense, gold has barely budged against US equities (as defined by the Dow Jones Industrial Average, which itself has underperformed the broader U.S. stock market).

Indeed, if we were to index the ratio plot to put the price of gold above ($) 700 at its peak in the early eighties ...

... then we could say ...

... that relative to the stock market, at its 1999 relative low, gold had depreciated all the way back down to the $35 'standard' peg level from which it first moved in 1971

Against this measure of paper, gold remains very cheap.

Better yet, while still very cheap on a long-term secular basis (relative to US equities), Gold has appreciated against the U.S. stock market from its 1999 low, with the bulk of the gains coming in 2001 and 2002 as the U.S. equity market got whacked.

Yet, most impressive is the ability of gold to maintain that stock-market-deflation-driven gain, as the stock market reflated again.

Technically, until the MA is violated, the fledgling bull move in bullion
relative to US equity 'paper' remains alive.

Technically, here too ... we see the makings of a launching pad pattern.

GOLD vesrus US INTEREST RATES:

And, by one measure, gold is no longer cheap, and yet, is also no longer as expensive as it has ever been.

'Adjusting' the price of gold with the 2-Year Treasury Note yield, we can define the 'reflationary' period of mega monetary 'stimulus ' ...

... and ... the apparent end to that period, ala the recent breakdown.
But still, at least on a relative basis, relative to the last THIRTY YEARS, this measure remains heavily skewed in the direction of a 'reflationary' monetary environment, and massive paper debasement, sticking above all of the previous macro 'highs'.

Herein lies the downside risk to gold, a disinflationary risk born from the potential for global central banks to be TOO hawkish, in removing monetary stimulus.

GOLD versus COMMODITIES:

Indeed, on a relative basis ... compared to the CRB Index of commodity prices, gold is not only cheap ... it has vastly underperformed, thanks largely to, and accurately reflecting the, complete lack of wage reflation, as per continued globalization, competitiveness, and technological efficiency gains.

Indeed, this is also why ... short-term interest rates have not followed the CRB Index back to their 1980-81 peaks, in the 15% area for the 2-Year Note.

Increasingly, commodities are widening their outperformance in both directions, higher during bullish phases, and lower during bear moves.

As Central Banks pick up on this, it fertilizes the macro-ground for further paper debasement, and thus, becomes a supportive feature for the bullion market.

Of course, a break and or peak in the CRB ... would not be gold supportive.

GOLD versus FOREX:

The real macro-secular theme is spawned by the thought that all paper currencies are being debased amid increasingly intense global competition, and intensified global co-dependency on the US consumer, and the U.S. consumer's increasing dependence on home price reflation as the sole means to support reflated levels of debt.

Thus, we note that gold is experiencing a bull market appreciation priced in nearly EVERY major currency in the world, including the EUR, which itself has been very strong since 1999, relative to the U.S. Dollar.

Normally the USD leads gold ... as can be identified via the overlay chart below in which we plot the value of EUR-Gold against the 'normally-quoted' value of USD-based gold, dating all the way back to 1971.

Observe that both measures of paper currency debasement made major pivot points in tandem, at the same time ... peaking together in 1981, and bottoming together in 1999.

Observe that EUR-Gold led the first wave to the upside from that 1999 low, as the market focused on USD depreciation as a means to attempt to reflate the deflated global wealth markets.

But ... rare has it been the case for gold to lead the way, as it has since the late part of 2003, implying a converged, broader, appreciation in the yellow metal, against all paper currencies.

This dynamic implies that the 1999 low was a major secular, twenty year low, and that we are in the midst of a new secular bull phase.

Also in Europe, the Swedish Krone, attached to one of the world's most dovish central banks, monetarily, ala their low nominal rates and negative real short-rates ... is breaking down on a long-term basis, against gold ...

... as reflected by the upside breakout in SEK-Gold, as seen in the long-term macro-monthly chart on display below.

Indeed, it is sight unseen, that Gold is making new all-time highs against many of the world's tradable paper currencies ...

... including and particularly, against the notorious, Asian-crisis catalyst currency, the Thai Baht, as exhibited in the long-term monthly chart on display below.

Indeed, gold in Thai Baht has long ago penetrated the spike high seen in 1998 on the back of the devaluation in the Thai Baht, which sparked a global currency crisis.

Indeed, the Thai Baht is higher now, that in 1998, siting well above its own worst levels against the USD.

As such, the fact that gold in Baht is making new highs becomes all the more impressive.

In reality ... we reverse the picture to reveal ... the new all-time low in the value of the Thai Baht, relative to gold, a far more accurate way to view this relationship, as per the debasement of a paper currency that is highly co-dependent on the export-US consumer-debt dynamic.

This chart embodies our major macro thematic thought process on gold.

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