Ira Epstein's Metal Report

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Last week I said “there comes a time when markets correct overbought conditions, go through profit taking spells or simply don’t have “new information” to keep trends advancing. I think that is where the gold and silver markets are today.”

Sideways time…………

Last week I said “there comes a time when markets correct overbought conditions, go through profit taking spells or simply don’t have “new information” to keep trends advancing. I think that is where the gold and silver markets are today.”

Wow, how accurate did that prove to be? In my opinion, right on the money.

OK, so what now? My expectation is for gold and silver to “chop” around. I still expect new highs later this year. However, I don’t expect that in November. As you’ll see below, this is the time of month where gold often chops around, breaking and forming a base to work higher from. Silver often goes sideways to lower into the end of November.

Both historically advance into year end.

The US Dollar

Until and unless the US Dollar makes a new contract low, I think it very dangerous to get short the Dollar. Don’t get me wrong, I am not bullish the Dollar. Rather, I see a market that has had the “kitchen sink” thrown at it. After a while, markets stop discounting the same bad news. The Dollar just might be in that position. If so, my guess is that the Dollar is about to develop a trading range. In other words it may be leaving its downtrend and begin to trade sideways. If so, than what I expect to witness is the creation of a new trading range, with 75.00 being the low of the range. The high of the range is yet to be determined.

I don’t think we’ve seen the full extent of the Subprime losses. More losses will continue to be uncovered an announced for quite a while. However, you have to begin thinking about this. What if the write offs that some financial institutions are taking prove to be too large? This is exactly what some institutions may end up doing. If so, down the road some portion of the write off that ends up being too large and that part will eventually come back to the institution that wrote it off as income. I envision sometime late next year for this too occur at some institutions, which will enhance their earnings.

However, right now the key is to put things into perspective. The Dollar is not bottomless. Our economy, while still reeling from the Subprime mess is not imploding. Some even think that real estate will bottom out much earlier than 2009 and more Subprime losses will surely be announced.

Underpinning gold has been high energy prices. Energy prices will not go straight up. Gold benefited while crude oil soared. Now that crude oil is correcting, gold has lost that underpin.

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