MARKET FORCE ANALYSIS UPDATE FOR KEY COMMODITIES MARCH 1, 2008

By Adrian Douglas

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

GOLD (Figure 1)

In my last update of February 8 gold was trading at $918/oz. I said "The MFA remains at the top of the channel which means there is always scope for a correction if it starts falling toward the lower support line but I don’t think that is going to happen yet. I now consider we have a situation analogous to mid 2005 …in that the MFA can remain elevated for many months. If this rally turns out to be similar then gold has only completed about 1/3 to ½ of its current upleg opening the possibility of a run to between $1200 and $1500”

That prediction is looking good so far with gold trading at $970. The MFA (red line) has now slightly exited the top of the trend channel and is looking very strong. When the MFA is at these levels there can always be a correction if it reverses and starts to head for the lower support line but there is currently no sign of that. I still maintain we are looking at a similar scenario to that seen in 2005-2006 and on that basis this upleg is still quite young. The rally is likely to exceed even the most bullish expectations.

FIGURE 1

COPPER (Figure 2)

In my last update copper was trading at $3.50/lb and I said “The MFA is still at the lower support line suggesting that copper remains at a low risk entry point. Despite gold having a very good outlook I suspect copper may outperform gold”

The MFA continues to reliably predict the future trend of copper prices. The MFA has bounced quite strongly off the lower support line but has still yet to really take off toward the upper resistance line. Copper is trading at $3.85/lb and has punched through the exceedingly well defended $3.70 level. Copper has risen 10% since my last update out shining gold’s 5.8% gain. I consider copper is only just starting to gather a head of steam and has a long way to go in this upleg.

FIGURE 2

CRUDE OIL (Figure 3)

In my last update Crude was trading at $90/Bbl. I said “the MFA has continued to fall toward lower support. Crude has traded as low as $86. Crude is today trading at $90 but the correction may not be entirely over as the MFA may not have completely bottomed but we are at or close to a low risk entry point”

That turned out to be the case and crude is currently trading at $101.79 and has made new all time highs. The MFA is in mid-channel and rising strongly suggesting that crude oil is going to make a lot more record closes before this upleg is over! We will probably see $115-120/Bbl before the MFA gets to the top of its channel. Very soon we will see corrections that fail to break below $100. At that juncture the psychology of the market and the general public will change in that double digit oil price will be a thing of the past let alone dreaming of returning to $30/Bbl!!! We are in an energy crisis but no elected official is willing to admit it yet.

FIGURE 3

SILVER (Figure 4)

In the last update silver was trading at $17.11. I said “I continue to be astonished by this baby! The MFA remains stubbornly in mid-channel. While this means there could be a correction down to the lower support there can just as easily be a rise to upper resistance. Because of the situation with copper and gold I would place my bets on a significant rally”

And so it came to pass. Silver finally decided to join the party and its MFA rocketed to the upper resistance line. This market force is absolutely phenomenal and standing in the way of it would be a death wish! The price of silver has responded and shot up to trade at $19.80. This silver move is going to be truly astonishing. I believe it is still quite young.

FIGURE 4

US DOLLAR (Figure 5)

In my last update the USDX was trading at 76.70. I said “The MFA did drop but it has bounced quickly off lower support which has been manifested as a rally in the USDX (repeat after me “a strong dollar is in the US best interests!”). The MFA is half way to the top resistance so the rally is unlikely to last much longer, particularly with the FED likely to cut interest rates further and a talk of recession now becoming the prominent chatter”

Sure enough that bounce didn’t last long and the MFA barely made it to mid-channel before doing a belly-flop to the lower support again. As a result the USDX tried to out perform the Peregrine Falcon by going into a vertical 200 mph nose dive and hitting 73.77 and a life time low. That’s one heck of a strong dollar! The fact that the MFA is at the lower support again means the dollar could have a sickly bounce here before it checks out the plumbing below the porcelain bowl.

I would not, however, have any conviction that a bounce in the dollar will translate into any weakness in gold, because gold has the throttle full forward and the after-burners glowing.

FIGURE 5

Summary

In my last update I said “I expect that we will see a “quantum leap” in the price of precious metals very soon. This will be the show-stopper that will bring investors stampeding back into the sector. The big and sudden rise in metals prices will fix all the profitability issues of the miners. The mining equities will then be the recipients of “hot money” and Cinderella will go to the Ball”

I maintain that this is still ahead of us despite the very impressive gains in the PM’s seen so far. The mainstream press is now abuzz with the forecasts of the so called analysts:

QUOTE

CNN International - Feb 22, 2008

Gold has gained over 30 percent since interest rates started to fall in the US in September 2007 and many analysts now predict that gold will surpass $1000

END

When we are at $970/oz that is a brazenly bold call!! While they have the crystal ball warmed up why don’t they really stick their necks out and predict the oil price will go to $103/Bbl too?!

This upleg is still young and the move is now likely to accelerate. It should be kept in mind that for gold to just be at its inflation adjusted high of1980 it needs to reach $2300/oz (using the governments hopelessly sand-bagged CPI) and silver should be $135/oz by the same token. Platinum is blazing a trail of where gold should be (and would be if it were not for a corrupt gold cartel).

The landscape is changing. This is well supported by the different behavior of the market force analysis of the key commodities. Trading the PM’s will get increasingly difficult for all but the very best and nimble professional traders. Everyone else should buckle up and enjoy the ride.

March is a delivery month on the COMEX so I expect things will get very exciting. Stay tuned!

Adrian Douglas
March 1, 2008
info@Marketforceanalysis.com