MARKET FORCE ANALYSIS UPDATE FOR KEY COMMODITIES AUGUST 14, 2008

By Adrian Douglas

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

The last update was on June 30.

GOLD (Figure 1)

At the time of the last update gold was trading at $928. In that update I said

“The gold market was certainly a high risk entry point with extreme volatility being displayed but induced by the Cartel. For those who were not on margin and did not have stop-loss orders they have come out ahead. Gold has started to respond to the high and rising MFA. Make no mistake about it that the Cartel is on the ropes. They are cornered rats as their paper games fall apart. The gold market is no place for the weak at heart but this is where fortunes will be made but the entities who have profited for so long by subverting all markets will not go down without a fight. I have been reluctant to postulate that the MFA is carving out a new and higher sloping channel but that starts to be undeniably the interpretation.”

It could not have been better demonstrated that the Cartel are on the ropes and would not go down without a fight!! And a fight we got. I said I was “reluctant to postulate thatthe MFA is carving out a new and higher sloping channel”. That was not without cause because the MFA soon turned down and signaled a gold correction. The MFA is now plunging to the lower support line and will soon indicate a “low risk” entry point again. It is hard to believe that the Cartel could pull this off with such alacrity in the face of a banking crisis. The key is that with unlimited fiat money, paper gold can be manipulated. What is revealing is that the physical market continues to be brisk during this debacle. That is a good indication of an approaching end game to manipulation. Physical metals can not be printed into existence.

Gold is trading at $808.3

FIGURE 1

COPPER (Figure 2)

In my last update copper was trading at $3.94/lb and I said “The MFA for copper continues to rise but grinds towards the lower support line suggesting that copper is the buy of the century. The MFA will soon take off for the top of the channel and the copper price move will astonish many observers. The copper market is the last market on the planet to short unless you have a death wish”

The Copper MFA eventually dropped precipitously to the lower support line causing a “killer move” down and is now at a low risk entry point and the decks are cleared for a major upleg provided the MFA doesn’t exit the low side of the channel which I do not expect.

Copper closed at $3.32/lb.

FIGURE 2

CRUDE OIL (Figure 3)

In my last update Crude was trading at $140.5/Bbl. I said “Crude oil has shown some volatility but with an elevated MFA it wants to go higher. Just like gold it also seems to be carving out a new higher sloping trend channel. At these levels crude is at a high risk entry point but I don’t suggest shorting it because while the MFA continues to climb the oil price will go higher”

Oil did indeed go higher to $147/bbl. The MFA was at a high risk entry level and did in fact turn lower. As crude reaches the lower support level it will once again become a low risk entry point. There is a bit of time to wait.

Crude closed at $115/Bbl.

FIGURE 3

SILVER (Figure 4)

In the last update silver was trading at $17.62. I said “The silver MFA has remained in the center of the channel reflecting a neutral entry risk. The cartel has yo-yo’ed the price to shake off the weak longs. While the MFA could go higher or lower from here my guess is it will go higher and the price is likely to compete with Fourth of July Celebrations for lighting up the sky”

That turned out to be a wrong guess! The Cartel went into action to bring down gold and silver with a vengeance and flush out weak longs even further. In figure 4 it can be seen that the MFA turned down and the silver price fell off a cliff. The good news is that we are making good progress for the MFA to reach the lower support line and then the decks will be clear to go into rally mode as we reach a low risk entry point.

Silver closed at $14.23/oz.

FIGURE 4

US DOLLAR (Figure 5)

In my last update the USDX was trading at 72.28. I said “I repeated almost all of my commentary of the last update on the dollar because this is such a critical juncture. The MFA has declined rapidly and now sits EXACTLY on the bear market rally uptrend support line. This is EXTREMELY precarious. No wonder Paulson is flying to Europe to meet with Trichet before the ECB rate decision next week. This is the moment of truth. James Turk has put out a piece entitled “The dollar is on the precipice”. Is it ever!? If the MFA breaks below this support line the dollar will be in free fall. Under such a scenario the precious metals are likely to break free of their shackles and that would be a sight for sore eyes”

It certainly was the “moment of truth” and the western Central Banks went into action with both words and deeds to try to put the dollar on life support. The dollar was revived and an avalanche in commodities was set in motion. However, this was an intervention sparked short covering rally and not a fundamentally driven new USD bull market. The reversal could well be ugly. In figure 5 you can see that in March 2008 the MFA plummeted out of its established declining trend channel threatening a dollar collapse. Intervention then managed to get a minor bear market rally and the MFA carved out a small rising trend but in mid-July the MFA was about to break down and out of this weak bear market rally trend which would again threaten dollar collapse. In early August a totally surreal rally in the USD commenced and the MFA is now almost rejoining its long term bear market channel. Has the collapse of the dollar been averted or just delayed? There is certainly NO sign of a dollar bull market, at best it will resume its decline according to the long established MFA declining trend which would result in a slow decline as opposed to a collapse. However, it should be noted that with official inflation now at 5.6% yoy and FED fund rates at 2% there are no fundamentals to support the dollar. The MFA is only knocking on the door of the lower support line of the long term trend and has not re-entered the channel. This means the USD is not out of the woods yet; it is possible that its collapse has only been delayed.

The USDX closed at 76.69

FIGURE 5

Summary

The dollar has received mouth-to-mouth resuscitation but its lungs are still full of water. The dollar MFA has not yet re-entered its well defined bear down trend and so still needs intensive care. This probably translates into more Cartel attacks on the PM’s.

The commodity short traders had a field day taking advantage of the temporary dollar short squeeze to bomb commodities of every kind. The good news is that the wash out has led to major reversals of the MFA of the key commodities and they are headed to their respective lower support lines. In a bull trend the MFA reaching or getting close to the lower support has been an infallible buy signal.

It has been a brutal correction but we are closer to the end than the beginning. The opportunity to sell passed a month ago; there is an opportunity to buy fast approaching. The MFA indicates we are in a normal correction in a very strong bull market. There is NO indication that there is anything to be concerned about beyond that.

Adrian Douglas

August 14, 2008

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