For the quarter ending Jan-23-06, the growth of M3 was +7.7 pct Y/Y, which is another gain. And compared to the quarter ending Jul-25-05 money supply growth was +9.2 pct, and to Oct-24-05, it was +8.8 pct. So for all you who said that the Patriot Act was repatriating USD during May through October, the current rate is much more explosive.

As the total U.S. money supply grows bigger, money gets cheaper, i.e., less value compared to gold. With money supply growing at about three times GDP growth, month after month, the U.S. Administration is reflating the economy at the same time the Fed is tightening credit by continuing to raise short-term interest rates.

These are conditions where traders look favorably on the metals, and except for a few pullbacks on technical over-bought conditions or possibly gold-selling by the Fed to try to stabilize USD prices, trader appetite is not letting up. Nor should it.

Gold today (Feb-06 contracts) is up +$9.00 in two weeks to $572.50. Spot gold (6:45am ET) is $571.10, off slightly (-$1.40) from yesterday.

Recently I pointed out that if you notice the RSI indicator for GLD (or the major gold stocks), any pullback in current price is stopped well before the level drops to typical levels (in non-trending markets) of about 30.

In a strongly trending market, boosted by a bullish cyclic phase, as exists today in the precious and base metals, traders show their appetite for "high-risk" buying. This is an indication to long-term traders to hold long positions regardless of day-to-day fluctuations.

And, as I have said, it is no time to short any pullback. Those who do, stand a good chance of being squeezed.

But it does make sense to me that traders ought to raise stops. The December high on GLD (ETF based on the physical priced at 1/10 spot Gold) was 53.76 and the January low was 54.01, so presently there is considerable support for gold at the $540 level.

A 5-pct loss stop for Gold would put the level at about $543; a 4-pct loss stop would be at $548; and a 3-pct loss stop would be at $554.

To see gold drop this far in a couple hours would be a shocker, but it is possible I suppose. You have to keep your eye on the technical indicators of actual prices at times like this.

Moreover, if you are trading gold, it will pay you to go to a site like INO.com or Kitco.com and continuously monitor the spot and futures markets for all the metals. If you do, you will see that Palladium has made a strong run to the upside today.

You also need to monitor the goldminers, watching the RSI levels on the 30-Minute and 60-Minute price data series.

Gold -Large Producer


Gold -Medium Producer

Gold -Small Producer

But the point of this article is that as long as M3 is reflating at annual rates of 7 to 10-pct in the U.S., there is a fundamental reason for metal prices to continue trending higher, which means that traders need to continuously move their stops higher as prices rally.