Sunday 4 November 2012
On a short-term basis, we went long gold and silver, on Thursday, 25 October, and sold out this past Thursday, 1 November, for what was a scratch trade. The plan for this week's commentary was to express
the view that both gold and silver are laboring, [which is why we sold out on Thursday], and that lower prices could be likely. Then came Friday, when sellers slammed the market lower, making our planned
observation for this weekend commentary seem after the fact. All we can say now is, it may not be over.
The markets have a specific logic to them, and that logic can be seen in charts where FACTS can be extracted from the "footprints" left behind by prevailing market forces. Dealing with FACTS is preferable
over opinions and/or [not so] educated guesses. First, we deal with a little bit of current background.
The reason for stating that gold and silver may go lower is because it flies in the face of so many recent articles and gold "pundits" averring that gold is on its way to $2,000 plus, soon, then $5,000, and even
$10,000 as a possibility. One cannot fault the sentiment, based on the obvious and ongoing destruction of all fiat currencies controlled by the world's central bankers. To the very prescient statement, attributed
to Mayer Amschel Rothschild,: "Give me control of a nation's money, and I care not who makes the laws," said destruction is in its final phase. However, too many are underestimating the staying power, and the overt power wielded by central bankers to maintain the course and punish anyone who chooses to stand in the way.
Ultimately, history will be on the side of those who choose to buy and own gold and silver over any and all fiat alternatives, but, TIMING is not always on the side of precious metals buyers. This is particularly true for those who choose to trade futures, even ETFs. The paper markets have been decimated by the money controllers, with impunity. Those who make the rules and control the markets can hold short positions in the futures markets without having to put up margin or meet any margin calls. Then, by raising margin requirements for the suckers that want to oppose the thieves at their own game, it forces them to liquidate.
For those who may have [now had] staying power and want to take delivery, welcome to the world of MF Global and the disappearing act of money and the ability to demand silver. That was more than a
shot across the bow from the control-mad money-changers/central bankers, it was a direct hit...without ANY consequences!!!
Nothing, absolutely nothing will stop the New World Order from exerting control over the world, and it all started with Mayer Amschel Rothschild, over 200 years ago. Lend fiat, now just digital "money," and demand gold and silver in return, and if you ["you" now being a country] have none, then give us control over your country and get out of our way of domination.
There are few savvy investors unaware of this scenario, in one form or another, but not all investors are sufficiently savvy in their timing or WITH WHOM THEY CHOOSE TO DEAL. MF Global is the red flag for
EVERYONE to abandon the banker's sinking ship. The Bundesbank recently tried to get their gold[-leafed tungsten?] from the NY Fed, or at least a portion of it repatriated back to Germany, but it has now just capitulated and said it "trusts" the NY Fed. Not even bankers can mess with other bankers that would reveal the fact that all of Germany's gold has likely be rehypothecated out of existence. Bundesbank's meek effort to say that the Emperor is wearing not clothes has been silenced.
What we now want to address is the TIMING aspect of buying gold and/or silver.
The best and most reliable source of information comes from the market itself. Opinions and ideas can often be wrong, but the market is never wrong, it just is. The most efficient way of dealing with the
market forces is to recognize and be in harmony with the prevailing trend, having the proverbial wind at your back. While gold may go to $2,000 plus, even dramatically higher, and silver may go to $60, or even dramatically higher, that is not what the markets are saying for now. On to the FACTS!
The higher time frames are where "smart money" hands can best be seen. It is hard to provide a strict definition of what constitutes "smart money," so let us keep it simple and say it reflects the "invisible"
market forces at work.
The monthly gold chart remains bullish, and it shows no evidence that gold will not go higher. It just is not ready to do so, at least for the foreseeable future. Let us make a qualifying clarification about all
statements made regarding these charts. The conclusions are based on present tense market information. Things may change the next day or next week, once new information develops, but until that new information enters the realm of observable facts, one has to deal with what is and leave the unknown future to speculators and those who think they can divine the unknown. We prefer to deal with what is known and the probabilities those facts convey.
The trendline drawn from the 2008 lows has been broken. All this means is that the trend has weakened but not changed. It MAY change to a non-trend, and eventually go lower, but until confirmation of such change is evident, one gets to deal with what presently exists.
An important supporting factor is the bullish spacing, noted on the chart. This exists when the current swing low[s], December 2011 and May 2012, remain above the last swing high, March 2008. Spacing tells
us that buyers are not waiting to see if the last swing high will be retested, but instead, are buying into the market right away, a sign of willingness to be long at higher prices. This single observation, [a FACT], tells us that the overall market sentiment for gold remain quite strong.
There is confirmation of that in the form of HOW the market has been correcting since the September 2011 high. Price has moved mostly sideways, which has been a weak correction, unable to go lower. Weak corrections tend to lead to higher prices, and this is what the overall higher time frame is saying. One does not use higher time frames for timing, so we look to the next lower time frame to keep the market in a context. You want to always be able to keep any market in a known context, for that is what enables you to take action, or not.
After the September 2011 high, the next retest occurred in November 2011, and price then worked lower, back to the first low after high, [not marked on the chart], at the 1530 area, creating a potential double bottom. Rallies B and C stopped at the same area as rally A,
and it is rally high C that is of current concern.
Price appeared ready to break through resistance, based upon the clustering of closes from the four previous weeks. The clustering tells us there is balance/indecision between buyers and sellers. At the
A and B highs, price moved lower, without the hesitation seen most recently. The last weekly high bar was a small range with a close in the middle. The smallness of the range says lack of demand, and the
mid-range close on the bar tells us the battle between buyers and sellers was a draw. Our advice then was to stay out of futures, but keep accumulating physical gold, to be held personally and NOT within any banking institution, or otherwise. If Bundesbank cannot get its own gold back, how much more success do you think you might have? In today's money-grabbing environment, if you do not personally hold it, then figure that you no longer own it...it's gone. You might get an IOU, of some sort, in return. Try selling that to someone, in a time of need. [See Gold And Silver - Short Term Buy Status, click on
http://bit.ly/XIcZVV, 3rd paragraph after third chart]
When price declined and held the lower channel line on 24 October, 8th bar from the end, and moved sideways, instead of lower, we recommended buying next day, on the basis of price and volume on
an intra day basis. Moving sideways again for the next few trading days was disappointing, and intra day action last Thursday said the market was laboring, so we exited the trade. The market does signal
its intention, if you follow the signs.
This is how to use observable market activity, on any time frame, and it kept our position from being exposed to Friday's downside draft. That was on the futures side. For those buying and holding physical
gold and silver, the decline presents another opportunity to buy at lower levels.
The market is saying that there is no need to rush in because the near-term trend remains down. Where will it stop? No one can say. There is a band of potential support that can be identified, based upon past market activity, but it is only possible support. One has to wait and see HOW the market responds to it. Will it hold and turn around, or will it continue lower? Instead of offering an opinion or making a guess, better to wait and observe the HOW of the market's response, the THEN make an informed decision, based on proven facts.
Those putting the cart before the horse and calling for considerably higher prices have been blowing that horn for many months, even years, but for right now, market activity is telling us that the present tense expectation for gold is where it is, to possibly lower. Knowing this information makes for better financial planning and more informed decision-making without unreasonable expectations that prices above $2000, by any degree, are imminent. They are not.
Just look at the chart, and ask yourself, "Does that look like it is about to go above $2,000, anytime soon?"
Where we showed the breaking of a support trendline in gold, here is one breaking a resistance trendline in silver. It does not mean the lower immediate trend in silver has changed to up, rather, the downward pressure has weakened.
As bullish spacing was seen in gold, it also exists in silver, just not as dynamically. The last failure swing high was in February 2012. For future reference, note the location of the close for that month. It was
mid-range the bar. We already know that a mid-range close shows a draw between buyers and sellers. Where February was attempting to rally, with increased volume, the mid-range close lets us know that
sellers were active in the market, at that level, overwhelming the efforts of buyers, preventing price from closing higher.
In addition, that failed rally at 37.50 is about where a 50% retracement level is, measuring between the last high and swing low. When a market retraces back to a half-way correction and cannot rally above it on a retest, the market is telling us silver is still weak, and expect lower prices. We stated near the beginning that the market has a logic to it that can be very helpful in understanding how to trade within its context, buy or sell side. It is a matter of putting the pieces of the puzzle together.
These are factual aspects of market information to be used going forward. When silver next rallies to the 35 level, it will encounter difficulty, as sellers defend that area, for the two reason cited. We already saw such evidence when silver reached the 35 level in September and October, just passed. This is a great example of using factual market observations to determine HOW to view/trade the market from a buy/sell perspective. While the higher time frames are not used for timing, the lower time frames should show in greater detail what the reactions were to these levels.
Despite the clarion calls for higher prices, even for silver, the MARKET is telling a completely different story.
Silver is relatively weaker than gold. This is another factual piece of information that specifically tells us that gold will act better than silver, and silver worse than gold. There is direct confirmation of this fact when observing how gold rallied and tested weekly highs at a consistently higher level. Compare the A-B-C labels on the weekly gold chart to the A-B-C levels on the silver chart below. Silver had three
consecutively lower highs, a decidedly weaker market, based upon observable market information.
Support at the 26.30 level has been solid for silver, over the past two years. Odds say price will restest lower before it rallies to higher levels, but how much lower, if at all, is unknown. We simply have to wait and watch HOW price responds at lower levels.
Knowledge of the trend is the singlemost important first piece of information one can have in addressing a market strategy. Can you identify the trend on the daily chart below? A case can be made for each of the three situations presented, but only one will serve best for trading the market.
The most important information is what is most current, so number 3 would best define what the trend is on the daily chart. The prevailing trend is moving lower, so one would NOT want to be a buyer, at least in the futures market, until a change in trend develops, and changes most always take time. Points 1 and 2 are best addressed from a weekly time frame perspective.
Also, be aware of the next higher time frame. The weekly chart in silver is down, and this tells you that it adds to momentum pressure downside on the daily.
Here is a more focused look at the daily chart, and the channel drawn is pointing down to reflect where price is going. Using this factual information, simple as it is, should keep one from buying too soon and
facing losses, especially in futures or futures-related ETFs.
It is clear from Friday, based upon the wide range lower, poor close location, and sharply increased volume that sellers are in control. There is NO other conclusion that can be drawn from the observable
facts. Let the market run its course. Be in harmony with the prevailing trend within the time frame you are trading, or be out, waiting for the next opportunity. They always come along.
We do not know if Friday's sharply higher volume will prove to be climatic and a form of stopping action, but we do not have to know. If it is, then the market will respond in a more positive than negative manner next week. Knowing different possibilities, from one day or week to the next, is good, because one has to be flexible when market behavior shows signs of change.
Keep accumulating physical gold and silver, especially on breaks like we are seeing. Until there is some evidence of a turnaround on the charts, there is no need to be long futures. Stay with the facts, and leave
the ego at home.