Gold and Silver Looking Good; Caution Warranted

So, there you have it. The technocrats of Europe have spun up a deal to prolong the illusion that all might one day be well. This was expected simply because a default cannot be allowed for the reasons we laid out yesterday. The fiat currency reaction has been muted but the metals are rallying, regardless, due to the money creation that will be the end result of this latest "bailout".

I'll dispense with the news and analysis this morning and simply head to the charts. First, here's gold. Until and unless gold is allowed to trade through the top end of its range, there is no real change. On balance, the slide since the BLSBS report seems to have run its course and gold has made a nice, little bowl-shaped bottom on this chart. Now, I expect a punch toward the early February highs of 1760 or so. There, you'll find The Forces of Darkness waiting. Look for them to drop the hammer and attempt to drive gold back down to 1730-35. IF this comes to pass, I'll be ready to buy.

paper_2-21amgold8.jpg

So, now, here's The Pig. This chart is all-important as it is still acting as an inverse to silver and silver is my primary concern, right now. Note that Pigatha, after attempting to break out last week, has fallen right back into the middle of its range that began about a month ago with the FOMC minutes.

paper_2-21ampig8.jpg

Again, compare the chart above with the chart below. Any dollar strength translates directly into silver weakness and vice versa. Predictable, yes, but very frustrating. I would much prefer that silver trade on its own fundamentals, instead.

paper_2-21amsilv8.jpg

OK, so now here's the problem. I must admit to having read some other websites and emails where the authors claim that silver lease rates have nothing to do with price and should be ignored. Who knows, maybe they're right. Most of those folks are way smarter than I am and, from a long-term perspective, it all comes out in the wash, anyway. However, if you're trading or looking to swap some more fiat for physical soon, you absolutely must be cognizant of the chart below. As you can plainly see, the last two dips below -0.40% in the one-month lease rate have been followed within a week by steep drops in paper price. Additionally, last Friday's CoT showed another increase in the net short position of the EE.

If a significant raid materializes later this week or early next, I would look for silver to cascade down to at least 32, though 31 would be a possibility and 30 would not be out of the question. IF we can get that to happen, it would be an extraordinarily wonderful buying opportunity. The daily chart would have a long-term reverse H&S painted upon it and we could all aggressively buy with a very high level of confidence. Therefore, be patient and cautious. Let's see how this all plays out.

paper_2-21amlease.jpg

Speaking of massive, reverse H&S breakouts, take a look at this long-term chart of crude. The rally from Monday stopped at $105 and that is significant because a close above there clearly foreshadows a run to $115 and, beyond there, the old highs of 2008. Gasoline prices in the U.S. are already reaching $4/gallon in some places and even $5/gallon in California. And it's only February!! Combine $115+ crude with summer driving demand and you'll see $5/gallon gasoline nearly everywhere. "Big deal", you say, "I don't drive that much anyway". Ah, but it is a big deal! Nearly everything in this country is grown, manufactured, packaged and transported through the use of petroleum products. Already our cost-push inflation is averaging 10% on staple items. In a few months, it might be annualizing at 20%+. Combine that with $5 gas and you've set the stage for what could be major and serious civil unrest later this summer.

paper_2-21amcrude.jpg

As I close, I see that gold is 1756 and silver is 34.15. I strongly urge you not to chase here. Buying high and selling low is the primary way that metals traders get cleaned out. I, for one, am watching from the sidelines and waiting to see where we go from here.

TF

74 Comments

Zenith's picture

First

maybe....

cliff 567's picture

1st first

1st

Tada

Doah

Bugzy's picture

Not me!

Surely. DOH! not first.

Be Prepared's picture

The Gods of Thunder and Lightning

are rattling the cages of the market!

Turd,  I agree with you that chasing this market mid-move could get you upside down quickly.  It's interesting that the silver lease rate may be indicating a pull back, but it's entirely believable.  I wonder how much silver is really left in the comex... the world may never know (at least, for now).  Thanks for putting together a great mid-day post!

Eric Original's picture

To the Victor go the spoils.

To the Victor go the spoils.  Hat Tip to Zenith, cold gruel for the rest....

Desert Fox's picture

Race for first at TF Metals

As you can imagine, I'm not even in the photo. lollaugh

OK, Let's get serious about a hard push past 1770 with some room to spare.

Let's get this party started. This is the week!

Fulgurite's picture

First?

F*cking children!

brad_pitts_betterlooking_brother's picture

maybe you are after all, fox.

the guy furthest to the left in the white shirt...

no, not winning 

about to be lapped  ;)

little confidence this move will have legs tf?

The8thHabit's picture

PSLV Premium Up

Not sure if/how that relates to the action in PM this morning but PSLV premium is up 1.7% as of 11AM EST

lairdwd's picture

They can't even push it down for the LBMA close

Freaking AWESOME action! Let's get that final push up to 1760/34.5 before the crimex close.

sniem's picture

The Greek Parrot

‎"Oh yes, the, uh, the Greek debt...What's,uh...What's wrong with it?"

"I'll tell you what's wrong with it, my lad. it's in default, that's what's wrong with it!"

"No, no, it's uh,..it's getting a 'haircut'.

"Look, matey, I know a default when I see one, and I'm looking at one right now.

"No no it's not a default, it's a haircut'. Remarkable bonds! , the Aegean Blue, idn'it, ay? Beautiful C rating !

Exbroker's picture

Spoke with my metals guy in Pasadina, CA

Trying to get the lay of the land in the retail sector. No buyers...no sellers...dead in the water. surprise

junoroland's picture

Poor America- Panorama Report from BBC

man this is depressing. bbc made this feb 13th. as bad as things might be in ireland we aint seen nothing like this. 

lairdwd's picture

Turd - I too did a bunch of research on negative lease rates

Here are my observations

1) Negative lease rates have much more meaning with gold than silver

2) There is a much higher degree of correlation when gold lease rates "dive" in a short time frame, versus a slow gradual descent, like we see in silver now. That means the central banks want to push gold lower.

3) There are different thoughts and opinions to the significance.

4) I can't seem to get a straight story with the significance to silver. It's supposed to be indicative of high liquidity, yet Ted Butlar, et. al - seem to think that silver is in a LOW liquidity situation.

5) Today's price action in silver SUCKS - which gives more credence to a possible raid down the road. It should be at 34.20 to 34.5 right now. Let's see what happens later today.

6) The lease rates published by LBMA aren't the real lease rates that are used, they are an approximation.

In summary, when I see the gold lease rates take a dive, like we saw in December - that's the time to get out of gold, and the same can probably be said for silver.

Alex's picture

Caution

Caution is certainly warranted this week.  Lots of pieces to the puzzle in play.

Lease rates -40% are one concern if recent history is a window to future direction but as some have said, it could also be bullish.  I can't discount the past charts so I don't discount the possibility that while a negative lease rate may itself not be cause for silver prices to decrease, it could most definitely be a signal/reason for TPTB to apply air brakes shortely thereafter.

At any rate, the long term downtrend is possibly the biggest cause to be cautious this week.  The line is at $34.90 today through $34.70 later this week and algos will be in a hizzy.

I do find it interesting that all these pieces are falling into place around the time that silver would touch that trendline. 

boatman's picture

RICKARDS

dissing Jim cause the govmint paid him for some work is like saying ron paul is not a good guy 'cause he's a congressmen.

Pining 4 the Fjords's picture

Thanks for the update Turd

I bet Mr. Hyde is crowing about his UCO calls right about now. Being long commodities in general seems like a good play through the summer, but I would love to hear from Art Lomax what the skinny is on grains... Charts and fundos for ag commods look really good to me, and could pay off nicely if the Fed gins up some election year inflation. Art, you out there...?

Thanks to Zoltan and Paulindoon for answering my question about a website showing max pain for Op Ex... Gracias amigos!

Turd Ferguson's picture

I agree

MODERATOR

Thanks, laird.

Silver could very easily continue higher from here and all will be well. However, with the growing EE net short position and 1-month rate at -.40%, we've got to be cautious.

I have a hunch that silver will be allowed to rise toward $35. This will suck in a few extra, fresh longs to the party and $35-35.50 is a very key resistance level. IF that happens and lease rates spike lower to -0.45% or so, I'd be nearly positive that a raid is coming.

Again, be cautious.

Dr G's picture

Turd gives sage advice to

Turd gives sage advice to watch where this is going, however I had to purchase physical today. Days to purchase phyzz for me only come around once in a life...ahh, who am I kidding? Days to purchase phyzz come around every Tuesday, Thursday, and Saturday. :)

Exbroker's picture

I have you beat

This is even more depressing:

The whole crew at TFM should watch this before Janet has it pulled from YouTube

#!

This is sad, and treasenous

Dr G's picture

To add to Turd's post, silver

To add to Turd's post, silver lease rates have now risen by .0483 which puts them at -0.3562. So, for today at least, the 1-month lease rates are moving higher, not lower. ​Could be a trap, I dunno, I'm not smart enough to figure it out. All I know is I just scored ASEs for $1.50 over spot online. Good enough for me.

See the specific lease rate changes for all metals here: http://www.kitco.com/market/LFrate.html

Turd Ferguson's picture

Alex, good stuff

MODERATOR

Though I think the trendline needs to be drawn just a shade higher, putting it right now at about $36.

You can plainly see on your chart where The Battle Royale will be. Soon, that trendline will intersect with the key $35-35.50 resistance area and the 200-day moving average. 

​That will be The Battle of Battles. Once we break through there, IT'S ON!

Response to: Caution
Turd Ferguson's picture

Re: Art

MODERATOR

I've asked him to cook up a "guest post" just in time for planting expectations, etc in March. He's working on it now so look for it in a few weeks.

For those interested in this stuff, there's an ETF with the symbol DAG. It is 25% corn, 25% wheat, 25% beans and 25% sugar. Might be a fun and simple way to fiddle with the ags this spring.

http://finance.yahoo.com/q?s=dag&ql=1

The8thHabit's picture

RE: lairdwd

lairdwd said: 5) Today's price action in silver SUCKS - which gives more credence to a possible raid down the road. It should be at 34.20 to 34.5 right now. Let's see what happens later today.

I completely agree that there could be a raid any moment and price of silver may dip. But why do you find that the "price action in silver SUCKS" as of 11:23AM this morning when silver is the third best performer of the day just next to the Copper and Cocoa? Just trying to understand whether I'm missing something...

Caution is required though I'm more than agree!

Sean Connery's picture

I'll take Trebek's mother for $100

Oh well, bought 1 gold and a hundred silver maples last night but no interest on my credit card until apr. 2013!

Turd Ferguson's picture

please read

MODERATOR
Turd Ferguson's picture

Also, given that there was NO

MODERATOR

Also, given that there was NO Cartel raid at 3:00 am OR 8:20 am should give you pause, too.

Allowing it to rise to suck in a few more spec longs??

Response to: RE: lairdwd
Dr G's picture

This article on ZH from the

This article (charts) on ZH from the Tylers is a must read in my opinion: Dow passes 13000 in nominal terms, here is the real picture

Note that when valued in our beloved gold, the Dow is down 50% since May 08.

GoldMania3000's picture

Long Options

Last summer I bought December 2013 gold options 1750-1800.  I sold half last time we got toward 1750 and sold the remaining today. I don't want to get greedy and want to take profit. Yes gold may go up to 1900, but i still have coverage at the higher range.

My point is that with all this back and forth over the past 8 months, etc. I had coverage and knew that we would get back to a point where I could sell.  My strategy is now to wait and hold some cash to buy more later. 

Irene's picture

Real life

Can't wait to hear about cost-push inflation in the MSM.  They'll probably accompany it with howls demanding the government freeze prices again once things really heat up.  For anybody who didn't live through the 70s, get ready for fun times.  For many already-beleaguered businesses across this country, this will be the death knell.  Not good, not good.  I was a young teen, my dad died in '72, and I had to manage one of the businesses.  On a weekly basis, prices would jump so much that sales revenues from the previous week (with normal profit margins) could no longer replace sold inventory, let alone cover other costs.  We had a lot of foreign goods and sometimes I would just stare at the salesmen - prices having doubled and tripled since their last monthly visit.  We made it through just by sheer stubbornness.   It's a very fine line to walk and very stressful.  Constant judgments being made on every item purchased and how much you think it's going to go up, how much you think you can charge your customers without losing them, etc.

So many variables, so little time.  I don't miss those years at all.  (I think I read that in CT it is still illegal to reprice merchandise that is on the shelves.) 

Did I mention the upswing in crime?  Not surprisingly, there was that too, big time.  Gangs + drugs + frightened citizenry + ineffective government.  Diabolical schemes left people shaking and stunned.  As an example, one gang, claiming that they had reformed, made a deal with the city (!) and offered to paint the apartments of inner-city seniors,  for free!  Yes, they did that, and then all those seniors were robbed and worse.  Changes were happening throughout society and people were just plain unprepared for what was happening around them.  This time around, it'll be a lot worse. 

While it's true that inflation is terrible, what it really represents is the failure of a society.  It's not just the economics, that is just one of the final symptoms.   A million choices brought us to this point.  We could have stopped it many, many times.  And now we can't.    

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