The Impending Bottom in Gold and Silver
What a difference a week makes! Just last Tuesday, this site was aflutter with expectation and hope. Silver appeared to have won its "Battle Royale" and was threatening to take gold along with it through stout Cartel resistance. Ehhh....not so much. So here we are, one short week later, and despair reigns supreme, replete with frustration and fears that our precious precious metals are about to swoon to levels not seen since 2010. I'm here to tell you that that is complete nonsense.
First of all, a little something I've got to get off my chest. Since this little endeavor began 17 months ago, I have never been anything but upfront and honest with you. In one of my very first posts, I explained the reason why my version of technical analysis works. Namely, because the PM "markets" are so grossly manipulated, basic TA can direct you to buy signals and sell signals, resistance zones and support levels. So simple, even a Turd can do it.
Lately, however, its become fashionable to ridicule technical analysis. All the cool kids seem to be saying: "Charts are worthless. TA never works in a manipulated market". Hmmm. Isn't it interesting that that seems to be 100% opposite of what I've always claimed? Interesting, too, how these comments seem to multiply during periods of price weakness. But I digress. All I can tell you is that I fully believe in the value of my "abilities". Am I going to be 100% correct? Of course not! I don't work for Goldman Sachs. However, as long as The Cartels continue to dominate the paper markets for precious metal, price forecasting using basic technical analysis will continue to work.
Ultimately the question is, do you still want to play? Your #1 best option is still to stack and hold physical precious metal. Always has been, always will be. In the meantime, if you'd like to fiddle around trading, attempting to cobble together extra fiat with which you can acquire even more physical, I will continue to provide analysis, hoping to be right more often than not.
Back in December, there was reason to think that the paper game was ending. The ugly demise of MFingGlobal had frightened many traders and, more importantly, many Departments of Compliance. As you'll recall, it was very difficult to get excited about buying the late December dip because no one could be certain at the time that the "market" for precious metal would ever be the same. What if traders and investors exited the Comex altogether? Would we see total open interest in gold decline through 400,000 contracts and head toward 300,000? Maybe even 200,000? With these doubts, the entire idea of TA was dubious at best. How can you technically analyze a "market" if the "market" in question is ceasing to exist?
I believe we got our answer in January and February. Instead of collapsing, The Comex rebounded. Trading volume and open interest slowly returned. Not to the levels of mid-2011, mind you, but enough that I no longer have any doubt as to the continued viability of the Comex paper metal platform. (Let me put that in English. Instead of abandoning the Comex, large spec money returned en masse once the metals began to generate some upside momentum. Those specs are currently being fleeced again by The Cartels but, as sure as spring follows winter, they will return again once price bottoms.)
So, now that I've made it clear to you that I continue to fully believe in my technical analysis ability and now that we know that, fundamentally, nothing has really changed post-MFG, it's time to start looking for a tradable bottom to this latest Cartel-induced fiasco.
Before we get to the charts, I urge you to click the link below. The post to which you'll be directed is a little something I cooked up back in early January, the last time we went bottom-searching. Please re-read it now as a sort of primer for what I'll present to you next.
Look, I'll cut to the chase: Gold and silver will soon reach a bottom for this manufactured "correction". Of this, you can be certain. Silver is not going to $20 and gold is not going to $1250. They're just not. The awareness level is now too great for that to happen. Global investors and central banks see what is coming. They know that The Great Keynesian Experiment is ending and, with it, our reliance upon unlimited fiat money. At a certain price, physical demand will always appear and paper price will bottom and trend higher. Period. All of the never-ending, deflationist nonsense has nothing to do with the long-term price of silver and gold. We know that The Fed and the ECB will stop at nothing when it comes to printing their way out of this morass. This continuing fiat devaluation will only serve to make physical metal more valuable, not less. Dips will be bought and price will continue to trend higher. And you can forget about The Cartels rigging price down to zero, too. As long as physical demand remains strong, paper price must be allowed to rise in tandem with physical price, otherwise The Comex and LBMA will sink into irrelevance. Since this cannot be allowed to happen either, we're left with "markets" that will bottom and will resume trading higher. Eventually.
So, the question is: How much farther can we expect price to fall in this current "correction". The answer is: A little farther. Let's begin our chart parade with daily gold and silver that also have their MACDs on them. Note that both of these charts, while beginning to look oversold, are clearly not there yet. A little more weakness in both metals ought to do the trick.
Next, let's examine the daily gold and silver charts with RSI measurements on them. Again and, as you can see, an RSI of 70 is generally considered an indicator of a short-term top while an RSI of 30 seems to indicate a bottom. Note that both of these charts seem to imply that further weakness may be needed before we get can confidently predict a bottom.
So now let's look at just a plain, old price chart. Do we see evidence that further declines are imminent? You bet! Take a look for yourself. Once gold broke 1690, it indicated a minimum further drop to around 1650. I'd say its at least heading there and probably heading as low as 1625 or even 1600. You should be asking yourself: Would a further drop of that magnitude move both the MACD and RSI into oversold (bottom) territory? The answer is: YES!
Silver, same deal. By taking out 32.80 today, the chart now indicates a further drop to at least 32, maybe even 31. Heck, if The EE really hits the gas and gets a little headline "help" out of Europe, $30 silver isn't out of the question. Again, would a drop toward $31 bring the MACD and RSI into the "buy zone"? Yep.
I could go on but it's late, I'm tired and I have to go pick up LT#1 from ballet class. Let's just leave it at this:
What we are currently experiencing is nothing more than another Cartel-manufactured fleecing of the momentum-chasing, WOPR-oriented spec longs that flooded into gold and silver in the 2nd half of February. The Cartel was forced to act when price reached the critical "Battle Royale" zone on the price charts, documented here days and weeks in advance. Price will soon bottom and begin to recover. Therefore, do not let your heart be troubled. Owning physical precious metal is your only protection against the financial calamity and reset that is coming. Please do let let anyone, on this board or elsewhere, convince you otherwise.