Shake A Stick At This
Here you go. More charts than you can shake a stick at. (Whatever that means.)
Let's start today with crude because I just think it's messed up. Price rallies from late June to mid-September with never once seeing more than 3 days in a row of declines. In fact, it barely did that earlier in September. You could just as easily say that it never had more than two, straight down days. And then, just as QE∞ was announced AND tensions ramped even higher in the MENA, price collapses? And it's now down for 7 of the past 8 days? We'll talk in a minute about how much of this corresponds with the surprise POSX rally over the past week but come on...7 of 8 days down for a cumulative 10+% move?? This seems very fishy, particularly when gasoline was just reaching $4/gallon in the U.S. and the presidential election is just 6 weeks away. Very fishy, indeed.
But getting back to The Pig...The question is: What the heck is going on here? Why on earth would The Pig rally immediately following the announcement of QE∞? I've spent some time thinking about this and this is the best answer I can come up with:
Remember that the POSX is an index against all other, major fiat currency. Even though it is quite clear that unlimited QE will eventually make The Pig relatively worthless versus hard assets, in the short term, the global flow of funds is actually toward the dollar and treasuries as The Bernank has effectively assured perennially-nervous international investors that there will be no default, at least not in non-inflation adjusted dollars. Against this backdrop and in the very short term, QE∞ is judged to be dollar positive. Seriously. I know that sounds crazy...and it is...but that seems to be what has happened over the past two weeks. The good news is that the POSX is finally reaching the end of the raid for this bounce as the area around 80 will once again serve as resistance. I would now expect a few weeks of volatile, sideways action before The Pig resumes its downtrend.
So, in the context of The Pig apparently being the driver of short-term events in the commodities sector (where gold and silver are incorrectly relegated for now), any gyration by The Pig seems to flow immediately into buy or sell orders for the metals. We saw an exaggeration of this earlier today. The POSX began to rally at 5:35 EDT this morning and immediately the metals began to roll over. WOPRs, programmed for profit by actual human beings, began to build up sell orders for the Comex open and....WHAMMO!....the open is ugly and short-term technical damage ensues.
So, now that both metals appear to be in short-term corrective phases, where do they go from here and where might they bottom? Before we go there I want to reiterate again: QE∞ ASSURES THAT METALS ARE GOING MUCH, MUCH HIGHER. THERE WILL ALWAYS BE, HOWEVER, BRIEF PROFIT-TAKING CORRECTIONS WITHIN THE PRIMARY TREND.
The charts below spell it out quite plainly. Let's look at gold first. Tremendous physical demand makes further downward action unlikely but I can't help but think a weak-hand clearing plunge toward $1725 is coming. Note that this type of move would also have a very pleasant impact on the short term RSI.
Silver is clearly in a corrective phase, too. Though it is holding in there quite nicely today and though it, too, is seeing considerable physical demand, the 12-hour chart sure looks like a brief drop below $33 is in the cards. I'd love to see it as I'm sitting on a little cash that is burning a hole in my pocket as I type.
Just a couple of other items to consider today. First, there's this article I found linked at the GATA site. Nothing earth-shattering, but it's a reasonably competent summary of how things may eventually play out. http://www.internationalman.com/global-perspectives/manipulation-of-the-gold-price
And I have another book recommendation for you. You've likely seen me mention before that "The Big Short" by Michael Lewis is a real eye-opener. Lewis puts the entire "2008 Financial Crisis" in easy-to-understand terms and everyone here should read it.
Lewis' new book is a follow-up called Boomerang. It's not as good as "The Big Short" but very, very interesting nonetheless. Please read it. One of the chapters describes California as Italy or Spain as they relate to The Pig and The Euro, respectively. Along those lines, look at his headline from ZH. http://www.zerohedge.com/news/2012-09-26/california-screaming-4th-muni-bankruptcy-looms-atwater
OK, that's all for now. It has taken me quite a while to type this up and now I see that the metals have rallied smartly during the interim. That's great. Glad to see it. This does not, necessarily, make this post obsolete, however. Stay on guard and look for another dip.
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