This Ain't Horseshoes

272
Thu, Aug 25, 2011 - 9:04am

They say close only counts in horseshoes and hand grenades. That certainly applies here. Monday evening, I projected that a margin hike was coming this week in gold. I thought (hoped?) that gold would be allowed to run a little bit farther before the smashdown began. I was looking for the margin hike to be tonight, not last night. If it had been, we'd have had Tuesday as a peak, not Monday, and many of us would have been able to lock in gains before the fireworks began. Alas, I was off by a day. Nuts. Close. But close doesn't count.

The pain for The Cartel had become too great by Monday evening. Their paper shorts were getting slaughtered and, with the technical picture so rosy in both metals, they were looking to really take it up the bahooty on Tuesday. When the Forces of Darkness saw the OI in gold rise by an incredible 10,000+ contracts on Monday, they knew it was time to strike. First, coincidence or no, the C/C/C sees their friends(?) in Shanghai raise their gold margins by 9%. This is enough to stop the runaway train at 1918 and bring it back below 1900. Then, before the Comex opens and momentum starts anew, the criminal C/C/C gets the ball rolling on their diabolical plan. They let word out to a few of their friends (traders, hedgies and algos) that "there might be some headlines that will interest you after the close on Wednesday". Down goes gold. Gold begins to recover mid-morning and it looks like there might be hope. At about noon, you drop the hammer by telling a few more "friends". Gold seriously drops and, when it's all said and done, it finishes the day down about 5% from the overnight highs of the previous day.

I wrote Tuesday afternoon that I would be "flabbergasted" if a margin hike wasn't announced that evening. I felt this way because the C/C/C had already created the necessary volatility to justify one. Ahh...but they weren't done. Why hike margins Tuesday when you can use the fear of the hike to scalp another $100 from gold on Wednesday? And that's exactly what they did.

So, where do we go from here? I may end up looking foolish but I think they're done. I don't expect 3 more hikes over the next 5 days like we saw in silver in May. Why, you ask? Purpose and mission.

In late April, speculators were the primary drivers of price and had squeezed The Evil Empire into a corner. The specs had to be driven out and taught a lesson. The EE also needed time to regroup. This led to the 5 hikes in 9 days and a 35% drop in silver from which it is still recovering. This last run in gold was entirely different. As pointed out here and by others much smarter than I, the OI and CoT numbers for gold over the past three weeks have shown that the primary driver of the last $250+ in gold has been short-covering by The Cartel, not specs. As stated last week, this is why all of the "bubble" talk in gold is nonsense and those spouting it should be permanently ignored. Bubbles form in excess speculation, not short covering, and the data clearly showed that this was a short-covering rally. Given that gold rallied $250+ on the backs of Cartel short-covering and given that The Cartel is a primary member of the C/C/C and given that this entire episode was designed and implemented to relieve the short-covering pressure on The Cartel, it is logical to assume that the target of this attack is to get gold back down to where all the pain began.

Where is that? Well, you can clearly see it on the charts. Three weeks ago tomorrow, S&P announced they were downgrading U.S. debt to AA+. Recall that this even caught The Turd by surprise. On Sunday night, the 7th, gold gapped open higher and never looked back. (Except for the period around the first, damage-control margin hike on the 11th.) The banks know the true significance of the ratings downgrade and they began to furiously cover their long-held short positions in gold. However, it got away from them and, by late last week, the technical picture in both gold and silver had begun to look so swell that hedgie and WOPR money was beginning to rapidly stream into the pits. It had all the markings of a serious short squeeze and the C/C/C was forced to act. Unfortunately, they acted one day too soon.

So, where do we go from here? After reaching down to 1705 a few hours ago, gold has since recovered to about 1730. That could be it. This could easily be a "sell the rumor, buy the news" type of event. Seriously, which fundamentals have changed? The debt? The deficit? Europe? The key number to watch looks to be 1750. A move above there would give me some measure of confidence that the storm has passed. Do not be surprised, however, if gold makes a run down to fill that gap on the chart from Sunday, the 7th.

In silver, I do think the worst is over. It reached down last night and touched the bottom end of the channel we drew for you yesterday. That overnight drop to 38.76 ought to do it. IF gold drops again and tries to fill that gap, I do not expect silver to make new lows. Again, I am very excited about silver here. The C/C/C have evened to great degree the "leverage balance" between silver and gold. This will serve to drive some interest back into silver in the coming days and weeks. I expect we'll see silver eclipse again sometime soon. Not ready to go into full prediction mode yet, though. Let's be 100% certain that this "event" is over before we go there.

That's all for now. More later this afternoon. TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

  272 Comments

Justin
Aug 25, 2011 - 9:40am

How about sub-$18.00 silver by December?

If silver continues to mimic the price action during the same 14th month period in 2008 then we are currently at our highs and about to get a serious haircut. I'm not trying to be a Super Bear, but after someone posted a chart link yesterday(think it was Turdle GG or Dr. Durden) I couldn't help but to throw together some charts of my own last night.

The original link: https://static.safehaven.com/authors/nouf/22243_h_large.png

Link to the charts I made and posted in Hi-Ho Silvers thread: https://www.tfmetalsreport.com/comment/509872#comment-509872

ndmasterTesla
Aug 25, 2011 - 9:43am

dear Tesla

I have read the Turd for several months now. I believed and listened to the previous blog when He predicted gold to $1600 before summer. My point is that incessant bullishness (or bearishness) is a bad thing.

Just because I just 'joined' and commented for the first time doesn't mean I haven't been around nor that I am a fool, that your sarcasm would suggest.

Who elected you the Turd police?

Shill
Aug 25, 2011 - 9:44am
Violent Rhetoric
Aug 25, 2011 - 9:44am

Tech points 30 DMA ~1697

Tech points

30 DMA ~1697 (I'll buy some here)

next (61.8%) annual Fibonacci level of 1652.10

90 DMA 1581

50% Fib is 1571.35.

38.2 fib level of 1490.60

Mudsharkbytes
Aug 25, 2011 - 9:44am

Sub-$18.00???

I'm not so whuppy with charts, but I have a sense that if silver even tried to go that low the physical buying frenzy that would ensue would, essentially, buffer silver from such a low price.

ScottJ
Aug 25, 2011 - 9:45am

The Bernanke

Early morning action is just flushing out all hands that were caught off-guard by margin requirements, and once the artificial selling has ceased, I expect this train to keep on riding up. The Bernanke will not disappoint tomorrow, he will surprise.

Market has Expectations that he does QEIII

Market has Expectations that he does Operation Twist

Market has Expectations that he does Nothing....

--

I expect it to be nothing that the analysts are talking about... but definitely not nothing...

--

On a side note, very well done post Turd. Educating all who wish to learn. Bravo.

¤
Aug 25, 2011 - 9:47am

peace

peace

Colonel Angus
Aug 25, 2011 - 9:48am

I'm calling for a FUCME

I think gold drives higher today and then goes on from there. Will call for a 1750 close and 40 on silver at 1:30pm. For some reason the Bernank wanted things to be down (maybe so that he could say inflation is in check without being called on the price of the PMs.) Enough of us are thinking that we'll get it in the Jackson Hole tomorrow because now QE3 would be a "surprise" that would make the market go up. I think he gooses the banks a little more to try to get them to lend. We see the end of the interest on excess reserves as well as a "we're watching with a helicopter and a printing press already gassed up."

Some Colonel Angus, then some FUCME. Sounds like a good day to me...

Dr G
Aug 25, 2011 - 9:49am

ScottJ, thanks for your

ScottJ, thanks for your comments re: The Bernank. I can't help but feel he is ready to screw the PMs all over again.

Scisco
Aug 25, 2011 - 9:50am

Something to Consider

Hi Turd let me start by thanking you for your work and effort into creating this community. If I may, I would like to point out a few things. First I would like to start with Silver and the 144 daily SMA

Notice how after the correction silver retraced all the way back to the SMA.

As for Gold we still have a ways to go.

Finally, thank you Fulgurite for pointing out that the LBMA is closed on Monday. I would like to add that Canadian markets are closed as well. Reminds me a little too much of what happened to silver no?

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