With just a little over 24 hours to go until the Globex re-opens, I thought I would chime in with what I expect tomorrow night. Many are concerned that current circumstances in gold resemble silver from the first weekend of May. If you're not sleeping well out of concern for tomorrow, The Turd is here to put you at ease.
Yes, there are enough coincidences to make you nervous. Back then, silver had had two margin hikes. So has current day gold. Back then, the following Monday was a UK bank holiday. This coming Monday is a UK bank holiday,too. Throw in Hurricane Irene and the current, possible H&S top formations on the charts and you've got all the ingredients of a sleepless night.
However, there a couple of significant and crucial differences. First, the second silver margin hike was effective at the close of business on Friday, the 30th. Traders had all weekend to panic into Monday. The second gold margin hike was last Wednesday and it's safe to say that, after yesterday, it is behind us.
Next, the OI picture is significantly different in both metals from May. On Friday the 30th, total gold OI was over 532,000 contracts. Silver was already down about 15,000 from its high but still was around 130,000. Where are we today? Gold has an OI of 514,635 (3% less) and silver stands at 118,443.
Lastly, look at these charts. Here are intraday gold and silver from April 30:
I remember this day well. As you can see, gold rolled all day and finished at a new alltime high. Silver just would not participate. I remember, at about noon, thinking that silver was a great buy because it was bound to "catch up" to gold either on the Globex or on Monday. It seemed very strange that, as hot as silver was, gold was up 2% and silver was flat. In hindsight, we all know why silver was unchanged. The smart money was getting out while the dumb money (mine) was getting and staying in.
Compare those charts to the two below. These are the intraday charts from yesterday.
As you can plainly see, there is no resemblance at all. Silver was a little sluggish but that was mainly due to the fact that it had run up so much on Thursday. Anyway, the object of attention here is gold and the gold chart from yesterday is completely different from the silver chart of April 30.
Therefore, regardless of how eerie the situation feels, it is not deja vu all over again.
That said, don't expect wine and roses on Monday. As predicted late last week, the metals have rebounded right to points where The Cartel can attempt to create head-and-shoulders tops. I don't think I can ever remember a time when, given the opportunity to paint the tape, The Cartel did not pounce. Early next week could still get a little dicey while The Forces of Darkness make their moves. Frankly, I hope they do. Ole Turd has built up a little warchest of dry powder and I would love the opportunity to buy another dip.
Lastly, I sense that the big story of the next couple of weeks will be the POSX. The Pig is playing a dangerous game of lower highs versus a baseline of critical support. This all looks to come to fruition sometime next week or after Labor Day. Note on these charts that the current decline began from a high on July 12. Recall that the current rallies in the metals began about a week earlier. If we are going to see a continuation of this powerful PM rally through the fall, it will likely be upon the back of a broken down Pig. The Sep POSX closed on its lows (73.77) Friday and it really needs to hold 73.50. Once that fails, critical support is at the lows of early May of 73.32. Below there, The Pig will find support near the ultimate lows from March 2008 between 71 and 72. Below there be dragons.
OK, that's it. I'm going to go fix myself a stiff Hendrick's and tonic and begin to pray that I'm right about tomorrow. See you then. TF